According to the analysis, the law on reducing inflation would lead to $ 1,800 in savings for the average family

According to a new analysis, the extensive climate and health care legislation unveiled by Democrats last week would lead to significant cuts in energy costs for American households.

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

“This is a level of investment that turns the market upside down,” Ari Matusiak, co-founder and CEO of the group who was involved in drafting the bill, told Yahoo Finance. “The beneficiaries of [this measure] in the long run we will all be on the planet. In the short term, it will be the Americans at their kitchen tables who will make savings from month to month. ”

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

Although these cost savings are spread across more than 100 different programs, Matusiak said the biggest reductions are likely to come from discounts and credit programs that offset the cost difference between appliances and cars and those that rely on fossil fuels.

Here are some of the biggest cost savings.

Electrifying families

A program called the High Efficiency Electric Home Rebate Act (HEERA) sets aside $ 4.5 billion in direct discounts for low- and moderate-income households installing new, efficient appliances.

Under the proposed rebate framework, a low-income household will receive a discount of up to $ 8,000 for a new heat pump, $ 840 for an electric heater or electric dryer, and $ 2,500 for upgraded electrical wiring, among other discounts. Matusiak said those incentives will allow 1 million households to switch to electricity.

“The challenge is that these machines are new and are not yet ubiquitous on the market, so they have not yet reached industrial scale, which means that their prices outside the showroom are higher than the fossil fuel machines they will replace,” He he said. “So the investments in the inflation reduction law are going directly to bridge the gap between the cost of a fossil fuel car outside the showroom versus a clean electric car.”

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

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

Credits for purchases of electric vehicles

The climate legislation also includes new funding for a $ 7,500 federal vehicle tax credit, which should give major automakers such as Tesla (TSLA) and GM (GM) an added bonus, along with drivers.

While the new electric vehicle credit is seen as an extension of an existing program, the clean vehicle credit program comes with additional conditions, including the requirement that eligible cars be built from materials purchased and processed in a country in which the United States has a free trade agreement with. It also requires that the battery used includes a large number of components manufactured in North America.

Additionally, the legislation provides a $ 4,000 tax credit for used cars for the first time. The income threshold would be capped at $ 300,000 in adjusted gross income for joint filers or $ 150,000 for individual filers. The credits would be limited to an income level of $ 75,000 and $ 150,000 for used cars.

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

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

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

“41% of the inflation that consumers are experiencing is due to the fact that energy bills go straight up to the pump and the kitchen table,” he said. “And by electrifying the machines we use in our daily life structures that inflation out of our lives forever. So it’s not just about getting to that $ 1,800 number this year, it’s about reducing the amount of money. you spend on energy year after year for the next 20 years “.

Matusiak also pointed to additional credits that allow homeowners to deduct up to 30% of the cost of their homes’ energy efficiency upgrades, as part of the estimated $ 1,800 savings.

Impact on inflation

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

Former Treasury Secretary Larry Summers, who criticized the impact the Biden administration’s pandemic stimulus had on inflation, publicly supported the billstating that it would fight inflation by significantly reducing the budget deficit over time.

“You’re collecting more than $ 2.00 in revenue for every dollar you spend,” he told CNN.

Skye Weyrauch, her mother Diane, and granddaughter make their way down Larchmont Blvd. in Los Angeles, June 11, 2022. (Mel Melcon / Los Angeles Times via Getty Images)

Skye Weyrauch, her mother Diane, and granddaughter make their way down Larchmont Blvd. in Los Angeles, June 11, 2022. (Mel Melcon / Los Angeles Times via Getty Images)

Meanwhile, a Penn Wharton Budget Model study estimated that the legislation would “slightly increase inflation” until 2024 before retreating. The report released on Friday “indicated little confidence that the legislation will impact inflation.”

The Committee on Responsible Federal Budgeting (CRFB) said the new measure represents the largest deficit reduction bill since 2011, calling it a “welcome improvement” with inflation peaking at 40 years.

“In the short term, people will see their costs drop because their energy costs are lower and their health premiums won’t rise,” said Marc Goldwein, senior policy director at CRFB, on Yahoo Finance Live (video above). “This is not actually anti-inflationary per se. But it can be anti-inflationary to the extent that these things are paid for, so they are not investing more money in the economy and to the extent that they help with expectations. ”

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

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