As Senate lawmakers negotiate a major tax bill and concern grows about how a rollback of green tax credits could figure in negotiations, a new report from AU’s Institute for Macroeconomic and Policy Analysis finds that repealing clean energy credits would significantly reduce GDP, employment, and wages over both the near and long term. Alternatively, retaining the credits and raising the corporate tax rate to 28 percent would increase GDP, employment, wages, and government revenues while reducing inequality.

“Repealing clean energy credits would harm the economy,” said Ignacio Gonzalez, assistant professor of economics, an expert on public economics and macroeconomics, and co-director of IMPA. “Our recommended approach balances growth, revenues, and distributional outcomes, and is fiscally sustainable. If you want to raise revenue without compromising growth, there's a different option: raise the corporate tax rate.”

The policy brief finds that retaining the clean energy credits is important for economic growth and the transition to a clean energy economy:

• Repeal of credits for clean energy and clean vehicles projected to decrease wages by 1.5 percent and employment by .5 percent in the long run; GDP projected to fall by 2.2 percent
• Raising the corporate tax rate to 28 percent could address fiscal concerns while having minimal economic impact, as the tax would primarily fall on rents rather than investment. Long-run GDP is projected to increase by more than 2.3 percent.

President Joe Biden’s Inflation Reduction Act, passed in 2022, addresses climate change with tax incentives to transition to a clean energy economy. The Biden Administration contends the IRA reduces costs through the tax breaks and increases in federal payments, which are projected to lower overall costs to the U.S. federal budget. A review of the IRA by Goldman Sachs found 280 clean energy projects underway in 44 U.S. states, representing $282 billion of investment.

American University’s Institute for Macroeconomic and Policy Analysis informs policy and legislative proposals with research on macroeconomics, public finance and inequality. In their work, IMPA researchers apply new economic models and methods that improve upon conventional ones to include the effects of the market power of large corporations in America. IMPA resides in the Department of Economics in AU’s College of Arts and Sciences.