The Inflation Reduction Act (IRA) is a truly historic accomplishment toward saving the planet, making our economy more localized and resilient, and reducing our national deficit. In our polarized political climate, the fact that it actually passed should absolutely not be taken for granted.
Here’s a quick summary of what the Inflation Reduction Act entails, and why it’s so important.
The main tool of the IRA is offering tax credits to incentivize massive decarbonization of the economy, with emphasis on expanding the renewable energy sector.
The IRA will provide tax credits to reward businesses for switching to renewable energy sources, switching their fleets to electric vehicles, making their buildings more energy efficient, and sourcing their materials and labor domestically.
It will be paid for by a corporate tax of 15% on the largest corporation (Note: it brings no new taxes nor any tax increases on anyone who makes $400,000 or less). The idea is to lower the cost of clean energy with tax credits as opposed to raising the cost of fossil fuels via a carbon tax.
Businesses are not only incentivized to green up their current operations but also to start or increase their own domestic production of green energy and its necessary components. This includes solar, wind, clean hydrogen, electric vehicles, carbon capture, materials like steel, and even batteries for electric energy storage. They are further incentivized by tax credits to procure the necessary materials domestically as much as possible, as well as to keep the manufacturing and jobs here in the USA.
The predicted effects could include an increase in green energy, such as solar and wind; electric cars and devices; a greening of business practices; and, perhaps most significantly, a big push toward bringing manufacturing back to the USA.
While mining and factories inevitably have ecological costs, for decades now, the burden of USA’s consumption needs has unfairly fallen upon developing nations. Business interests take advantage of desperate people in certain countries because of the lack of labor laws, human rights, and/or environmental protections. The negative effects can be felt in both our economy and in the exploited countries. Importing cheap goods has enabled us to compartmentalize, forget, and ignore the harsh realities of mining and manufacturing. Let’s bring our manufacturing home.
Localism has many benefits:
We get to keep entry-level manufacturing jobs here. This leads to a healthier economy for us, with more jobs available for people without higher education.
We avoid the enormous carbon costs of shipping materials around the world unnecessary. This is huge.
Third, the more we as a nation produce what we need for ourselves, the more resilient, independent, and secure we are as a country. Relying on imports from other countries to survive is a vulnerable position indeed, as Russia’s attack on Ukraine has reminded Europe. If we produce our own energy, we cannot be controlled by Saudi Arabia, Russia, or others in that way. This may avoid potential wars in the future, which also has a massive carbon cost in addition to its other costs.
In terms of personal finance, it’s pretty safe to say we can expect a large expansion of the renewable energy and technology sectors in coming years, as well as a winding down of fossil fuels. However, it’s impossible to know which specific companies will succeed. At Ella Financial Advising, we offer customized portfolios of index funds that are screened, analyzed, and balanced to fit our clients’ risk tolerance and values. This type of method can cushion clients from market volatility while potentially capturing the upside of the market growth.
For those who love our planet and biodiversity, this is all wonderful news. Please savor the hopeful news and enjoy it as much as you can.
Philanthropic Advisor at Ella Financial Advising