There were two very significant laws passed last year that could be just the fuel the economy needs to continue expanding and to avoid a recession. The Inflation Reduction Act (IRA) and the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act are two pieces of legislation that were passed in 2022. The IRA is designed to reduce inflation by increasing competition in the pharmaceutical industry and by providing tax breaks for energy-efficient appliances and vehicles. The CHIPS Act is designed to boost the U.S. semiconductor industry by providing subsidies for research and development, manufacturing, and workforce training.
Both the IRA and the CHIPS Act are expected to boost the U.S. economy by increasing investment, creating jobs, and reducing the deficit. The IRA is expected to have a more immediate impact, while the CHIPS Act is expected to have a more long-term impact.
Here are some of the specific ways in which the IRA and the CHIPS Act are boosting the U.S. economy:
- Increasing investment: The IRA provides tax breaks for businesses that invest in clean energy and manufacturing. This is expected to lead to increased investment in these sectors, which will create jobs and boost economic growth.
- Creating jobs: The IRA is expected to create 2.4 million jobs over the next decade. The CHIPS Act is expected to create 513,630 jobs and boost the U.S. semiconductor industry by $50 billion over the next decade.
- Reducing the deficit: The IRA is expected to reduce the deficit by $1.8 trillion over the next decade. This will help to improve the government’s finances and make it more likely that the economy will continue to grow.
- Boosting the semiconductor industry: The CHIPS Act provides subsidies for semiconductor manufacturing in the United States. This is expected to boost the U.S. semiconductor industry, which is critical to many other industries, such as the auto industry and the defense industry. Also, the reshoring of chip manufacturing plants will create a substantial number of new jobs right here in the states.
The chart below illustrates the impact that these Acts have already had on construction spending in manufacturing.
In addition to the economic benefits, the IRA and the CHIPS Act are also expected to have a number of other benefits. The IRA is expected to improve access to healthcare and to reduce greenhouse gas emissions. The CHIPS Act is expected to strengthen national security, a major benefit in my opinion, and to improve the U.S. position in the global economy.
Please comment or send an email if you have any questions. Thanks!
Joe Baker, CFP®
Baker Asset Management, LLC
