The So-Called Inflation Reduction Act

Andrew Busa, MSPFP, CFP^®, MPAS^®, CCFC

Director of Financial Planning

Inflation may be leveling out—and that’s before the Inflation Reduction Act even passes into law. This sweeping legislative package seeks to lower energy prices and health care costs, but will it really lower inflation’s impact on you and me?

Tough to say.

When we were bracing for the American Families Plan proposed back in 2021, we had our eyes peeled for some far-reaching reforms: Changes to ordinary and capital gains tax rates, limits on Roth conversions, new required minimum distribution (RMD) rules and some estate-planning techniques were in the congressional crosshairs.

Perhaps those issues will resurface in legislation down the road, but you won’t find them in this bill. However, there are a few high-level points to mention:

• Medicare Part D premium growth. The bill aims to limit the growth of Medicare Part D premiums to the tune of 6% per year over the next decade. It also allows the government to negotiate the prices for some high-cost drugs. While this could eventually change how we project Medicare expenses for clients, we aren’t making any adjustments just yet.
• Shorter wait times from Uncle Sam… The IRS is getting a shot in the arm, with a chunk of funding going toward taxpayer services. In theory, this could result in shorter wait times on their help lines. We’ll be checking in with our industrious tax team to see if that holds true.
• …But potentially more audits. IRS enforcement is also getting a boost in funding. The result could mean a large increase in the number of taxpayer audits. Audits have decreased over the last decade, so the aim of this provision is to bring them closer to historical levels. The IRS has pledged that this would not result in increased audits for households earning less than $400,000 per year and would instead focus on “…large corporate and global high-net-worth taxpayers.”

As Senior Research Analyst Liz Laprade mentioned in Tuesday’s Adviser Takeaway video, investors should know that the Inflation Reduction Act brings good tidings for some industries (including electric vehicle and renewable energy companies) and headwinds for others (pharmaceutical firms and some large-cap companies). Check out her informative take at the link above.

We’ll be keeping our eyes and ears open for any future legislation that may affect you. In the meantime, we’re here anytime you need us.