The Inflation Reduction Act is described by the current administration as a “promise to build an economy that works for working families.” But, what is in the Inflation Reduction Act and what does it have to do with grants?
First, grants are not the only funding mechanisms that will be awarded by the federal government, there are also loan guarantees, tax credits, rebates, and more.
The Inflation Reduction Act was signed into law on August 16, 2022 and it was written with the intended goals of reducing the federal deficit, lowering the costs for prescription drugs, health care, and energy, and making significant investments in clean energy and environmental programs. It is lauded by some as the most comprehensive approach by the U.S. federal government to tackle the climate crisis while simultaneously preparing American workers for “good paying, union jobs” across the country.
Clean Energy, Conservation, and Environmental Justice
The Act authorizes almost $369 billion in direct investment to attain energy security, reduce carbon emissions, accelerate energy innovation, and support environmental justice initiatives with direct funding for underserved communities.
The law includes several incentives to boost clean energy production in the U.S. First, it expands tax credits for energy efficient commercial buildings, new energy efficient homes, and electric vehicle (EV) charging infrastructure. Additional credits will be extended to businesses that pay prevailing wages and hire registered apprentices. If the companies do not follow through, the law states that they will be penalized.
The Make it in America provisions encourages the use of American-made equipment for clean energy production and expands clean energy tax credits for wind, solar, nuclear, clean hydrogen, clean fuels, and carbon capture. Again, bonus credits are extended to companies that pay their workers a prevailing wage.
Consumers also benefit from a $4,000 incentive to purchase used EVs and $7,500 to purchase new EVs that cost less than $55,000 for cars and $80,000 for pickups and SUVs. This incentive starts in 2024 and continues through 2032. The incentive applies to individuals purchasing new EVs that earn $150,000 and joint filers that earn $300,000. For those purchasing used EVs, the thresholds drop to $75,000 and $150,000 respectively.
To boost USDA-led conservation initiatives, the U.S. Department of Agriculture will receive over $46 billion. This includes:
- $20 billion in additional funding for some existing Farm Bill conservation programs
- $8.45 billion for the Environmental Quality Incentives Program
- $6.75 billion for the Regional Conservation Partnership Program
- $3.25 billion for the Conservation Stewardship Program
- $1.4 billion for the Agricultural Conservation Easement Program, and
- $1 billion for the Natural Resource Conservation Service.
The Environmental Protection Agency will receive billions to award grants to state, local and tribal governments to reduce air pollution, particularly those in disadvantaged, environmental justice and fenceline communities. $3 billion of the total will be used to award grants and provide technical assistance for “environmentally-related” activities that benefit disadvantaged communities.
Fairer Tax Code
The law plans to raise revenue by pursuing “tax dodgers,” institute a minimum corporate tax of 15%, impose a 1% surcharge on corporate stock buybacks, encourage businesses to invest instead of steering profits toward CEO compensation, and investing in improving services and operations of the Internal Revenue Service (IRS). It also prevents a tax increase on families earning less than $400,000 per year.
How will this be accomplished?
This will be accomplished by an $80 billion infusion into the IRS over the next 10 years. The $10 billion will fund a 69% increase in enforcement activities, a 153% increase in modernization of IRS systems, a 53% increase in operation support, and a 9% increase in taxpayer services.
Investing in American Manufacturing
The law will build American clean energy supply chains by providing incentives that will encourage domestic production of solar, wind, carbon capture, and clean hydrogen using US-sourced batteries, solar, and offshore wind components. For example, if American steel is used for wind energy projects and meets a “domestic content threshold,” tax credits can be gained. Even more credits are awarded if the employers use prevailing wages and apprenticeships.
To sweeten the “tax credit” deal, an additional 10% in tax credits will be granted for companies that establish clean energy projects in communities that previously relied on the extraction, processing, transport or storage of coal, oil, or natural gas as a significant source of employment.
Lower Health Care Costs
Lowering the cost of prescription drugs has been in the news for some time. In comes the Inflation Reduction Act with a phased in cap for out-of-pocket costs for prescription drugs and a $35 per month cap on the supply of insulin for Medicare recipients. Further, Medicare will be able to negotiate prices for high-cost drugs for the first time ever. Finally, health insurance premium subsidies will be extended for people who purchase insurance from the Affordable Care Act marketplace and for union members.
Grants Works will continue a review of the grant and other funding from the 16 federal agencies that have been authorized to award various funding mechanisms to make these and many other projects not mentioned above a reality.