8/15/2022: What is in the Inflation Reduction Act?
Investment in Energy, Climate and Health. Higher Corporate Taxes. Less Deficit
After months of negotiations, a 730-page version of the bill passed the House last Friday and President Biden said he plans to sign it into law. As illustrated above, this bill would raise more taxes from a bunch of low-hanging-fruit areas and make investments in energy security, climate change and health care with a total deficit reduction of $300B+.
According to this CRFB article (which analyzed an earlier version of the bill and gave more details), the drug price reform in the bill will save taxpayers $322 billion in the next decade while making $98B necessary investments in Obama care and vaccines. In terms of new tax revenue, the 15% corporate minimum tax makes a lot of sense. This tax applies to global income of public companies that generate more than $1B of annual profits. Double Irish With a Dutch Sandwich is a well known trick for large corporations to avoid federal income taxes by redirecting revenue to countries where they operate with lower tax rates. But this trick hurt the US Taxpayers. I am glad this is being fixed and can generate $222B of tax revenue in the next decade. Other tax initiatives like investing in IRS enforcement and taxing stock buybacks also makes a lot of sense. Collecting taxes that should have been collected is a no brainer. Stock buybacks are basically a tax avoidance scheme. Notably, the carried interest loophole failed to be closed again!!!. I supposed it failed because it doesn’t generate a lot of revenue ($13B) and one democratic senator strongly objects to it. Failure to close this loophole is more about optics than substance though. In a grand scheme of things, carried interest taxation doesn’t make a huge difference in tax revenue or inequality. In my opinion, closing the step-up basis loophole for estate taxes will be way more impactful in terms of fairness and tax revenue.
This document by the Senate summarized the energy security and climate change investments in the inflation reduction act of 2022. It covers a lot of surface area from clean energy technology accelerators to grants to reduce air pollution at ports. According to the doc, the combined investments in the FY2022 Budget Reconciliation bill would put the U.S. on a path to roughly 40% emissions reduction by 2030, and would represent the single biggest climate investment in US history. This document is a must read for people who are interested in investing in climate change and energy security.