End IRA Subsidies Now

Introduction

“The first lesson of economics is scarcity,” wrote economist Thomas Sowell. By contrast, “The first lesson of politics is to disregard the first lesson of economics.”

Passed in 2022, the Inflation Reduction Act (IRA), which, contrary to its title, is not about reducing inflation, commits the federal government to spend between $936 billion and $1.97 trillion over 10 years to create jobs in the electric vehicle, solar, and other green industries.

Lawmakers could put those resources to other uses, but now they cannot. Or can they?

Congress is, right now, trying to find the courage to eliminate some of the IRA’s subsidy programs. This paper seeks to help members of Congress muster that courage by reminding them and their constituents of the Inflation Reduction Act’s opportunity costs.

IRA supporters often say that its subsidies will create new jobs in their states or districts. They have a kernel of a point in that any trillion-dollar spending program will create some jobs. It will also come with significant opportunity costs, including jobs lost or never created. Some important things will not happen because of this legislation, and those things turn out to be, historically, quite important to Americans’ widespread prosperity.

At some level, most politicians in the nation’s capital must know about this tradeoff. They must suspect that when you take money out of the American economy and reallocate resources to try to push a political agenda – any agenda – that action is destroying as well as creating jobs.

Given the history of government performance versus private sector productivity and growth, subsidies are unlikely to produce any more jobs, on net, than otherwise would have existed if policymakers had done nothing.

In the first lesson of politics, performance and obfuscation play a large role. The debate over IRA subsidies is clouded by a well-known economic bias. It needs to be overcome for legislators to face facts plainly and bring their misguided subsidies to an end.

Make-work bias

There are more than 7 million job openings right now, up for grabs in the United States. If people in less productive IRA jobs were to fill those openings, or create their own businesses, they would create more wealth.

IRA subsidy defenders often argue that their spending creates jobs. Rebutting these claims requires calling out make-work bias, and making unseen opportunity costs visible.

Make-work bias is the belief that the number of jobs is more important than how productive they are. The long-run employment impact of most public policies, including the IRA, is near-zero. Labor force size is tied to population size more closely than anything else.

For example, when America was founded, roughly 90 percent of the labor force was on farms. Today, farms employ roughly 1 percent of workers. Despite nearly 99 percent of those jobs being displaced by industrialization, the May 2025 employment rate was 4.2 percent. And living standards today for the non-rich are between 1,000 percent and 10,000 percent higher than their forebears enjoyed during the Founding era.

Once the food supply is taken care of, people want other things too, because our wants are infinite. With higher productivity, more people’s hands are free to satisfy those wants, and to invent new things that people want. Every person displaced from a farm was free to move to a city and work in a factory or a trade, or provide some other service.

Productivity is the key to progress. Where one farmer fed 1.1 persons in 1776, that same farmer today can feed more than 100 people. Greatly increased productivity does away with the need for many farm jobs while freeing people up for other jobs. It is not about how many jobs there are, or what sector they are in, but the value they create.

IRA subsidies do not create net value. They take already-existing money out of some pockets and put it into others in a zero-sum game. They do not make people more productive. They do not create new wealth or new jobs. Instead, they redistribute money and jobs to people with better political connections, not necessarily people with better ideas. The labor force would be the same size even if the IRA had never passed.

While jobs created through entrepreneurship and market competition exist because they create value for people, IRA-subsidized jobs exist because of politics. Whether they produce anything worthwhile is of secondary concern to policymakers. This creates an enormous opportunity for political leaders brave enough to call out make-work bias and free up people’s talent and labor for more productive uses.

The political opportunity

If companies want to invest in electric vehicles, solar power, wind power, or other sources of green energy, they should, but with one rule: They should make those investments with their own money, not taxpayer-funded dollars.

The IRA was originally passed in 2022 using the budget reconciliation process. Today, in 2025, many members of Congress want to use that same reconciliation process to repeal the subsidies. However, many senators who did not support the IRA in 2022 have now had a change of heart due to make-work bias. This is a classic political problem.

Members of Congress say that the subsidies in the IRA will create new jobs in their states or districts. This is by design. The IRA has projects in as many districts as possible for the same reason that defense contractors have operations in as many congressional districts as possible.

But subsidies hold people back. When the IRA picks winners and losers, people are prevented from finding out where they can create the most value. The winners are electric vehicle companies, solar companies, and other green producers, whether or not they create any value. The losers are everyone else: taxpayers, entrepreneurs in other industries, their would-be investors, and even competitors who are in politically favored industries who lack political connections.

