Will Trump Gut the Inflation Reduction Act to Pay for Tax Cuts?

The Inflation Reduction Act has served as the shining star in President Joe Biden’s environmental agenda. Oil and gas drilling might have expanded under the outgoing administration, but the IRA has helped balance what might have been a lackluster climate legacy by pumping $145 billion into climate-related programs nationwide. These include subsidies to help businesses and homeowners install energy-efficient heat pumps, tax breaks for people buying an electric vehicle, cash for Indigenous communities to upgrade woefully outdated water infrastructure and gobs of money for entrepreneurs exploring new energy technologies.

By making substantive investment in economic solutions to the climate crisis, the IRA has done more to inspire hope than any green legislation in recent memory. So, of course, the incoming Trump administration plans to destroy it.

“To further defeat inflation, my plan will terminate the Green New Deal, which I call the Green New Scam,” Donald Trump told the Economic Club of New York in September. “It actually sets us back, as opposed to moves us forward. And [I will] rescind all unspent funds under the misnamed Inflation Reduction Act.”

The goal — aside from sticking a thumb in the eye of everyone hoping for a livable planet — is to lessen the tax burden on the country’s wealthiest citizens. Within two years of taking office, Republicans intend to pass a tax package that will make good on Trump’s promises to slash taxes on tips, Social Security benefits and overtime pay. By 2026, his plan is expected to lower taxes on the richest 1% of Americans by $36,300. This will exact a cost to the country of about $7.8 trillion over 10 years.

Repealing the IRA’s green energy tax credits could clear $921 billion for those cuts in a way that aligns with the ultra-right Project 2025. “The next Administration should,” argues the document, “push for legislation to fully repeal recently passed subsidies in the tax code, including the dozens of credits and tax breaks for green energy companies.”

Experts predict the most at-risk programs to be the IRA’s consumer and commercial EV credits, tax credits that help reduce the cost of installing and operating clean energy systems — the most important tools for encouraging the transition to clean energy available to the IRS — and its clean energy manufacturing production credit. Nixing these alone could potentially open up $370 billion.

The incoming administration is likely to discover, however, that functioning governments do serve a purpose. According to Climate Power, in just two years, the IRA “has helped create over 334,565 new jobs and sparked $372 billion in new investments in 47 states and Puerto Rico.” 

Unfortunately for Trump, many of these jobs and investments are in red-hued states. That’s largely because Republican states and congressional districts have fewer regulations around siting and building the kinds of projects the IRA targets, David Victor, a professor of innovation and public policy at University of California San Diego, told Marketplace.

As a result, 18 House Republicans signed a letter in August requesting that Trump not to repeal the IRA credits. “Prematurely repealing energy tax credits, particularly those which were used to justify investments that already broke ground, would undermine private investments and stop development that is already ongoing,” they wrote. “A full repeal would create a worst-case scenario where we would have spent billions of taxpayer dollars and received next to nothing in return.”

In fact, most of the law’s funds have already been spent or promised. The Boston Globe reports: “about three-quarters of the $105 billion allocated for climate-related grant programs nationwide included in the IRA will already be spent or committed before the end of Biden’s term, experts at Columbia University Law School estimated.” 

Those who had plans to tap some of the estimated $14 billion in unallocated credits — whether for revamping an aging municipal energy system or purchasing an electric vehicle — are scrambling to do so before Trump takes office.

How much of the law’s allocations have been secured varies drastically among government agencies. The EPA plans to obligate nearly all of its IRA investments by the end of the calendar year. But according to Politico, “One program under the Interior Department, intended to improve access to water in disadvantaged communities, has obligated less than 0.1% of its $550 million in IRA appropriations, according to data from the Bureau of Reclamation. Another program meant to dedicate $12.5 million to drought relief for tribes has obligated $0.”

It’s not clear whether Trump will be able to stop the allocation of those funds. Right now, it appears the piece of the IRA most likely to get axed is its break for prospective EV buyers — up to $7,500 for new cars and $4,000 for used ones purchased through 2032. It should come as no surprise that pressure to make this particular cut is coming from Trump’s great fan and head of the new department of government efficiency, Elon Musk. After all, the CEO of Tesla has stated publicly that killing the subsidy would hurt his competitors most.