One Year into the Inflation Reduction Act: Significant Benefits Unlocked, and What Comes Next
August 16, 2023
By Todd N. Tucker
Today, August 16, 2023, marks one year since the signing of the Inflation Reduction Act (IRA), the Biden administration’s signature legislation to fight the climate crisis, lower drug prices, and ensure corporations pay what they owe in taxes.1 In the decade to come, implementation of this law will shape US markets and livelihood in ways that will ripple for generations. Roosevelt’s research over the last year has shown the significant benefits the IRA has unlocked—and could unlock—and points to where we must go further.
A Boom in Real Economic Activity across the US
After decades of stagnant private investment and declining public investment in the real economy, the US is building again. Investment in construction of manufacturing facilities has doubled from 2021 to 2023, compared to an increase of a mere 2 percent from 2017 to 2021. The contribution to GDP from manufacturing construction is the highest since 1981, according to the Council of Economic Advisers, while the overall levels of inflation-adjusted private investment in manufacturing are the highest since modern records began in the 1950s.
This activity is the byproduct of public policies that are ambitious by historical and international standards. In just one example, as of early August 2023, the Department of Energy’s Loan Programs Office reports 157 active applications for clean energy projects, amounting to nearly $140 billion in loans. While we do not have precise numbers on which firms plan to claim clean energy tax credits for which projects, we know that nearly $300 billion in public investment is helping catalyze $503 billion in private investment in 21st century industries like clean energy. Analysts at Credit Suisse and Goldman Sachs estimate that the total amount of clean energy spending by the public and private sectors by the end of the decade could be between $1 and $3 trillion.
To be clear, not all of this is caused by the IRA alone. Indeed, other policies like the Infrastructure Investment and Jobs Act (IIJA) and CHIPS and Science Act (the latter also signed in August 2022) are also playing a complementary role. The boost to semiconductor operations will help with electrification and the clean energy transition, and there have been 460 applications for CHIPS funding, and over $166 billion announced in private investment in chips facilities.
An Opening to Build Power
The rise of a new era of public-directed investment is being called Bidenomics—a term referring to a basket of policies that also includes measures to boost the power of labor and limit corporate concentration. The through line of Bidenomics is that power and resources have become much too concentrated in the hands of economic elites, at the expense of the working and middle class. Bidenomics not only helps address specific challenges like pandemic-wracked supply chains or rising income inequality; it is also politically popular, with the public in favor of investment in clean energy and electric vehicles by two-to-one margins or more, with labor union support at record high rates, and with a majority of Americans favoring breaking up tech monopolies that have become too powerful.
The Biden administration has shown it understands that building power and good policy are complementary, not contradictory. This is a stance backed by research that shows what an IRA 2.0 agenda could look like. In August 2022 (just days after the IRA was signed into law), our own Lenore Palladino and Isabel Estevez argued for the value of corporate guardrails in industrial policy lending. At the same time, I wrote with Arnab Datta, Ashley George, and Joel Michaels about little known tools of the administrative state that could turbocharge industrial policy projects while building greater state capacity. Later in 2022, Joel Dodge, Palladino, Michaels, and I identified how one of those tools—the Defense Production Act—provided forms of legal preemption that could override elite NIMBY objections to clean energy projects. In May 2023, Estevez reviewed lessons that economic development scholarship has for connecting power and structural change. Finally, in events in October, March, and April, Roosevelt Institute scholars and other researchers and policymakers showed what progressive industrial policy, progressive permitting reform, and an all-of-government approach to public investment could look like.
Taken together, there is a growing body of theory and practice on how public-led investment can rebalance power in economy and society, while helping to build faster. The work ahead is considerable, and includes boosting unionization rights and making investments in the care economy that can further unlock worker productivity.2 While there is more to be done, the IRA is a key part of Bidenomics’ effort to rebalance power in our economy, by embracing the role that government can play to create and shape the markets and industries our country needs to thrive.
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1While this post is focused on the clean energy provisions, it’s worth noting that the IRA’s drug-pricing provisions are projected by the Congressional Budget Office to reduce the federal deficit by $237 billion over 10 years. Meanwhile, they could save 1.4 million Part D enrollees $1,355 per year, or 40 percent of their annual out-of-pocket costs. Some who take high-priced drugs for conditions such as cancer or multiple sclerosis would save $3,567 (64 percent) in out-of-pocket costs. Finally, the IRA’s provisions on a new 15 percent minimum corporate tax rate could raise $222 billion over the decade from around 150 of the world’s largest corporations, while the buyback excise tax is estimated to raise $74 billion, and the IRS modernization funds from the IRA will look to close the yawning $600 billion annual tax gap.
2For further reading on the complementarity of power and policy, and the further progress that is needed, see other post-IRA Roosevelt Institute research on inflation by Joseph Stiglitz and Ira Regmi; market power by Mike Konzcal (based on earlier research with Niko Lusiani); labor by Alí Bustamante and Hiba Hafiz; banking access by Emily DiVito; innovation by Ketan Ahuja, taxation by Lusiani and guest authors; full employment by Andrew Elrod; banking regulation and climate change by Yevgeny Shrago and David Arkush; pension funds and climate change by Palladino, Jordan Haedtler, and Kristina Karlsson; climate reparations by Adrien Salazar; and environmental standards by Jamie Pleune. The latter topic was elaborated on in a recent essay by Rhiana Gunn-Wright and Karlsson.