On Inflation Reduction Act Reform, Anything Short of Full Repeal Is Failure

Travis Fisher, Adam N. Michel , and Joshua Loucks

Full Republican control of Washington creates an opportunity to repeal many of the previous administration’s most costly laws and regulations. The misleadingly named Inflation Reduction Act (IRA) should be at the top of the list, not only because it is a disastrous environmental policy but also because it will be a necessary offset for a fiscally responsible extension of the expiring 2017 tax cuts.

The energy and climate provisions of the IRA are already burning through taxpayer dollars at rates much higher than initially projected. These subsidies will likely cost over $1 trillion by 2032 and as much as $4 trillion by 2050, and some of the most lucrative tax credits have no expiration date.

If Republicans are serious about ending federal intervention in energy markets, repealing the entire IRA energy subsidy framework—including for existing projects—is the only way forward. Full, retroactive repeal will make it harder for future federal subsidy schemes to take root. On the other hand, partial repeal will leave the IRA framework in place for a future Congress to pick up where the Biden administration left off.

The 119th Congress has a fleeting opportunity to dismantle the IRA’s energy infrastructure and level the playing field so that consumers, not bureaucrats, can drive future energy innovation. Anything short of full IRA repeal should be seen as a failure. Like extricating a cancer, leaving portions of the law behind will only temporarily halt its infectious growth.

Full IRA Repeal Will be Painful for Rent-Seekers—Good

Reformers will face significant opposition to a full IRA repeal, from industry groups and environmentalists and within their own ranks. Earlier this year, 18 House Republicans wrote to support the IRA tax credits, arguing they are critical to “ensuring certainty for industry and the energy sector.” Industry lobbyists have repeated the talking point that much of the IRA-related spending is occurring in many conservative districts of IRA critics.

This is by design. The flood of taxpayer money into new projects across the country obscures the real costs of tying American jobs to federal subsidies while ignoring the hidden burdens placed on businesses and taxpayers.

But repeal should be a bipartisan priority because IRA-induced investment and new jobs are a mirage. Since the original flurry of announced new manufacturing projects in the year after Joe Biden’s industrial and climate policies were passed, the Financial Times reports that over 40 percent of them have been delayed, paused, or canceled. And the jobs that have been created cost taxpayers an estimated $2 million to $7 million each.

If the subsidies aren’t ending up in workers’ pockets, where are they going? Corporate owners and executives—not taxpayers or workers—are the primary beneficiaries of federal favoritism. Politically connected corporations like NextEra Energy and First Solar, Inc. have received billions at taxpayers’ expense. Additionally, more than $1 billion of Biden’s IRA subsidies are also going to Trina Solar, China’s largest solar manufacturer.

Rent-seekers will fight hard against the full repeal of the IRA. But why would the 119th Congress want to ensure certainty and stability for the failed investments flowing to foreign companies at American taxpayer expense? Lasting reform requires the opposite. It requires a decisive shift away from politically directed energy investments. 

Subsidies don’t just incinerate taxpayer dollars; they incentivize private investment to shift toward politically popular energy sectors and away from cost-effective and reliable ways to supply energy to American consumers. Attempts to centrally plan markets through subsidies or other industrial policies will stifle true innovation and limit prosperity because many productive entrepreneurs will become subsidy harvesters.

Repealing all IRA energy subsidies—including for existing projects—may be painful for well-connected firms that have decided to build their businesses on the backs of American taxpayers. This is not an argument for palliative “certainty” for existing subsidized industries. Subsidy-dependent industries should get the clear message that the taxpayer-funded gravy train is over. Ripping out subsidies root and branch will clearly signal that, in America, markets will drive the energy sector forward.

The short-term project disruptions will be far less damaging than continued and never-ending market interventionism through government subsidies and favoritism. If this malignancy isn’t cut out now, the rent-seeking enabled by the IRA will continue to infect healthy markets, weakening the American energy sector for decades.

As one IRA supporter recently wrote, “Clean energy is now big business, and influential companies stand to lose billions if the Inflation Reduction Act is repealed.” Yes, and these big businesses deserve to lose the billions of taxpayer dollars they hoped to gain from the IRA—it was never their money to begin with.

The Path Forward

Free and competitive energy markets that allow for innovation and entrepreneurship have been and always will be the best path forward for energy security, reliability, and cost-effectiveness. Government subsidies like the IRA increase inefficiencies and result in cronyism among businesses and government leadership.

No Republicans voted for the IRA in 2022. Rather than take a scalpel to the law, Congress has a rare opportunity to undo all of it. A weak, partial repeal of the IRA will only perpetuate interventionist policies for years to come. The IRA is a watered-down Green New Deal, and the response can’t be further dilution—it needs to be a full rejection.

The window for Democrats in Congress to pass the partisan IRA two years ago was narrow and fleeting. The window to undo this poorly conceived legislation through full repeal is just as narrow. The new Congress should waste no time in rejecting the Green New Deal-lite.