Inflation Reduction Act of 2022
A scaled down version of the Build Back Better agenda of last summer passed the Senate Sunday and is now back in the House of Representatives for expected passage late this week. It then moves to the President’s desk for signature. The smaller bill is only 10% of the original bill the Biden Administration sought in 2021. Resolution of disagreement with Senators Manchin and Sinema led to the passage of the bill, with some late revisions required by Sinema. The tax increase provisions in the bill are directed at the wealthiest of Americans, but obviously will have a trickle down effect. To summarize:
• The bill includes a 15% minimum tax on corporations with income in excess of $1 billion. Instead of applying the tax rate to taxable income (financial statement income + or – the various deductions and addbacks allowed by the tax code, such as accelerated depreciation), a minimum tax of 15% of financial statement income would be assessed. There is a special carve-out of this provision for subsidiaries of private equity firms.
• To obtain Sinema’s support, the provisions regarding carried interest were eliminated, but were substituted with a 1% excise tax on publicly traded companies on the buy-back of corporate stock.
• Appropriation of additional funding to the IRS over a 10-year period of nearly $80 billion to enhance enforcement activities, operations support and business system modernization.
According to the Congressional Budget Office, the enforcement of the existing tax law by beefing up the IRS will add $124 billion in revenue. The corporate minimum tax and stock buy-back tax is projected to generate $74 billion in additional revenue. In total from all provisions, the CBO estimates net revenue of $739 billion from all provisions and costs of $433 billion.
So what can we expect as benefits from this bill? The majority are related to the Affordable Care Act, prescription drug pricing and climate.
• The Affordable Care Act provisions of the American Rescue Plan and the premium tax credits, from which many self-employed farmers have benefited, are extended through 2025. These provisions allow for credits even for individuals with income is in excess of 400% of the poverty line.
• Medicare will be allowed to directly negotiate pricing for prescription drugs directly with the drug companies, saving the federal government significantly. Out of pocket drug spending for those on Medicare would also be capped at $2,000 per year.
• Residential energy credits extended to 2032 and increased with an annual limit of $1,200 as opposed to the existing lifetime maximum
• Credits for electric and fuel cell vehicles up to $4,000 for a used vehicle/$7,500 on a new vehicle.
• Other credits, grants and programs directed at clean energy production and storage and projects directed at communities with payroll and property taxes stemming from fossil fuel production.
We will keep you posted as to changes as the bill moves forward this week.
Kelly Jackson Hardy is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers, privately-held elevators and supply dealers, and cooperatives. Kelly is a principal with CliftonLarsonAllen in Princeton, Illinois, as well as a regular speaker at tax and estate planning seminars. Kelly was raised on a hog, row crop and cattle farm in central Illinois and has been involved in the ag industry her entire life. Kelly, her husband, and two sons are active in 4-H and operate a small feeder calf operation and pumpkin business.
Mark – I would not count on seeing the ERC reinstated.