It is easy to see who benefits from IRA subsidies, from press conferences, ribbon-cutting ceremonies, and politicians bragging about them on the campaign trail.

It is harder to see the opportunity costs of IRA subsidies. To paraphrase the late political humorist P.J. O’Rourke, try holding a press conference in front of a factory that was never built, that isn’t employing workers who aren’t making a product that was never invented. You will not attract a large crowd.

Opportunity costs do not make for good television or soaring political rhetoric. They are often unseen. They are still real.

Right now is Congress’s best opportunity in years to see the unseen costs of IRA subsidies. Improving its vision in this way would help to stimulate an economy reeling from too much regulation, too much taxing and spending, and too many trade barriers.

Permanently ending IRA subsidies through Congress, rather than by executive fiat, would also stabilize policy. This would reassure businesses, investors, and consumers at a time of policy uncertainty, rising prices, and a possible recession.

It would also reassure the country that Congress is reasserting its proper role in the American system of government rather than handing off its responsibilities to the executive branch. The bulk of policymaking in the current administration has been via executive orders, which can be overturned whenever there is a change of power. This is exactly what happened after the first Trump administration ended.

Congressional legislation is longer-lived and more difficult to overturn. Now is the time for Congress to act. If tariffs and immigration policies continue to slow down the economy, the GOP’s majority will soon end. With it will end the opportunity to make reforms that will outlast the current administration.

What follows is a non-exhaustive list of reforms to curb misguided IRA subsidies.

Clean Vehicle Credit: The Clean Vehicle Credit is a tax credit of up to $7,500 that encourages consumers to buy electric vehicles rather than gas-powered vehicles with an aim of lowering carbon emissions.

A National Bureau of Economic Research working paper finds that 75 percent of consumers who take advantage of the Clean Vehicle Credit were consumers who were going to buy an EV anyway. In total, about $32,000 is spent by the government to subsidize each additional EV on the road under this program. Paying people to buy something they were going to buy anyway is not a recipe for job creation, which was one of the IRA’s major stated goals.

Progressives ought to have two reasons to oppose the Clean Vehicle credit. One, EV buyers tend to have above-average incomes, making the Clean Vehicle Credit a regressive income transfer. Two, it is unlikely to lower carbon emissions by any measurable amount.

EVs still have a variety of problems that make them unattractive for most car buyers, and which tax credits cannot solve. EVs are expensive, have short ranges, and take a long time to charge. They emit pollution from the battery production process, and from the power plants from which they draw electricity. Market competition could incentivize EV manufacturers to address these problems and make their cars more appealing. Subsidies slow that improvement process, just as they do in other subsidized industries from shipbuilding to mohair production.

Greenhouse Gas Reduction Fund: The Greenhouse Gas Reduction Fund is a $27 billion slush fund that includes three programs to invest in green technologies.  These include the Clean Communities Investment Accelerator ($6 billion), Solar for All ($7 billion), and the National Clean Investment Fund ($14 billion).

The money in these funds goes to a small number of nonprofits that are chosen by, and often have ties to, the Environmental Protection Agency. Those nonprofits then act as grant makers, using their own discretion to decide who the final recipients of the money will be. By design, these funds have no congressional oversight, creating the perfect situation for cronyism and abuse.

Taking into account opportunity costs, jobs created with these grants come at the cost of jobs created elsewhere. And since Greenhouse Gas Reduction Fund-created jobs are prone to cronyism and politicization, they are unlikely to create as much wealth as the politics-free and market-tested jobs that would have been created instead.

The Greenhouse Gas Reduction Fund is also an example of what economists call a principal-agent problem. One side, the principal, has some goals in mind, such as reducing carbon emissions and creating jobs. Principals rely on other people, their agents, to work towards that goal. If those agents do not have the right incentives, they might not work towards the principal’s goals.

In the Greenhouse Gas Reduction Fund, Congress is the principal. It has tasked agents, the EPA and its designated nonprofits, to spend $27 billion to reduce greenhouse gas emissions. But the lack of oversight and accountability, along with cozy personal and ideological connections, give the agents a poor incentive to behave in good faith. It is easy to spend money on politics, lobbying, patronage jobs, PR campaigns, and other emissions-unrelated projects. And there is little the principals in Congress can do about it.

The Greenhouse Gas Reduction Fund has structural problems that render it almost impossible to operate in good faith. Repealing it should be an easy decision for Congress to make, even for members who support its stated goals. Intentions are not the same thing as results.

45Q tax credit: The 45Q tax credit provides tax credits for power plants and other industrial facilities that increase the amount of carbon they capture and sequester. Originally, legislators intended this credit as a carrot to encourage power plants to reduce their carbon emissions and possibly create new jobs.

