With high prices and rising inflation in recent years, Americans have put the economy as the most important issue influencing their vote in this upcoming presidential election. The Inflation Reduction Act, or IRA, was a piece of legislation passed in August 2022 that was supposed to address bringing down inflation, but when you look closer, its main focus was on clean energy and sustainability, with minor parts on reducing inflation.

Inflation measures the rate at which prices in the economy rise, and since the COVID-19 pandemic between 2020-24, America has seen some of the highest levels of inflation.

At its peak, inflation levels reached 9.1% in June of 2022, right around the time when the IRA was passed into law. Today, the levels are close to 2.4%, a healthy level for an economy. Yet, the legislation passed was not focused on economic relief for Americans, but instead on the transition of American industry towards green energy and sustainability.

“Sometimes pieces of legislation are named for political reasons rather than to precisely reflect what the content of the actual policy is. And the Inflation Reduction Act is an example of that case,” Timothy Fitzgerald, a professor of economics at the Baker School of Public Policy and Public Affairs, said.

According to the White House website, the policy “redefined American leadership in confronting the existential threat of the climate crisis and set forth a new era of American innovation and ingenuity to lower consumer costs and drive the global clean energy economy forward.”

The reduction of inflation can be attributed to the work of the Federal Reserve, which tweaked and adjusted interest rates over the last three years mainly by increasing those rates, not the Inflation Reduction Act. This helped to stop the flow of money and investments into the economy, which in turn helped to slow economic movement, lowering inflation.

During this high inflationary period, the average price of goods increased by 21.8%. It’s a reason why the economy is such a hot issue for the upcoming 2024 election as Americans have watched prices for goods dramatically increase. For example, what $1,000 would have gotten you in the past, now costs $1,211.34 today.

“As a new college student adjusting to making purchases on my own, going (to) the grocery store (has) been truly shocking seeing how much higher the prices of some items are now versus just a few years ago. Unfortunately, this made my adjustment all the more difficult,” Ruth Rownd, a freshman majoring in pre-law and political science, said.

However, reducing inflation doesn’t mean that prices will go down too. Those lower prices that many Americans were used to before the pandemic may never reappear or the high prices may lower slightly, just not to the same levels of the past.

Healthcare costs

We now shift gears to the specifics of the act. The main portion that addresses rising prices and inflation is the portion on healthcare.

“The inflation reduction part of the IRA is most plausibly the authority to allow Medicare to negotiate prescription drug prices,” Fitzgerald said.

Medicare programs, a federally funded medical insurance program for people over the age of 65, can put caps (set prices) on drug costs. The periods of high inflation led to the rise in drug prices; thus, the law allows for Medicare programs to have the ability to cap prices in order to make the out-of-pocket drug costs more accessible during a highly priced economy.

Insurance programs will only pay a certain portion of the prescription cost, which means the other portion, out-of-pocket, comes from your wallet. So by capping the price, it makes them more affordable.

“Without large savings from the prescription drug savings in Medicare, the IRA looks more like a government spending program,” Fitzgerald said.

So what was the Inflation Reduction Act if its main focus wasn’t on reducing inflation?

Green energy

“There is a broad consensus that the IRA was a vehicle for energy and other proposals, more than a targeted tool for fighting inflation,” Fitzgerald said.

The IRA “enhanced or created 20 tax incentives for clean energy and manufacturing,” the U.S. Treasury Department website said.

These tax incentives focused on how businesses and production can turn their actions away from climate-changing practices and toward green energy. With a total of $400 billion in federal funding via tax incentives, write-offs, loans, etc. the Biden-Harris Administration hopes that these economic efforts will lower America’s carbon emissions by 2030.

For instance, the federal government will give $12 billion to help offer more loans for green energy infrastructure while also creating an additional program of $250 billion dollars for updating outdated technology that causes climate change.

That updating of technology will “(create) opportunities to build projects, hire workers and manufacture equipment needed to strengthen domestic supply chains, lower household energy costs while reducing greenhouse gas emissions and pay good wages for those efforts,” according to the United States Treasury report on the implications of the IRA.

For everyday Americans, there will be additional tax credits for purchasing green energy technology (electric vehicles, solar panels, energy-efficient appliances for kitchen and other uses, batteries and many more additional tech). By incentivizing everyday Americans to invest in technology that uses green energy, the Biden-Harris Admin hopes to reverse climate change impacts.

Some critics of the IRA have said that the legislation pumped more money into the economy, causing inflation levels to rise.

Fitzgerald commented on this critique of the law, highlighting that it’s more nuanced. It could have the potential to overheat the economy with a large money flow into investments and tax incentives, but he hasn’t seen enough evidence that the IRA caused the inflation.

He did say, however, that the large amounts of stimulus relief payments between 2020-21 plus an additional three large fiscal spending programs — the Bipartisan Infrastructure Law in 2021, the CHIPS Act and then the IRA — all put heavy amounts of money into the economy and together could help to fuel the inflation issue.

The question is whether this hurts or helps Harris in the long run as she casted the tie-breaking vote for the IRA in the Senate. It may not have been a strong law on reducing inflation, but it was a win for those who support green energy practices. And with under 20 days until election day, voters will decide who they want to lead the economic policy of the country. The one unique aspect of the election is that Americans have an idea of what each administration may look like with both candidates being in office before. This could either be a good or bad thing for each administration.