Why Whistleblowers Will Be Vital for the Inflation Reduction Act
The Inflation Reduction Act of 2022 (“IRA”) has many ambitious goals. To take a step back from the climate precipice we’ve walked onto. To bring down the cost of pharmaceuticals for American seniors. To reduce the federal deficit.
The law mixes historic levels of investment with long-sought tax and pricing reforms to achieve these ends. Whether doling money out or bringing money in, one thing is clear, whistleblowers will be key to ensuring that the goals of the law are met.
Recent experience with COVID-relief funds have shown that large influxes of government money without appropriate safeguards leave the money ripe for abuse. Prosecutors are calling fraud on the Paycheck Protection Program the largest fraud in U.S. history.
Experts believe that more than half a trillion dollars may have been stolen from various COVID-relief programs. To support law enforcement’s efforts to recoup some of these stolen funds, President Biden recently signed two bills into law to extend the statute of limitations for prosecuting individuals who committed fraud on certain COVID-relief programs.
But we don’t want to spend the next 20 years chasing down money fraudulently taken or improperly withheld from IRA-funded programs. Congress should learn from our experience and collective losses due to fraud on COVID programs and make sure that the investments and revenue-generating provisions of the IRA reach their full potential.
Below we explore various provisions of the IRA and ways we expect that whistleblowers will be vital in protecting these programs in the coming years:
Energy Security and Climate Change
The nonpartisan Committee for a Responsible Federal Budget estimates that the IRA will put about $385 billion into combating climate change and bolstering U.S. energy production. Experts estimate that the law will reduce carbon emissions by about 1.8 billion tons by 2030—bringing the U.S. close to President’s Biden’s stated goal of bringing emissions down to 50% of what they were in 2005 by 2030. The law does this in a number of ways, including:
- $260 billion in clean-energy tax credits – New and extended credits will incentivize solar, wind, hydropower and other sources of renewable energy. Private firms and publicly owned utilities can get subsidies for producing renewable energy and for manufacturing specific parts essential to renewable projects, such as wind turbines and solar panels. The overall goal is to make it cheaper to build new green energy production sites than fossil fuel plants.
- $80 billion in rebates for consumers to subsidize the purchase of electric vehicles and installation of energy-efficient home improvements such as solar panels, efficient heat pumps, and insulation.
- $27 billion for a “Clean Energy and Sustainability Accelerator,” i.e., a “green bank” to leverage public and private funds to invest in clean-energy technologies and infrastructure.
- $20 billion in agricultural subsidies to help farmers reduce emissions.
- $6 billion to reduce emissions in chemical, steel and cement plants.
- $3 billion to reduce air pollution at ports.
- $1.5 billion in rewards to oil and gas companies that cut methane emissions (along with penalties for those that don’t).
Much of this money is spent through the provision of tax credits. In addition, the rules around these programs are nuanced and remain to be written. Whistleblowers, particularly those who report to the IRS whistleblower program, will be crucial to ensuring that the programs operate as intended.
Healthcare Reform
The IRA also sets out to lower medical costs for Americans in a variety of ways. First, it uses federal subsidies to reduce the cost of health insurance and prescription drugs. It also empowers Medicare officials to negotiate with pharmaceutical manufacturers, hopefully bringing the price of these drugs down for consumers as well as the Medicare program. Senate Democrats estimate that the pricing reform will bring in $265 billion while the extension of Affordable Care Act subsidies will cost approximately $64 billion. Following is a summary of the major provisions:
- Empowers Medicare officials to negotiate drug costs.
- Sets a $2,000 annual cap on the amount of money that seniors pay for drugs.
- Caps out-of-pocket insulin expenses at $35/month for Medicare beneficiaries.
- Federal subsidies will increase for three years for middle- and lower-income people who purchase insurance through Obamacare exchanges.
Whistleblowers, particularly in the healthcare field, regularly return billions of dollars to taxpayers on an annual basis. We expect that whistleblowers will be key in ensuring that the IRA’s provisions benefit taxpayers and consumers as intended. For example, whistleblowers have repeatedly held pharmaceutical manufacturers accountable for fraudulent pricing schemes.
Tax Reform
The Congressional Budget Office estimates that the IRA will bring in $222 billion1 through application of a 15% minimum corporate tax on all U.S. corporations that earn more than $1 billion per year in profits. The law will bring in another $74 billion through application of an excise tax on corporate buybacks.
Obviously, IRS whistleblowers will be critical in making these new provisions effective. It has long been known that the “tax gap”—the difference between taxes owed and taxes collected—is costing the federal government trillions of dollars. In fact, not long ago, the Commissioner of the IRS testified that tax cheats are costing the United States $1 trillion per year and the IRS doesn’t have the resources to go after them.
Luckily, the IRA also invests $80 billion to scale up enforcement at the IRS. The Congressional Budget Office estimates that this investment will net $124 billion for the federal government. If multiplied by the power of the whistleblower, we believe this number could be even higher!
Molly Knobler is an attorney at Phillips & Cohen LLP.
1 Congressional Research Service, Tax Provisions in the Inflation Reduction act of 2022 (H.R. 5376), Updated August 10, 2022
