New Inflation Reduction Law Won’t Bring Inflation Down – But It Could Save You Money – Nasdaq | Gmx Pharm

AAfter a year of fighting, Senate Democrats are now working to pass legislation that could reduce the cost of prescription drugs, health care premiums and energy for millions of Americans.

The $369 billion package known as the Inflation Reduction Act is essentially a stripped down version of President Joe Biden’s massive Build Back Better Social Spending agenda. Aside from that, this iteration has one notable perk: the approval of Democratic holdout Senator Joe Manchin III of West Virginia. That and the approval of Senate Majority Leader Chuck Schumer suggest the proposal could soon become law.

The proposed legislation does not include funding for many of the pillars of Build Back Better, such as: For example, expanded child tax credit payments, universal preschools, or more affordable housing.

However, the Inflation Reduction Act could have far-reaching economic implications for the U.S. as it aims to address the climate crisis, lower drug prices, increase taxes on high earners and billion-dollar corporations, and expand healthcare subsidies — and that all while reducing the federal deficit.

Here’s what else you need to know.

Will the Anti-Inflation Act bring down inflation?

One of the reasons Manchin said he was opposed to a bigger spending package was that he feared it would exacerbate inflation, which is at a four-decade high (9.1%). “America cannot fund its way out of debt or inflation,” he said in a statement on his website.

For the IRA, Manchin reportedly sought reassurance from Larry Summers, an Obama-era economist and Treasury Secretary, that this was not the case Add to the inflation rate. But will the anti-inflation law actually lower Inflation, as the name suggests?

Not really, say economists and researchers from the University of Pennsylvania.

The Anti-Inflation Act “would increase inflation very slightly until 2024 and decrease thereafter,” they wrote in a report released on Friday. “These point estimates are statistically indistinguishable from zero.”

Analysts from the University of Pennsylvania noted that the legislation would reduce the federal deficit by about $250 billion by 2031. A separate estimate by Senate Democrats said the deficit reduction would be more than $300 billion.

A federal deficit occurs when the state spends more money than it takes in through taxes. The Biden administration often suggests that reducing the deficit would curb inflation, but experts say it’s more complicated than that.

“There is no simple link between deficit and inflation,” Glenn Hubbard, a professor of finance and economics at Columbia University, recently told the New York Times. “You have to look at both the demand side and the supply side of the economy.”

How the Anti-Inflation Act could affect you

The current version of the Anti-Inflation Act contains many major innovations for health, climate and tax policies that affect companies, federal authorities and manufacturers.

However, a few key areas impact the everyday consumer. They include:

1. Extended health care

The IRA subsidizes premiums for people who receive health insurance under the Affordable Care Act and fall below 400% of the federal poverty line. This subsidy is already in place from the pandemic-era policy, but is set to expire at the end of the year. The new proposal would extend the subsidy until 2025.

“The bill provides lower healthcare premiums for the next three years for millions of families insured under the Affordable Care Act,” Biden said in the White House after the Manchin-Schumer deal announcement. “That’s an average savings of $800 a year for 13 million people.”

2. Electric Vehicle Tax Credits

The IRA is expanding a $7,500 tax credit for new EVs and introducing a new $4,000 credit for used EVs. Both tax credits have income caps — $150,000 per year for individual applicants (or $300,000 for joint applicants) seeking the new EV credit and $75,000 for individual applicants ($150,000 for joint applicants) seeking the used EV credit .

3. Incentives for energy efficient home improvements

The bill provides $9 billion in rebates for low-income consumers who buy energy-efficient home appliances like refrigerators or dishwashers. Also, people who upgrade a home with clean energy (i.e., installing rooftop solar panels or electric HVAC systems) are eligible for a decade of tax credits to help offset some of the cost.

Other climate-related proposals aim to encourage American companies and manufacturers to switch to green energy sources and curb emissions – while increasing domestic energy production. The logic follows that these changes would reduce US dependence on fossil fuels and reduce energy costs in the long run.

4. Medicare Prescription Drug Cost Cap

The bill would also make some big changes to Medicare, a federal health insurance program that covers more than 60 million Americans, mostly people age 65 and older. Under the IRA, out-of-pocket drug costs for Medicare beneficiaries would be capped at $2,000 per year, an entirely new rule. Those with Medicare coverage would also be able to split out-of-pocket expenses into monthly payments. Biden highlighted this provision as “a godsend to many families.”

For the pharmaceutical industry, further changes could be coming. A key provision of the IRA is to allow Medicare to negotiate prescription drug prices directly with drugmakers, a move long sought by many Democrats and advocates who want to rein in drug prices. The IRA would also introduce an “inflation rebate” rule, which would penalize drug manufacturers for raising the price of certain drugs above the rate of inflation.

What are the odds of the IRA becoming law?

With Manchin’s backing, many Democrats and analysts are optimistic that a version of the bill will eventually win the votes it needs to acquit the House and Senate. But as always, logistical hurdles make it difficult to continue.

Democrats have a razor-thin majority in the Senate, and that includes Vice President Kamala Harris’ casting vote. Through a process called reconciliation, Senate Democrats can avoid the filibuster for certain tax and budget bills, meaning the IRA could only pass with the support of a simple majority.

Still, a simple majority is not a sure thing. Alongside Manchin, Arizona Senator Kyrsten Sinema was also a holdout in negotiations on Biden’s broader Build Back Better package. Since the surprise IRA deal was announced, Sinema has not publicly supported the bill. Her spokesman said last week that the senator was reviewing the bill and Sinema had not acknowledged the IRA on Twitter or her website in the days since.

One last complication? The upcoming Senate summer recess, which begins August 8.

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