The Inflation Reduction Act aka “Build Back Better Lite” looks like a done deal. The $740 billion package is chock full of tax hikes for some and tax breaks and credits for others.
Passed along purely partisan lines 51-50, Democrats insist the Act will ease inflation while the GOP argues more spending will spark inflation again – just in time for midterm elections.
The Congressional Budget Office (CBO) concluded the Act will reduce inflation by 0.1% in the near term and could increase it by next year. The CBO still refuses to say we’re in a recession despite two straight quarters of negative growth.
The House will sync up the Act with its own bill this week, but chances are most if not all of the major provisions are firmly baked into the cake.
Here are just a few of the highlights and what businesses need to prepare for:
Who’s getting some relief?
- Accountants will be busier than ever – the Act funds the hiring of 87,000 new employees for the IRS! Take a deep breath: Not all of the new hires will be auditors as some Republicans are claiming. The IRS workforce is old and reinforcements are needed. But there’s no question that more audits for individuals and businesses are on the horizon. Potential good news? CPAs who are willing to spar with the IRS and contest audits will be in high demand!
- At the 11th hour, hedge fund and private equity fund managers avoided a tax hike. Senator Kyrsten Sinema (Arizona) fought to keep the 15% rate in place. The original bill called for a moderate rate hike to 23.8%. Also: Businesses that are owned by private equity firms are locked in at the 15% rate.
- Big Box retailers lobbied for and won a minimum corporate tax rate of 15% that applies to all sectors. Retailers typically pay at or near the 21% corporate rate while some manufacturers (such as General Motors) and foreign companies pay zero or close to it. Retail needs all the help it can get with millions of Americans shopping less and retail inventory piling up.
- Clean energy producers like solar, wind and biofuels are clear-cut winners. The Act locks in generous tax incentives for the next decade. The Biden Administration will also tie federal land sales and leases for fossil fuel energy production (oil, gas, coal) to sufficient space for solar and wind farms.
- To help offset the green energy costs, Democrats set a $6.5 billion tax on natural gas production, 16.4 cents-per-barrel tax on crude oil and imported petroleum products, and $1.2 billion coal tax. Americans for Tax Reform warn the taxes will increase energy costs for typical households.