The Prospects of the Inflation Reduction Act in Trump’s Second Term

January 15, 2025

Key Takeaways:

  • As President Trump takes office, there are still many unknowns about the fate of Biden-era energy policies.
  • Trump has stated he wants to terminate the Inflation Reduction Act (IRA), President Biden’s hallmark energy and climate reduction legislation.
  • While the IRA did not receive any Republican votes when it was enacted, the IRA now generally enjoys some bipartisan support and largely benefits Republican districts, making it difficult to predict its fate.
  • While an outright repeal is not likely, look for Republicans to phase out the electric vehicle (EV) tax credits.
  • We are closely monitoring the incoming administration to see if there will be any impacts to the IRA, particularly for businesses, individuals, and homeowners.

Key Contact:

David Adeleye

Government Relations Director and Counsel

Point of Difference Strategies/Croke Fairchild Duarte & Beres

dadeleye@crokefairchild.com


President-elect Donald Trump begins his second presidential term on January 20, 2024, and he’ll weigh whether to fulfill his campaign promise to cut specific provisions of or fully repeal the Inflation Reduction Act (IRA).

The IRA, Biden’s landmark energy and climate change legislation, authorized over $300 billion (direct spending, tax credits, and rebates) in spending toward clean energy and climate change reduction strategies. To date, the IRA is the federal government’s largest investment in climate change mitigation in United States history.

The IRA appropriates funds to bolster new and existing clean energy technology and make clean energy technology more affordable for low-income communities. Additionally, the IRA authorizes subsidies to increase U.S. manufacturing across the clean energy supply ecosystem — with hopes of spurring and sustaining hundreds of thousands of jobs across the country. The IRA also includes a suite of tax credits and rebates for homeowners to make clean energy efficiency upgrades to their homes. The bill provides for:

  • Tax incentives and about $145 billion in grant and loan programs to fund new clean energy technology investments and deployment to assist the United States’ transition to a clean energy economy
  • A tax credit that will provide for 30% of the cost of a solar panel
  • A tax credit up to $2,000 annually toward a federal tax bill if a homeowner makes energy-efficient home upgrades, including installation and upgrades of heat pumps, water heaters, and air sealing
  • An EV tax credit that provides up to $7,500 for the purchase of a new EV or a tax credit of up to $4,000 for used EV purchases
  • Funds for state rebate programs covering specific energy-efficient home upgrades

While campaigning, President-elect Trump indicated he will “terminate” the IRA. However, the reality of repealing the IRA is not so simple given the procedural and political factors that will go into this decision.

Political Calculus of Repealing the IRA

First, President Biden’s administration has already announced awards for two thirds of the $145 billion direct spending funds provided for in the IRA. The federal government cannot simply claw these funds back as they are already out the door.

Assuming President Biden does not award the entirety of the direct spending funds before he departs office, President-elect Trump could pause additional funding decisions on day one of his term. However, that action would likely draw litigation, as the Impoundment Act of 1974 requires presidents to spend appropriated funds and requires congressional approval to rescind appropriated funds.

Additionally, even though Republicans have a majority in the House and Senate, President Trump will not likely have the allies to pause the IRA fundings. Members of Congress will likely receive blowback from their constituents because of the IRA’s wide use.

In 2023, 3.4 million Americans benefited from $8.4 billion in IRA tax credits to make energy-efficiency upgrades in their homes. About 85% of the IRA’s direct spending investments have gone to Republican congressional districts. Further, in August 2024, House Republicans wrote a letter to Speaker Mike Johnson (R-LA) in support of the IRA, stating “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.” In that same letter, House Republicans noted “Energy tax credits have spurred innovation, incentivized investment, and created good jobs in many parts of the country — including many districts represented by members of our conference.”

Fate of the IRA

Because of the utility of the IRA in Republican districts and its use among individuals, some Republicans might not vote for a full repeal. However, a partial repeal is a likely compromise. The EV tax credit would likely be the first provision to go as congressional Republicans look to extend the Tax Cuts and Jobs Act of 2017, President Trump’s trademark law in his first term that made changes to the U.S. tax code for corporations and individuals. Congressional Republicans are already on the record suggesting this would be the first IRA incentive to go.

Avenues for Advocacy

As Republicans begin to debate the fate of tax credits as part of their tax reform and budget reconciliation talks, now is the time for interested parties to contact their representatives about IRA provisions they would like preserve.

There are multiple reasons why members of Congress would second-guess gutting the IRA. Members may receive pushback from their constituents about their energy bills and may want to use IRA funds to transition to affordable solar. The IRA is also creating jobs; Members are reluctant to enact legislation that would deplete jobs in their districts. Further, President-elect Trump and congressional Republicans have made weaning the U.S. off foreign energy a priority, and the IRA provides avenues for more domestic clean energy production.

We’re confident a full IRA repeal won’t occur, but some IRA incentives that directly benefit individuals, like the EV tax credit, could be on the chopping block. We will continue to closely monitor how President-elect Trump’s clean energy agenda will take shape.

Please contact one of our professionals with any questions.