Home Household machines Cut Inflation Act would save $1,800 for average household, analysis finds

Cut Inflation Act would save $1,800 for average household, analysis finds

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Sweeping climate and health care legislation unveiled by Democrats last week would lead to significant reductions in energy costs for American households, according to a new analysis.

A report by non-profit group Rewiring America found that tax incentives included in the $369 billion for climate initiatives in the Cut Inflation Act would save the average household $1,800 a year on energy bills.

“It’s a level of investment that rocks the market,” Ari Matusiak, co-founder and CEO of the group that helped craft the bill, told Yahoo Finance. “The beneficiaries of [this measure] in the long term, we will all be on the planet. In the short term, it will be the Americans at their kitchen tables who will realize the savings on a monthly basis.

The new measure aims to accelerate the transition to renewable energy and significantly reduce the country’s greenhouse gas emissions through a series of tax incentives aimed at reducing the cost of electrification.

While those cost savings are spread across more than 100 different programs, Matusiak said the biggest reductions are likely to come from rebate and credit programs that cushion the cost difference between electrical appliances and cars, and those that depend on fossil fuels.

Here are some of the biggest cost savings.

Electrify homes

A program called the High Efficiency Electric Home Rebate Act (HEERA) provides $4.5 billion in direct rebates for low- and middle-income households who install new efficient electrical appliances.

Under the proposed rebate framework, a low-income household would receive a rebate of up to $8,000 for a new heat pump, $840 for an electric range or electric clothes dryer, and $2,500 for updated electrical wiring, among other things. refunds. Matusiak said these incentives will enable 1 million homes to go electric.

“The challenge is that these machines are new and they are not yet ubiquitous in the market, so they have not yet reached industrial scale, which means that their prices on the showroom floor are higher than the fossil-fuel machines they will replace,” he said. “So the investments in the Cut Inflation Act are aimed directly at bridging the delta between the cost of an off-showroom fossil-fuel machine and a clean electric machine.”

Washing machines and dryers sit in an appliance store in Manhattan on September 19, 2018 in New York City. (Photo by Spencer Platt/Getty Images)

Credits for EV purchases

The climate legislation also earmarks new funds for a $7,500 federal vehicle tax credit, which should give major automakers like Tesla (TSLA) and GM (GM) an extra boost, as well as to drivers.

While the credit for new electric vehicles is considered an extension of an existing program, the credit program for clean vehicles comes with additional conditions, including the requirement that eligible cars be built with materials sourced and transformed in a country where the United States has a free trade agreement. agreement with. It also requires that the battery used include a large number of components made in North America.

In addition, the law provides for the first time a tax credit of $4,000 for used cars. The income threshold would be capped at $300,000 of adjusted gross income for joint filers or $150,000 for single filers. The credits would be capped at an income level of $75,000 and $150,000 for used cars.

A line of Tesla cars charge on July 17, 2022 in Nephi, Utah.  (Photo by George Frey/Getty Images)

A line of Tesla cars charge on July 17, 2022 in Nephi, Utah. (Photo by George Frey/Getty Images)

The incentives come as drivers increasingly turn to electric alternatives in the face of historically high gasoline prices. While the national average for a gallon of gasoline fell to $4.19 on Tuesday, according to AAA, the cost of driving an electric vehicle averages $1.06 a gallon, Matusiak said.

“41% of the inflation consumers are experiencing is because their energy bills are going up right at the pump and at their kitchen table,” he said. “And the electrification of the machines that we use in our daily life structures that inflation out of our lives forever. So it’s not just about whether you’re going to hit that $1,800 figure this year , but whether you’re going to reduce the amount of money you spend on energy year over year over the next 20 years.

Matusiak also pointed to additional credits that allow homeowners to deduct up to 30% of the cost of energy-efficient upgrades to their home, as it’s all part of the estimated cost savings of $1,800.

Impact on inflation

Economists remain divided on the impact of the legislation on inflation.

Former Treasury Secretary Larry Summers, who criticized the impact of the Biden administration’s pandemic stimulus on inflation, publicly supported the billsaying he would fight inflation by drastically reducing the budget deficit over time.

“You generate over $2.00 in revenue for every dollar you spend,” he told CNN.

Skye Weyrauch, her mother Diane and her niece head to Larchmont Blvd.  in Los Angeles on June 11, 2022. (Mel Melcon/Los Angeles Times via Getty Images)

Skye Weyrauch, her mother Diane and her niece head to Larchmont Blvd. in Los Angeles on June 11, 2022. (Mel Melcon/Los Angeles Times via Getty Images)

Meanwhile, a Penn Wharton Budget Model study estimated that the legislation would “increase inflation very slightly” through 2024 before receding. The report released on Friday “indicates low confidence in the impact of the legislation on inflation.”

The Committee for a Responsible Federal Budget (CRFB) said the new measure amounted to the biggest deficit reduction bill since 2011, calling it a “welcome improvement” with inflation at its highest level in 40 years.

“In the short term, people are going to see their costs go down because energy costs go down and because health care premiums won’t go up,” Marc Goldwein, senior policy director at CRFB, said on Yahoo Finance Live (video shown). -above). “It’s not really anti-inflationary per se. But it can be anti-inflationary to the extent that these things are paid for, so they don’t pump more money into the economy, and to the extent that they help meet expectations.

Akiko Fujita is a presenter and reporter for Yahoo Finance. Follow her on Twitter @AkikoFujita

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