Aug. 8, 2022
The Inflation Reduction Act passed the Senate with a 51-50 vote Sunday afternoon, making large investments in climate change action and reducing the national debt, but at the cost of imposing a 15 percent minimum tax on corporations making $1 billion or more in income.
The bill is expected to raise more than $740 billion in revenue over 10 years, the bulk of which ($258 billion) will come from a new 15 percent corporate minimum tax. Other revenue generators are prescription drug pricing reform ($288 billion) and increased IRS tax enforcement ($124 billion). A proposal to close the carried interest loophole, which allows investors to pay lower taxes on asset sales by treating them like capital gains instead of income, was removed from the bill to secure Sen. Kyrsten Sinema’s (D-AZ) support, however, in exchange for that removal, there will be a new 1 percent tax on share buybacks ($74 billion).
The new revenue will help fund several goals Democrats had included in the original $3.5 trillion Build Back Better Act, albeit at a much scaled-down level. More than $360 billion will go toward reducing carbon emissions and another $64 billion will extend subsidies for health insurance under the Affordable Care Act. The remaining $300 billion will be set aside for deficit reduction.
The bill now heads to the House of Representatives, where it is expected to be voted on later this week. As such, business organizations have turned their focus to the House. A letter signed by national trade groups, including FEDA, and local chambers of commerce urged House members to oppose the legislation.
“This legislation includes taxes that would discourage investment and undermine economic growth and price controls that would limit American innovation,” the letter states. “Despite the name of the bill, independent analysis confirms that it would have little to no impact on inflation and may, in fact, increase inflationary pressure in the near-term.”
It further argues that the new tax on stock buybacks would diminish the value of Americans’ retirement savings and that the proposed corporate minimum tax would create a competitive disadvantage for U.S.-based businesses. “This is the absolute wrong time to increase taxes on American job creators or implement price controls on American innovators,” the letter says. “We urge Congress to reject this misguided legislative package.”
“This new funding will empower the IRS to audit, scrutinize, and even harass many family-owned, small businesses, that are following the law and paying their taxes,” said Jade West, chief government relations officer for the National Association of Whoesaler-Distributors. “Now is not the right time for increasing taxes on hardworking Americans and small business owners. Rather than increasing audits, the IRS should prioritize modernizing its IT services, addressing the backlog of tax returns, and making the agency more customer friendly,”
Those concerns were echoed by the U.S. Chamber of Commerce. In a statement on Aug. 5, Neil Bradley, executive vice president and chief policy officer for the U.S. Chamber, called the legislation a “power grab” that would lead to fewer medical innovations and harm the economy. “Taxing capital expenditures – investments in new buildings, factories, equipment, etc. – is one of the most economically destructive ways you can raise taxes,” he said. “It punishes innovation, leaves a country poorer and less capable of growing.”
Still, U.S. Chamber officials did praise some aspects of the bill. Martin Durbin, senior vice president of policy and president of the chamber’s Global Energy Institute, noted that the bill would advance progress on climate and energy security through measures such as the tax credit for purchasing electric vehicles funding the development of carbon capture, utilization, and storage technology. “Climate progress and energy security are not mutually exclusive, even though they are sometimes treated as such,” Durbin wrote. “We can increase American energy production while still lowering emissions. In fact, boosting domestic oil and gas production will help reduce global reliance on foreign sources that have a more significant environmental footprint. While certainly not complete in its scope, the reconciliation bill at least acknowledges these benefits by directing the resumption of legally required offshore oil and natural gas leasing and by attempting to ensure continued leasing for both oil and natural gas and for offshore wind.”