The Inflation Reduction Act after Two Years

Spending estimates reach new heights, but Green New Deal supporters want more

Today marks the second anniversary of President Biden’s signing of the Inflation Reduction Act (IRA) into law. Two years after its signing, we are learning that the IRA could cost multiple times more than initial estimates. To many in Congress, that is still not nearly enough—some lawmakers frame the massive spending in the IRA as just a down payment toward a Green New Deal.

In a 2023 report that placed the IRA among several other policies supporting a broader Green New Deal, Senator Edward Markey (D‑MA) and Representative Alexandria Ocasio-Cortez (D‑NY) remarked, “While the legislation failed to deliver the full scope of investments needed and included some challenging compromises, it represented a significant down payment on the Green New Deal.”

In that report—titled, “Five Years of the Green New Deal”—Markey and Ocasio-Cortez acknowledge that cost estimates for the energy and climate portion of the IRA were initially $369 billion but have now grown to $1.2 trillion over its first 10 years “due to the uncapped nature of the clean energy tax credits.” According to Markey and Ocasio-Cortez, spending more than $100 billion annually is still just “the baseline Green New Deal.”

In a forthcoming policy analysis, we estimate that the IRA will cost more than $1 trillion over the next 10 years and between $2 trillion and $4 trillion by 2050. The final tally of energy subsidies enabled by the IRA is difficult to predict because many energy-related tax credits are uncapped and depend on uncertain deployment levels and consumer choices yet to be made (such as electric vehicle purchases).

As the updated cost estimates roll in and the numbers creep into the multitrillions, it raises a question: Will support for the IRA fall to levels of support for the Green New Deal? A 2019 Senate vote on a Green New Deal resolution yielded 57 nays and 43 votes of present. Lawmakers who support the IRA might change their minds when they realize the price tag is closer to the Green New Deal’s than the original estimate for the IRA.

Kamala Harris—current vice president and Democratic nominee for president—was the tie-breaking vote on the IRA and a cosponsor of Markey’s Green New Deal resolution. In recent days, her aides claimed she still supports the IRA, with one of her campaign representatives saying, “As president, Kamala Harris will finish implementing the IRA.”

Harris seemed to be aware of the lack of support for a Green New Deal in the Senate. In 2019, during a CNN climate crisis town hall, she said, “As president of the United States, I am prepared to get rid of the filibuster to pass a Green New Deal.” Getting rid of the filibuster would, of course, reduce the number of Senate votes required to pass the Green New Deal from 60 to 50—still more than the 43 present votes on the 2019 resolution but equal to the number of Senate votes for the IRA.

During her 2020 presidential campaign, Harris said she would go even further by spending $10 trillion on climate initiatives and mandating 100 percent carbon-neutral electricity by 2030.

Though the Harris campaign has backtracked on many of its 2020 campaign proposals, the choice of Governor Tim Walz (D‑MN) as her running mate signals her commitment to climate- and energy-related subsidies and mandates. For example, Governor Walz signed a bill to achieve 100 percent carbon-free electricity last year. A 100 percent “clean” power sector may sound good on paper, but it comes with significant costs to consumers. The Center of the American Experiment—a Minnesota-based think tank—estimated that Governor Walz’s proposal would “cost the state $313.2 billion through 2050 and lead to devastating blackouts.”

Unfortunately, a future President Harris could have bipartisan support for something like a Green New Deal because heavy spending on energy-related subsidies is a bipartisan problem. A group of 18 House Republicans recently praised IRA tax credits for “making our country more energy independent and Americans more energy secure.”

Furthermore, a centerpiece of the IRA—the production tax credit for low-emission electricity generation—has been available to wind energy for decades and has long been championed by Senator Chuck Grassley (R‑IA) and other Republicans. Although Congress agreed in 2015 to phase out the production tax credit because the industry was cost-competitive, it has come back with a vengeance as one of the most costly provisions within the IRA.

Supporters of the IRA talk about its “investment” and job creation as major benefits, but these arguments count costs as benefits. Also, if Congress and the wind industry were correct in 2015—and if the solar industry is correct now—that these technologies are cost-competitive with other forms of electricity generation, then subsidizing them through the IRA would be unnecessary. In that context, spending historic amounts of government funds on these technologies is not a sound investment but merely another way to say it’s expensive.

Some observers point out that much of the IRA-related spending is occurring in Republican districts. However, cheering the highly visible projects paid for by public dollars—which must be taken from taxpayers through either taxation or inflation—is a classic example of Frederic Bastiat’s broken window fallacy. In other words, if Republicans applaud IRA spending in their district without acknowledging the ultimate source of the funding—you—they are falling for an economic fallacy.

Finally, celebrating the big-money recipients of spending (likely large corporations such as NextEra Energy) while ignoring the increased tax burden on the rest of us cuts against both parties’ recent tilt toward populism. Rather than expanding the trillions in subsidies given to politically well-connected energy companies, Congress should make it a priority to repeal these measures as part of a broader attempt to simplify the tax code and rein in spending as America’s debt crisis deepens.