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July 28, 2022
Senators Joe Manchin (WV) and Chuck Schumer (NY) have struck a compromise resulting in the “Inflation Reduction Act of 2022.” At “only” 725 pages and $739 billion, the bill is actually very significantly slimmer than earlier versions, but if it passes through Congress, there are proposals that will impact retirees and those considering retirement.
As it stands now, below are some of the noted inflation-fighting, health-care, climate change, and deficit reduction strategies that are included in the “Inflation Reduction Act of 2022” headed to a vote in Congress:
The legislation “will make a historic down payment on deficit reduction to fight inflation, invest in domestic energy production and manufacturing, and reduce carbon emissions by roughly 40 percent by 2030,” Mr. Manchin and Mr. Schumer said in their joint statement.
Manchin added, “Rather than risking more inflation with trillions in new spending, this bill will cut the inflation taxes Americans are paying, lower the cost of health insurance and prescription drugs, and ensure our country invests in the energy security and climate change solutions we need to remain a global superpower through innovation rather than elimination.”
Any effort to fight inflation should be welcome to anyone in or approaching retirement. Use the NewRetirement Planner to forecast your financial future at different inflation rates.
The bill enables Medicare to negotiate prescription drug prices with pharmaceutical companies, saving the federal government billions of dollars (an estimated $288 billion in savings) over the 10-year budget window.
These savings will be passed onto seniors. There will be a $2,000 out-of-pocket cap for for Medicare enrollees buying prescriptions from pharmacies.
And, all vaccinations would become free for Medicare subscribers.
NOTE: The NewRetirement Planner will be updated to reflect the cost savings after the bill has passed and the details have been worked out with Medicare.
The “Inflation Reduction Act of 2022” will also extend (for three more years) the subsidies that were provided during the COVID-19 pandemic, making it more affordable for some Americans who buy their own health insurance.
This should be good news for many who are or have retired early and are not yet eligible for Medicare.
The bill invests $369 billion over the next decade in an effort to fight climate change.
Businesses can participate in a $60 billion tax credit for clean energy manufacturing. And, there is a $30 billion tax credit for wind and solar production.
Consumers also get tax breaks as incentives to go green. There is a 10-year tax credit for investments in renewable energy and tax breaks for buying electric cars (a $4,000 credit for the purchase of used electric vehicle and $7,500 for new).
Manchin said the plan includes a “realistic energy and climate policy” that will “allow us to decarbonize while ensuring American energy is affordable, reliable, clean and secure.”
Analysts believe that the investments could put the country on a path to cut greenhouse gas emissions 40% by 2030, which is close to the 50% decade-end target that scientists say is critical to prevent even more catastrophic heat waves, fires and floods than we are currently experiencing.
In addition to enabling the federal government to get better prices from pharmaceutical companies, the biggest revenue-raiser in the bill (boosting federal revenue by $313 billion) is a new 15% minimum tax on corporations that earn more than $1 billion in annual profits.
There are no increases in household taxes.
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