Once again, intentions are not results. Extending this tax credit could result in power plant closures and lost jobs that well outweigh jobs created making and installing new equipment. This is because the Biden EPA’s Clean Power Plan 2.0 uses the 45Q tax credit to justify outrageously strict carbon capture and sequestration requirements that many power plants are unable to meet. In the rule, the EPA claims that the tax credit “offsets a significant portion of the capture, transport, and sequestration costs,” yet doesn’t acknowledge that tax credits are still a cost to society. While the current EPA has recently proposed a rule to repeal the Clean Power Plan 2.0, addressing this in reconciliation would help ensure that similar rules are not promulgated in the future.

Investment and Production Tax Credits: The IRA’s costliest subsidies will likely be the Investment Tax Credit and the Production Tax Credit.  The Cato Institute’s Travis Fisher and Joshua Loucks argue that  is because these credits, like many of the others, are essentially endless.  They expire when the US’s greenhouse gas emissions are 25 percent of what they were in 2022. This is likely an unattainable goal, meaning the tax credits would never expire.

The ITC and PTC were created in 1978 and 1992 respectively. The original goal of these credits was to help wind, solar, and other green technologies get on their feet when they were still infant industries. There is nothing infant about these industries anymore, yet they still get special treatment.

Under the ITC, investors in wind and solar facilities, as well as some other green technologies, typically get 30 percent of their investment back. As of 2023, companies that generate electricity with no greenhouse gas emissions receive a credit of $27.50 per megawatt-hour under the PTC. As a result, wind and solar companies are able to price out traditional energy sources while still making profit.

Down with free lunch

All decisions have tradeoffs. EVs are good for some Americans, but not for others. People should not be forced by the government to use a car that doesn’t work well for them. Many Americans cannot afford to replace their car. For many one-car households, it is not feasible to have an EV be that one go-to car due to their range and reliability problems, and lengthy charging times.

IRA proponents suggest that its subsidies make EVs cheaper, but this fails to consider the subsidies as costs themselves. There are also switching costs that consumers must absorb when transitioning from their current vehicle to an EV.  For example, it is likely that EV buyers’ electricity bills will increase as they use more power to charge their EV. This may be a cost for which would-be owners are not prepared.

The IRA also trades traditional sources of energy for unreliable sources like wind and solar. Transitioning to wind and solar would make electricity more expensive and make it prohibitively expensive for low-income Americans, with awful results. We’ve seen this story before in the United Kingdom where it had a detrimental effect on those who couldn’t afford heat in the winter.

Components for solar panels, wind turbines, and other green technologies are often produced in places with questionable labor practices like China and the Democratic Republic of the Congo. IRA proponents might argue that its subsidies encourage these components to be made in America, creating more jobs here at home.

This is the zero-sum argument yet again; if readers sense a theme, they sense correctly. Subsidies do not add to the job supply. Jobs in traditional energy markets are lost, then replaced by subsidized, expensive jobs in green energy markets. Jobs that are outsourced are typically low-productivity jobs. This means that onshoring such jobs would either automate away many of them, or raise prices as expensive American labor is used on menial, low-productivity tasks.

Moreover, the jobs that are created are incredibly expensive. Same estimates have the cost to taxpayers at between $2 million and $7 million per job. This is another tradeoff of the IRA.

Conclusion

Inflation Reduction Act subsidies are not net job creators. IRA defenders fall for make-work bias and ignore opportunity costs. They overlook incentive problems, principal-agent problems, and other common problems that an undergraduate economics student could point out.

This year’s reconciliation process is the best opportunity Congress has had in years to eliminate billions of dollars of wasteful subsidies. It may not get another such opportunity for years to come. The time to act is now.

About the authors

Ryan Young is senior economist at CEI. He specializes in trade, regulation, monetary policy, and antitrust, and edited Adam Smith’s Guide to Life, Loveliness, and the Modern Economy. His writing has appeared in USA Today, The Wall Street Journal, and Politico, and he has appeared on NPR, the BBC, and C-SPAN’s Washington Journal. He has a Bachelor of Arts in history from Lawrence University and an M.A. in economics from George Mason University and is a member of the Mont Pelerin Society.

Jacob Tomasulo is a policy analyst at CEI. He graduated with a Bachelor of Science degree in economics with departmental honors from Susquehanna University in Selinsgrove, Pennsylvania. Additionally, he has experience working on public lands with the Student Conservation Association.

The authors thank CEI research associate Ryan Hwang for his valuable contributions.