The Inflation Reduction Act of 2022 was passed on August 7, 2022, in the U.S. Senate by a vote of 51 to 50. No Republicans joined this Senate vote, with Vice President Kamala Harris casting the tiebreaking vote. It heads to the House for a likely vote to pass today. This bill is a much smaller revision of the Build Back Better Act. It excludes many of the original tax credit and climate change provisions, but it is still touted as America’s most substantial investment in climate and energy to date. The bill hopes to lower energy costs, increase cleaner energy production and achieve 40 percent lower greenhouse gas emissions by the end of the decade.
Key Tax Provisions
To address health care and raise revenue, there will be a new 15 percent corporate minimum tax on financial statement book income with average profits exceeding $1 billion per year. It is estimated to raise more than $300 billion in revenue over the next decade.
The carried interest tax loophole was cut from the tax bill due to lack of support. The replacement for the carried interest tax loophole is a one percent excise tax on stock buybacks for covered corporations. It is expected to generate $74 billion by 2031. A "covered corporation" is any domestic corporation that the stock of which is traded on an established securities market. This provision would not take effect until 2023, so there may be a fury of stock buybacks before the end of 2022.
Energy & Climate
The bill includes several energy credits, including electric vehicle credits, but as with most bills, the pitfalls are abundant. For instance, the $7,500 new clean vehicle credit might exist on paper. However, most vehicles will not qualify for this purchase incentive over the next few years due to restrictions on where parts and batteries have to be manufactured to qualify for the credit. Additionally, some provisions actually increase fossil fuel production on public lands.
Internal Revenue Services (IRS)
The bill will dole out about $80 billion over ten years to the IRS and hire 87,000 new agents for increased enforcement, operational improvements, customer service, and systems modernization. Think big, really big! That is more than six times the current annual IRS budget of $12.6 billion and will double the current size of the IRS! Lower to middle-income Americans and small businesses are the expected primary targets of these enforcements.