September 1, 2022
𝙏𝙝𝙚 𝙄𝙣𝙛𝙡𝙖𝙩𝙞𝙤𝙣 𝙍𝙚𝙙𝙪𝙘𝙩𝙞𝙤𝙣 𝘼𝙘𝙩 𝙄𝙨 𝙉𝙤𝙬 𝙇𝙖𝙬—
President Biden signed the Inflation Reduction Act of 2022 into law on Aug. 16. The Inflation Reduction Act is a very slimmed-down version of the Build Back Better bill, which President Biden has been trying to pass. Two major achievements of the new bill – 1) large investment in combating climate change; and 2) lower cost of prescription drugs.
𝐒𝐮𝐦𝐦𝐚𝐫𝐲 𝐨𝐟 𝐭𝐡𝐞 𝐦𝐚𝐣𝐨𝐫 𝐩𝐫𝐨𝐯𝐢𝐬𝐢𝐨𝐧𝐬 𝐨𝐟 𝐭𝐡𝐞 𝐛𝐢𝐥𝐥:
- Creation of a 15% corporate minimum tax rate: Corporations with at least $1 billion in income will have a new tax rate of 15%.
- Corporate Stock buybacks: Stock buybacks by corporations will face a 1% excise tax.
- Prescription drug price reform: Medicare can now negotiate the price of certain prescription drugs, bringing down the price beneficiaries will pay for their medications.
- IRS tax enforcement: $80 billion will be invested in the nation’s tax agency over the next 10 years.
- Affordable Care Act (ACA) subsidy extension: Currently, medical insurance premiums under the ACA are subsidized by the federal government to lower premiums. These subsidies, which were scheduled to expire at the end of this year, will be extended through 2025.
- Energy security and climate change investments: The bill includes numerous investments in climate protection: tax credits for households to offset energy costs, investments in clean energy production; and tax credits aimed at reducing carbon emissions.
𝐁𝐨𝐚𝐭𝐧𝐞𝐫 & 𝐏𝐮𝐠𝐡 𝐓𝐡𝐨𝐮𝐠𝐡𝐭𝐬:
- Creation of a 15% corporate minimum tax rate:
Targeted at big businesses and big corporations – Taxes on individuals and households won’t be increased. Increased corporate taxes could have the opposite impact on inflation and quite possibly create higher prices.
- Stock buybacks:
Stock buybacks by corporations will face a 1% excise tax.
Another shot at big businesses BUT this could affect your personal investment accounts and possibly even create a tax inside your IRA or retirement accounts.
- Prescription drug price reform:
Medicare recipients will have a $2,000 cap on annual out-of-pocket prescription drug costs, starting in 2025 – not sure there will be much impact of this provision for a couple of years.
- IRS tax enforcement:
The Reports say as many as 87,000 new IRS agents will be hired. With so many new hires, and with the required training, it could take years before these new agents impact tax enforcement. Although the intention of this investment in tax enforcement is geared toward high wealth taxpayers, look for the IRS to take the easier way of picking on middle class taxpayers………SIDE NOTE – if you get a letter from the IRS that says you owe a balance, don’t just write a check and send it in. Always consult your tax preparer or a tax professional and see if you really owe this balance. In the majority of cases, you owe a lesser amount or nothing at all.
- Affordable Care Act (ACA) subsidy extension:
Approximately 3 million Americans could lose their health insurance if these subsidies weren’t extended, according to the U.S. Department of Health and Human Services. Of course, we want everyone to have access to health insurance, but this extension helps less than 1% of the US population retain health insurance.
- Energy security and climate change investments:
An increase in the number of energy credits, but a very low limit on the amount of credit allowed. New credits for electric vehicles, but numerous restrictions and qualifications make these credits more of a marketing item than an obtainable/usable credit – at least in the short-term.
𝐒𝐭𝐮𝐝𝐢𝐞𝐬 𝐒𝐡𝐨𝐰 𝐁𝐢𝐥𝐥 𝐋𝐢𝐤𝐞𝐥𝐲 𝐇𝐚𝐬 𝐍𝐨 𝐈𝐦𝐩𝐚𝐜𝐭 𝐨𝐧 𝐈𝐧𝐟𝐥𝐚𝐭𝐢𝐨𝐧—
Many budgetary agencies and models including the Congressional Budget Office (CBO) believe the “Inflation Reduction Act” will not likely reduce inflation or prices at all. The CBO states “the bill will barely make a dent on inflation in the near term—and could even nudge it upward.” While its name claims it will tame soaring inflation, estimates show that the bill will not likely do much to pull down the inflation rate. Even so, the bill remains a significant piece of legislation that accomplishes some initiatives that have been mired in congressional debate for decades.