Some House Republicans are urging Speaker Mike Johnson, a Louisiana Republican, to keep clean energy tax credits from the Inflation Reduction Act (IRA) if the GOP maintains or expands its majority in the next Congress. While criticizing the IRA overall, they argue the credits have spurred innovation, investment, and job creation in the energy sector. Removing them could undermine growth and waste billions already invested. They advocate for an “all-of-the-above” energy approach, supporting credits that encourage domestic production and innovation. Former President Trump has indicated support for it if re-elected, making it a potential future concern.

And Trump is the risk here. As reporting in The Hill points out, Trump has indicated he would support the repeal of some or all of the IRA if he wins a second term. If Kamala Harris is the next president, the $400 billion in energy and climate spending and tax credits seem unlikely to be repealed. The IRA is the signature climate achievement of the Biden-Harris administration. What’s more, as a US senator from California, Harris was an early co-sponsor of the Green New Deal. Her new running mate, Governor Tim Walz of Minnesota, has also made tackling climate change a key issue.

And if Trump should return to the White House in 2025? In a recent report, Goldman Sachs made some interesting points about the future of the IRA: First, assuming a GOP sweep, a Trump win would likely lead to some rollback of IRA tax subsidies, particularly for electric vehicles and advanced manufacturing. And even without Congressional control, a Trump administration could tighten interpretations of domestic content requirements and slow down the distribution of loans and grants under the IRA. The Trump administration would likely relax auto emissions limits, potentially reducing demand for technologies incentivized by the IRA.

Second, a full repeal of the IRA is very unlikely. Parts of the IRA are unrelated to green subsidies, such as corporate tax provisions and Medicare drug reimbursements. 

Third, Goldman Sachs analyst Alec Phillips anticipates the aforementioned Republican letter. From the report (bold by me):

… control of Congress will probably be pretty closely divided. Republicans would only contemplate trying to repeal the IRA if they controlled the House, Senate, and White House (and even then they probably wouldn’t try). In a Republican sweep scenario, whatever happens to the IRA is likely to happen via the reconciliation process, which allows fiscal legislation to pass with a simple majority in Congress. This is how the IRA was passed, and how the 2017 tax cuts passed. Since the main point of using that process is to exclude the minority party, that sort of legislation will pass along party lines. But in a thinly divided Congress, there will be at least a few and probably more than a few Republican lawmakers who have reasons to oppose repeal, either because subsidized technologies are made in their districts or used in their districts. While there are likely to be many Republicans in favor of repeal, it is likely that they will not constitute a majority in the House nor in the Senate. The bigger the majority the less of a constraint this becomes, but for now a closely divided House and Senate is likely.

Tweaks in the IRA might be possible, but probably nothing more significant than that. The law is poised to become another enduring expansion of government, similar to the Affordable Care Act. Like its predecessor, the IRA was enacted under a Democratic administration but appears set to persist regardless of which party holds power in Washington. This resilience suggests that major policy initiatives, once implemented, can become entrenched features of the American political landscape.

The post Why the Fate of the Inflation Reduction Act Doesn’t Depend on Who Wins in November appeared first on American Enterprise Institute – AEI.