4 Ways the Inflation Reduction Act Can Benefit Your Wallet
Written by
Adam Palasciano
Edited by
Amber Barkley
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Since the onset of the COVID-19 pandemic more than four years ago, the U.S. has experienced 40-year record-high inflation that has just now started to cool down over the past several months. As per the U.S. Bureau of Labor Statistics, inflation as of October 2024 was hovering around 2.6%.
This is a huge change from June 2022, when the Consumer Price Index (CPI) peaked at a whopping 9.1%, according to the U.S. Bureau of Labor Statistics. This represents the largest 12-month increase since the 12-month period ending November 1981.
However, inflation didn’t just simmer down on its own.
The Inflation Reduction Act
The Biden administration took action over the past several years to tackle rampant inflation and lower costs for everyday Americans. One way the administration did that was through the Inflation Reduction Act (IRA), which was signed into law in 2022. Key provisions of the bill are directly aimed at improving the lives of the American middle class and easing financial burdens in a post-pandemic economy.
There are three key ways that the IRA lowers inflation:
- Lowers costs for health care, prescription drugs and energy
- Decreases overall demand through a fairer tax code
- Increases supply through investments in manufacturing and clean energy.
Now, here’s a further breakdown of how the Inflation Reduction Act can benefit your wallet, according to The Center for American Progress and the White House.
Medicare Can Negotiate Lower Prescription Drug Prices
The IRA not only allows but requires the Centers for Medicare & Medicaid Services (CMS) to negotiate with drug companies so that they can no longer take advantage of Americans, who, as of 2021, paid two to three times more for the same medications than people living in countries with comparable economies, according to the Rand Corporation.
This key provision aims to tackle corporate greed in the pharmaceutical industry and put more money back in the pockets of aging Americans.
Capping Out-of-Pocket Prescription Drug Costs for Seniors
In addition to Medicare’s ability to negotiate prescription drug prices, the IRA caps the annual out-of-pocket cost of prescriptions for seniors with Medicare at $2,000, which is projected to save over 850,000 seniors about $900 per year, the Robert Wood Johnson Foundation reported in 2022.
Additionally, the out-of-pocket cost of insulin for Medicare recipients with diabetes is capped at $35 per month.
Decreased Energy Costs
The IRA helps Americans switch from fossil fuels to cheaper electricity for home heating and cooking by providing middle-class Americans with tax credits. The Rhodium Group estimated that the average household will save $500 per year by 2030, with households that don’t make the switch also seeing lower electricity and natural gas prices.
Electric vehicle tax credits are also available for the purchase of clean vehicles that are made in North America.
Builds a Fairer Tax Code
The IRA sets a 15% minimum tax for corporations with at least $1 billion in annual profits. Additionally, the bill also includes a 1% tax on corporations that transfer their profits to shareholders rather than invest directly in their employees or back into the business.
Additionally, increased funding allows for more audits of U.S. households earning $5 million or more annually, with the aim of enforcing the tax code more fairly.
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