The Inflation Reduction Act: What's In It?
Last weekend the Senate narrowly passed a sweeping economic and climate change legislation with a 51-50 party-line vote. The $430 billion spending bill will likely be signed into law this Friday by President Joe Biden.
The effects this new legislation will have on the American economy as well as on the investing community remain to be seen. As for now, let’s break down what’s inside the Inflation Reduction Act and the questions surrounding the bill.
Primary components of the Inflation Reduction Act
- Combats climate change - $369 billion is earmarked for investments to curb climate change and boost clean energy. The goal is to reduce emissions 40% by 2030.
- Addresses health care costs – Allows Medicare to negotiate prices with drug companies for certain expensive drugs, creates a co-pay cap for Medicare beneficiaries, and extends Affordable Care Act subsidies to negate a planned 2023 hike in insurance premiums.
- Raises taxes on large corporations – To help fund the bill, there will be a 15% tax increase on large corporations and an excise tax on companies that repurchase share of their own stock. Tax increases are not supposed to affect anyone making less than $400,000 per year.
- Grows the IRS: The legislation allocates $80 billion to the IRS and adds 87,000 new IRS positions, half of which would fill retiring employees.
Questions posed by American economists and business journalists
- Will this new bill curb inflation and spur economic growth, especially when more government spending typically results in higher prices (“too much money chasing few goods”)?
- Will the tax increase on large corporations be passed down to the average consumer (aka the middle class)?
- How will this legislation impact family farms and agriculture and thus an already fragile food supply chain?
- Could the bill’s $7,500 proposed tax credits be counterintuitive for sales of electric vehicles (Due to the materials sourcing, pricing stipulations and personal income caps.)?
Electric Vehicles
The Alliance for Automotive Innovation believes 70% of electric vehicles currently sold in the U.S. would be ineligible for the tax credits. While the Alliance CEO John Bozzella supports the long-term goals of the bill, he contends the industry needs more time to:
- Make production plans
- Secure domestic materials for the vehicles
“The current supply chain can’t support all the EVs that companies want to produce in the coming years,” he said in a recent CNBC interview.
Conservation/Agriculture
According to AgWeb.com, the IRA will deliver $18 billion in four conservation programs:
- Environmental Quality Incentives Program - $8.45 billion
- Regional Conservation Partnership Program - $4.95 billion
- Conservation Stewardship Program - $3.25 billion
- Agricultural Conservation Easement Program - $1.4 billion
Taxation
According to the nonpartisan Joint Committee on Taxation (JCT), starting in 2023:
- Americans making less than $10,000 per year would see a 0.3% tax hike in 2023.
- Taxes would increase by $16.7 billion for Americans earning less than $200,000 per year.
White House economic advisor Jared Bernstein disagrees and guaranteed nobody making under $400,000 will pay higher taxes under the Inflation Reduction Act. He argued in a Fox News interview that the legislation’s stimulus of green energy sources will boost the economy and reduce the debt-to-GDP ratio.
"By investing and standing up a clean energy industry, manufacturing as the act does, that's going to generate more economic growth, spin off more revenues," said Bernstein.
Fox Financial Group is a family-owned comprehensive financial services firm committed to helping you achieve your long-term financial goals - even in challenging times like the first half of 2022. You can reach us at 636-534-7252 or info@foxfinancialgrp.com. You can also click on this Calendly link to schedule a free consultation with Jay Fox. We would love to serve you and your family!
Investment advisory services are offered through Mutual Advisors, LLC DBA Fox Financial Group, a SEC registered investment adviser. Fox Financial Group, nor any of its members, are tax accountants or legal attorneys, and do not provide tax or legal advice. For tax or legal advice, you should consult your tax or legal professional.