The Inflation Reduction Act (IRA) has introduced several new tax breaks, many of which are proving to be more costly than initially anticipated. Repealing these subsidies is a key consideration for policymakers aiming to extend the expiring tax cuts from the Tax Cuts and Jobs Act (TCJA). However, some Republican lawmakers have expressed support for certain IRA provisions, making full repeal challenging. House Speaker Mike Johnson (R-LA) described the approach to IRA reform as "somewhere between a scalpel and a sledgehammer."
The Tax Foundation, a nonpartisan tax policy nonprofit, recently analyzed the proposed reforms to the Inflation Reduction Act. In its assessment, the organization raised concerns about the potential economic impact of the reforms, including how changes to energy tax credits and corporate taxes might affect investment and growth. The foundation emphasized the importance of maintaining a stable tax code to encourage long-term business planning and development.
Cost estimates for IRA credits vary significantly. The latest Treasury expenditures report projects that IRA green credits will cost $1.16 trillion from 2025 to 2034. Other estimates suggest even higher costs due to different assumptions about technology adoption and regulation.
The potential savings or revenue raised from repealing these credits is not straightforward. Tax expenditure estimates do not account for behavioral changes among taxpayers or interactions with other tax provisions.
One option is the full repeal of IRA green energy tax credits, estimated to raise $851 billion over the next decade. Another option targets specific provisions, focusing on eliminating less effective credits, potentially raising $295 billion.
A third approach involves reforming existing credits by removing additional subsidies while retaining core incentives, which could raise $207 billion. A more aggressive option would involve repealing most of the IRA's credits while keeping certain provisions intact, potentially raising $746 billion.
Uncertainties remain regarding these estimates, particularly concerning projected costs of electric vehicle (EV) credits and potential changes in EPA regulations.
Information from this article can be found here.
