On August 16, President Biden signed the Inflation Reduction Act, over 700 pages of economic changes. What does the act do? And just as important, what does it not do?
To start with the name, the act’s proponents say the new law will fight inflation with deficit reductions — which makes most people ask, “Does it raise my taxes?” The good news is that for the vast number of people, the answer is no. Taxes are changing, but not for average individuals. A few of the major revenue raising provisions are:
- 15% minimum tax on corporations with over $1 billion in book income.
- 1% excise tax on publicly traded corporate share buybacks.
- Extension of the Limitation on Excess Business Losses of Noncorporate Taxpayers for an additional two years to 2028.
On the plus side
According to an analysis by USA Today, there are some definite benefits for individuals, including:
- An Affordable Care Act subsidy extension through 2025.
- Permission for Medicare to negotiate drug prices.
- A cap on Medicare recipients’ drug expenditures at $2,000 per year beginning in 2025.
Climate change offerings
The new act also provides:
- Individual tax credits for buying a new or used electric vehicle, extended until December 2032 and the elimination of the limit on the number of credit-eligible vehicles applies to vehicles sold after 2022.
- Extension and Modification of Nonbusiness Energy Property Credit through 2032 and replaces the $500 lifetime limit with a $1,200 annual limit.
- Tax credits on electric commercial vehicles.
According to USA Today, the net result could be a benefit for small businesses, as they avoid the tax hike the giant corporations now face. Also, the climate-change benefits likely will encourage homeowners to upgrade to energy-efficient systems, and this work is typically done by small companies.
Fighting the rumors
A key provision in the act is substantially increased funding for the IRS, which the bill’s opponents say will be used to investigate all taxpayers to squeeze every last dime to fill federal coffers. However, the administration has denied this is the case. Treasury Secretary Janet L. Yellen sent a letter to IRS Commissioner Charles P. Rettig with the following paragraph:
“Specifically, I direct that any additional resources — including any new personnel or auditors that are hired — shall not be used to increase the share of small business or households below the $400,000 threshold that are audited relative to historical levels. This means that, contrary to the misinformation from opponents of this legislation, small business or households earning $400,000 per year or less will not see an increase in the chances that they are audited.”
For a more detailed summary of this new bill, click here.
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