By Alex Fabian, PICPA Manager of Government Relations
Congress passed a sweeping tax, health care, and climate bill, which was signed by President Joe Biden on Aug. 16, 2022. Known as the Inflation Reduction Act of 2022, the $430 billion package was approved along party lines, with all Democrats backing it and all Republicans opposed.
The bill passed the senate chamber through the reconciliation process. Reconciliation is a rule particular to the Senate that eases passage of legislation on taxes, spending, and the debt limit via a majority vote, bypassing the filibuster. By using reconciliation, Democrats were able to pass the legislation without any Republican support. The Senate is currently split evenly by party, so Vice President Kamala Harris cast the tiebreaking vote. The bill then went to the Democrat-majority House where it easily passed.
There are three major tax provisions in the legislation of particular interest to CPAs:
- Funding for the IRS – The legislation appropriates about $80 billion over the next decade for IRS enforcement activities, including the hiring and training of new auditors, IT systems modernization, and taxpayer services. In a statement released Aug. 12, Secretary of the Treasury Janet Yellen offered praise for the additional funding: "This legislation takes a critical step toward correcting our two-tiered tax system to ensure large corporations and high-income earners cannot avoid paying the taxes they owe. Reversing the long-term deterioration in IRS funding will help Treasury fulfill its commitment to closing the tax gap, restoring fairness to the tax code, and providing compliant taxpayers with the IRS support they deserve."
- A 1% tax on stock buybacks – The legislation imposes a new 1% tax on corporations’ net repurchase of stock. A provision to close the carried interest loophole – which benefits managers of hedge funds and private equity funds – was removed to secure the vote of Sen. Kyrsten Sinema (D-Ariz.). To secure passage of the legislation in the 50-50 Senate, all Democrats had to be on board. The stock buyback tax was included to replace the revenues lost by removing carried interest provision. Democrats expect the stock buy-back tax to raise $74 billion over a decade.
- A 15% corporate minimum tax – The legislation creates a new 15% corporate alternative minimum tax based on the financial statement income of corporations with at least $1 billion in such income and allows for bonus and accelerated depreciation deductions when calculating taxable book income. The AICPA has repeatedly reached out to congressional tax-writing committee leaders since October 2021 expressing concerns about this tax, most recently in an Aug. 4 letter. The letter highlights concerns about basing tax liability on the nontax criterion of book income.
According to CNBC, the provisions in the Inflation Reduction Act are expected to raise $737 billion over 10 years. Democrats say the bill will reduce the deficit by more than $300 billion, citing analyses from nonpartisan congressional tax and budget offices.
Additionally, CNBC reports that the plan includes a record $369 billion in spending on climate and energy policies that are projected to slash the country’s carbon emissions by roughly 40% by 2030 and several tax incentives for businesses to lower their carbon footprint. This money includes tax credits and incentives for investment in clean energy manufacturing, such as wind, batteries, and solar. It also includes credits for the purchase of electric vehicles. On health care, the new law allocates $64 billion to extend an Affordable Care Act program to reduce insurance costs and includes key prescription drug pricing reforms. The bill empowers Medicare to negotiate prices on 100 drugs over the next decade, among other reforms that the Senate estimates will save $265 billion.
The PICPA government relations team partners closely with the AICPA on federal policy issues, and looks forward to providing additional resources as the key provisions of this historic legislation are unraveled and take effect.
Also, stay tuned for further analysis in the coming weeks from Bob Duquette, CPA, a member of PICPA’s Federal Tax Thought Leadership Committee. He will provide a detailed analysis of the bill in a blog to be posted in a couple weeks.
The PICPA now offers Inflation Reduction Act CPE programming. View the list of available courses.
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