Inflation Reduction Act of 2022 Is Law & Brings Enhanced IRS Tax Enforcement

What's in the Inflation Reduction Act?

Revenue and spending in the legislation breaks down as follows, according to the Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT):1

Amount

Source


REVENUE

$313 billion

15% corporate minimum tax *

$288 billion

Prescription drug pricing reform **

$124 billion

Enhanced IRS tax enforcement **

$725 billion

Total revenue raised


INVESTMENTS

$369 billion

Energy security and climate change investment ***

$64 billion

Affordable Care Act extension **

$433 billion

Total investments

$292 BILLION

TOTAL DEFICIT REDUCTION

* Joint Committee on Taxation ** Congressional Budget Office *** Both



Following are highlights of some of the most notable features of the Inflation Reduction Act of 2022:

15% corporate minimum tax

The bill introduces a new 15% minimum tax on corporations to help pay for climate and health care measures. The tax applies to companies that generate $1 billion in annual earnings. The Joint Committee on Taxation (JCT) estimates the tax will raise $313 billion in revenue over the next decade. Exemptions from the tax demanded by Sen. Kyrsten Sinema (D-Ariz.) to secure her 'yes' vote include:

Exemption for companies that use accelerated depreciation to help pay for new investments.
Exclusion of small businesses that are subsidiaries of private equity firms.
Prescription drug pricing reform

The bill allows Medicare to negotiate prices for some drugs for the first time. This is a policy Democrats have attempted to enact, over objections from the pharmaceutical industry, for many years. The provisions are expected to save $288 billion over 10 years according to analysis by the CBO.

Enhanced IRS tax enforcement

The Inflation Reduction Act of 2022 allocates $80 billion to increase enforcement by the IRS. Supporters of the measure hope that additional employees and better technology will allow the IRS to catch more tax cheats, especially among the ultra-wealthy. The CBO believes this could boost IRS revenue by at least $124 billion over the next decade.

Stock buybacks will be subject to an additional tax once the legislation becomes law. A 1% excise tax on buybacks is expected to generate $74 billion by 2031.

In a bid to recoup tax revenue lost to private equity, the act imposes a limit on losses businesses can deduct from their taxes. These measures are designed to prevent wealthy individuals from reducing or even wiping out their income tax liability.

Energy security and climate change investment

The largest investment made by the Inflation Reduction Act of 2022 is for energy security and climate change. It totals $369 billion and consists of the following:3

Business Incentives and Tax Credits

Incentives to businesses to deploy lower-carbon and carbon-free energy sources.
Tax credits for energy production and investments in wind, solar, and geothermal energies.
Tax credits for investment in battery storage and biogas.
Tax credits for investments in nuclear energy, hydrogen energy coming from clean sources, biofuels, and technology that captures carbon from fossil fuel power plants.
Bonuses for companies based on worker pay and the manufacture of steel, iron, and other components in the U.S.


New tax credit rules make EV tax credit hard to get:3

EV must be made in North America.
Eliminates credits for pricey EVs, i.e., Hummer EV, Lucid Air, and Tesla Model S and Model X.
Lowers tax credit on new EVs with battery minerals sourced from countries other than the U.S.
Business and Consumer Incentives

Incentives to companies and consumers who make cleaner energy choices.
Tax credits for residential clean energy costs including rooftop solar, heat pumps, and small wind energy systems. 30% credit through 2032—phases down after 2032.
Electric vehicle tax credits of up to $7, 500 on new EVs and $4, 000 on used.
Tax credit for energy efficiency in commercial buildings.
Grants and loans to help companies reduce emissions of gas methane from oil and gas.
Fees levied on producers with excess methane emissions.
$27 billion toward additional incentives for clean energy technology.
Some provisions of the Inflation Reduction Act of 2022 actually increase fossil fuel production on public lands.

Use of Public Lands

New requirements to hold lease sales that open up new oil and gas production.
Affordable Care Act extension

The legislation extends financial assistance to help people enrolled in ACA through 2025.

Corporate Tax