Climate initiatives laid out in President Joe Biden’s Inflation Reduction Act (IRA) come with a bigger price tag than anticipated: over $400 billion more, per the latest estimates.
The Congressional Budget Office (CBO) revealed the increased $428 billion cost in its budget and economic outlook for the next decade. The agency admitted that its projections were subject to change, citing variables such as the pace of deployment and use of low-emissions technologies and electric vehicles, as well as the number of taxpayers who have yet to claim certain tax credits enacted in the IRA.
“The budgetary effects of energy-related tax provisions remain highly uncertain,” stated CBO.
The CBO originally estimated in 2022 that the IRA’s climate and energy provisions would cost around $400 billion. However, other corporations and organizations said that number was far too low.
Shortly after CBO issued its estimate, the global investment banking company Credit Suisse estimated the climate initiatives would cost over $800 billion. That number is closer to CBO’s most recent estimate.
Other recent, outside estimates have been higher. An August report from the University of Pennsylvania Wharton School of Business predicted that the IRA’s climate and energy provisions would cost taxpayers over $1 trillion.
The CBO explained that technical revisions resulted in the substantially higher projections, most of which ($224 billion) arose from clean vehicle tax credits and revenues from excise taxes on gasoline. Of that total, $151 billion came from reductions in projected revenues and $73 billion came from increases in projected outlays.
Much of the higher projections came from the Environmental Protection Agency (EPA) proposal last year to impose more stringent vehicle emissions standards beginning with the 2027 model year.
The CBO further noted that Treasury guidance determined that credits claimed by businesses for leased vehicles weren’t subject to restrictions applied to credits claimed directly by individuals, such as a buyer’s income, eligible vehicle pricing, critical mineral sourcing locations, battery component manufacturer locations, and final vehicle assembly locations.
“Dealers and buyers have responded to that guidance by leasing more electric vehicles than [the Joint Committee on Taxation] anticipated when preparing its 2022 estimates,” said CBO.
Apart from the cost of Biden’s climate initiatives, the CBO report didn’t lend a positive outlook for the nation’s economy.
The CBO projected that the nation’s deficit would steadily mount, reaching $2.6 trillion in 2034 from $1.6 trillion in this fiscal year. In relation to GDP, the deficit is projected to reach 6.1% in 2034. The CBO said that these deficit levels were similar to those experienced during some of the greatest national crises.
“Since the Great Depression, deficits have exceeded that level only during and shortly after World War II, the 2007-2009 financial crisis, and the coronavirus pandemic,” read the report.
Debt held by the public would increase to 116% of GDP by 2034 ($48.3 trillion) and would continue to grow to 172% of GDP in 2054, up from the 99% projected at the end of this year ($26.2 trillion).
According to the CBO, that 2034 estimate would mark an all-time historical high for the nation, a record reached due to increases in mandatory spending and interest costs outpacing declines in discretionary spending as well as revenue and economic growth.