CBO Scores IRA with $238 Billion of Deficit Reduction

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The Congressional Budget Office (CBO) just released a final score of the Inflation Reduction Act, finding it would reduce deficits by $238 billion over a decade.

The final legislation included a number of changes from the original version, which was estimated to save over $300 billion through 2031. These changes – some made for procedural reasons – included the removal of the inflation cap on commercial drug prices and the carried interest provision, modifications to the corporate book income minimum tax, inclusion of a 1 percent tax on stock buybacks, more generous Medicare coverage of insulin, extension of existing limits on loss deductibility for pass-through entities, and removal of flexibilities for IRS pay and hiring authority. CBO also reduced its estimate for revenue from increased IRS funding as a result of new guidance from the Treasury Department limiting audits for households making less than $400,000 per year and the aforementioned removal of pay and hiring flexibilities.

By our estimates, the legislation includes $738 billion of offsets to fund roughly $499 billion of new spending and tax breaks. It would reduce deficits by $238 billion over a decade, including by more than $61 billion in 2031 before interest.

Inflation Reduction Act Summary

Policy Cost (-)/Savings (2022-2031)
Energy and Climate -$391 billion
Clean Electricity Tax Credits -$161 billion
Air Pollution, Hazardous Materials, Transportation and Infrastructure -$40 billion
Individual Clean Energy Incentives -$37 billion
Clean Manufacturing Tax Credits -$37 billion
Clean Fuel and Vehicle Tax Credits -$36 billion
Conservation, Rural Development, Forestry -$35 billion
Building Efficiency, Electrification, Transmission, Industrial, DOE Grants and Loans -$27 billion
Other Energy and Climate Spending -$18 billion
   
Health Care -$108 billion
Extension of Expanded ACA Subsidies (three years) -$64 billion 
Part D Re-Design, LIS Subsidies, Vaccine Coverage, Insulin -$44 billion
   
Total, Spending and Tax Breaks -$499 billion
   
Health Savings $281 billion
Repeal Trump-Era Drug Rebate Rule $122 billion 
Negotiation of Certain Drug Prices $96 billion 
Drug Price Inflation Cap $63 billion 
   
Revenue $457 billion
15 Percent Corporate Minimum Tax $222 billion
IRS Tax Enforcement Funding* $101 billion
1 Percent Excise Tax on Stock Buybacks $74 billion
2-Year Extension of the Limitation on Excess Business Losses $53 billion
Methane Fee, Superfund Fee, Other Revenue $7 billion
   
Total, Savings and Revenue $738 billion
   
Net Deficit Reduction $238 billion
Memo: Deficit reduction with permanent ACA subsidy extension ~$90 billion

*IRS funding provision involves an $80 billion expenditure over ten years, which CBO estimates will yield $180 billion in additional revenue for a net savings of $100 billion.
Figures may not sum due to rounding.

If the temporary extension of expanded health care subsidies were made permanent without offsets, we estimate the legislation would reduce deficits by roughly $90 billion over a decade. We have not yet updated our long-term estimates.

See the full CBO score here.