How the IRA Provisions (and Scores) Have Changed

Rolling back the InflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. Reduction Act (IRA) green energy credits is one of the most contested parts of the One Big Beautiful Bill (OBBB) that just passed the House of Representatives.

A TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. Foundation piece from mid-May covered how the initial House Ways and Means CommitteeThe Committee on Ways and Means, more commonly referred to as the House Ways and Means Committee, is the chief tax-writing committee in the US. The House Ways and Means Committee has jurisdiction over all bills relating to taxes and other revenue generation, as well as spending programs like Social Security, Medicare, and unemployment insurance, among others. draft section of the OBBB changed the IRA credits. The final version that passed the House on May 22 made several changes to the original Ways and Means Committee approach.

Most notably, it further restricts the major IRA clean electricity credits.

The final version eliminates the phaseout. The Ways and Means version gradually reduces the investment tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income rather than the taxpayer’s tax bill directly. (ITC) and production tax credit (PTC) available for clean electricity projects entering service after 2028 and fully phases out the credits by 2032. In the final House version, the PTC and ITC are both fully eliminated for projects entering service after 2028, without a transitional phaseout period.

The final version also further tightens the credit eligibility timeline. Under current law, eligibility for the credits is based on the beginning of construction. The Ways and Means version would base eligibility on when projects are placed in service—a significant tightening as utility-scale electricity projects often take years to complete. The final House version added another limit for eligibility: not only must projects be placed in service by 2028, but they also must begin construction within 60 days of the Act’s passage.

The final House version softens a few provisions relative to the Ways and Means approach, most prominently the treatment of the nuclear production credit, 45U. The Ways and Means version would phase out the credit after 2029 before fully eliminating it after 2031. The final House version would eliminate it after 2031 but leave it fully intact until then. It would also preserve transferability for the nuclear production credit as well as the ITC and PTC. Both versions expand one credit: the clean fuels production credit.

All The Provisions: How the IRA Credit Changes Landed in the Final House Version

Sources: H.R. 1 – One Big Beautiful Bill Act, May 22, 2025, https://www.congress.gov/bill/119th-congress/house-bill/1/text; Title IX: Committee on Ways and Means, “The One Big Beautiful Bill,” May 12, 2022, https://punchbowl.news/wp-content/uploads/SMITMO_017_xml.pdf.

How Tax Foundation Scores Have Changed

Tax Foundation’s estimate of the cumulative cost of the IRA reforms has also changed. We estimated the first reforms to the IRA would raise $487 billion, while our analysis of the final provisions included in the bill was $468 billion. However, this change is primarily reflective of a change in baseline, rather than a change in policy.

We use Treasury expenditure estimates as inputs to our CorpTax model to approximate the effects of repeal. In March, we estimated repeal of the hydrogen credit would yield over $75 billion in revenue over 10 years. However, this estimate is well above several others, leading us to reconsider that baseline for that credit.

Our initial score of the Ways and Means print included an estimate that repealing the 45V credit starting in 2026 would raise $81.6 billion, slightly higher than our original estimate. However, by the time we assessed the final House bill, we updated our baseline with cost estimates of the 45V tax credit produced by the Energy Futures Initiative based on facility-level data, and our subsequent estimate of the provision in the final House bill fell to $18.9 billion.

Setting that technical change related to the hydrogen credit, which reduced estimated revenue raised by $62.7 billion, our estimates of changes to other provisions rose by $43.4 billion. That increase comes from both the mostly stricter policy approach taken in the final bill as well as stronger assumptions about the extent to which the FEOC rules will reduce credit takeup.

We also made a small methodological enhancement since our March piece. Our March estimate of repealing the electric vehicle (EV) credits did not account for how repeal may affect gas taxA gas tax is commonly used to describe the variety of taxes levied on gasoline at both the federal and state levels, to provide funds for highway repair and maintenance, as well as for other government infrastructure projects. These taxes are levied in a few ways, including per-gallon excise taxes, excise taxes imposed on wholesalers, and general sales taxes that apply to the purchase of gasoline. revenue. Eliminating EV credits should reduce EV adoption, meaning more conventional cars that pay gas tax on the road. We estimate eliminating the EV credits would raise an additional $10.6 billion in net revenue over the next decade thanks to the gas tax, which is reflected in our analyses of the Ways and Means version and the final House version.

Major Sources of Uncertainty: Technological and Interpretive

As the Congressional Budget Office (CBO) noted in a recent paper on tax credits for wind and solar power, and as was discussed at our recent conference, technological uncertainty muddles estimates of these provisions. Typically, tax policy modeling involves assumptions regarding things like economic growth, inflation, or population growth that affect how much certain taxes raise. While those factors are not “easy” to predict, there is a relatively narrow band of possible outcomes. That is less true for tax policies related to emerging technologies, where estimates of technological adoption could vary by a factor of 10. 

The other source of uncertainty relates to legislative text itself. The restrictions on foreign entities of concern, or FEOC, are extensive. Given the connections between US and Chinese supply chains for electric generation, storage, transmission, and distribution equipment, those provisions could be effectively impossible to comply with. For complex provisions, the IRS often must issue extensive guidance for taxpayers to follow, and that new guidance may make provisions more, or less, generous than originally expected when the legislative text was first released.

This uncertainty was an issue when the IRA passed—the Joint Committee on Taxation (JCT) underestimated the cost of the EV credits in large part due to IRS guidance that made the credits more accessible than originally anticipated.

Going Forward

The final House bill makes impressive cuts to the IRA green energy tax credits, but it does so in part by introducing more complexity. Instead of relying on complex sourcing rules to bring the credit costs down, the Senate could reduce credit rates while eliminating wasteful strings, such as prevailing wage and apprenticeship requirements and bonus credits for targeted areas. The Senate could also nix the House’s expansion of the clean fuel production credit. On the whole, the Senate should at least match, or even expand upon, the House’s net cuts in terms of scale, but it can do so with an eye towards simplification.

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