The Inflation Reduction Act of 2022: You can’t spend your way out of inflation or tax your way out of recession.

One must wonder about this legislation when Bernie Sanders, the liberal torchbearer for the nation, promptly takes the Senate podium to announce that the plan will have little effect on inflation. As one unknown Republican Senator commented: “You can’t spend your way out of inflation or tax your way out of recession.” However, that is what President Biden and the Democrats seem to have planned

The measure is now on its way to the Democrat-controlled House of Representatives after Chuck Schumer and the Democratic leadership of the Senate needed Vice President Kamala Harris’ vote to pass The Inflation Reduction Act of 2022. Here is a summary of the bill.

Source: U.S. Senate Democrats

The following analysis comes from the U.S. Senate Committee on Finance

Ranking Member's News | Newsroom | The United States Senate Committee on Finance

Individual Income Taxes

• Extends the required holding period for carried interest to be taxed as a long-term capital gain from three years to five years for taxpayers with an adjusted gross income equal to or greater than $400,000.

• Extends the expanded health insurance Premium Tax Credits provided in the American Rescue Plan Act (ARPA), including allowing higher-income households to qualify for the credits and boosting the subsidy for lower-income households, through the end of 2025.

Corporate and International Taxes

·       The proposed 15 percent minimum tax on corporate book income is the most economically damaging provision in the bill, reducing GDP by 0.1 percent and costing about 23,000 jobs. The tax increase on carried interest also eliminates about 5,000 jobs.

Other Modeled Tax Proposals

• Modifies, extends, and creates a variety of tax credits for green energy and other efforts primarily through 2031 or 2033.

• Raises the Superfund tax on crude oil and imported petroleum to 16.4 cents per barrel (indexed to inflation) and increases other taxes and fees on the fossil fuel sector.

Significant Tax Proposals Not Modeled

·        Expands IRS enforcement funding by about $80 billion over 10 years with the goal of hiring 87,000 new workers.

Remember, this legislation is brought to you by the same folks who wanted to spy on every bank account over $600.  This will double the size of the IRS once the hiring is completed and catapult the agency into 4th place in the Federal Government in terms of number of employees.  Approximate 280,000 Americans make more than $1 million a year.  Do you really think that the folks at the IRS need 160,000 workers to investigate those 280,000 returns?

This is a breakdown of the expected “no tax increase for folks that earn under $400,000:

·        40-57 percent could come from taxpayers making $50,000 or less;

·        65-78 percent from those making less than $100,000; and,

·        78-90 percent from those making less than $200,000.

·        Only around 4-9 percent could come from those making $500,000 or more.

BOOK MINIMUM TAX

MYTH: The book minimum tax (BMT) does not raise taxes; it closes loopholes by making large companies pay at least a 15 percent minimum tax.

FACT: The BMT is a $313 billion tax increase, with half of the increase falling on manufacturers, according to the nonpartisan Joint Committee on Taxation.  Despite proponents’ claims, the book minimum tax does not close tax loopholes.  The BMT is calculated based on financial statement (“book”) income, which is a different set of rules established for an entirely different purpose than taxable income. 

Claims that the BMT closes loopholes ignore the fact that the provisions resulting in different book and tax treatment were specifically enacted by Congress for sound policy reasons.  For example, the treatment of capital investments differs for book and tax purposes, in part to encourage companies to invest in capital assets in the United States.  As the left-leaning Tax Policy Center acknowledges, the BMT would discourage investment.

 According to a study by the National Association of Manufacturers, in 2023 alone the effects would include:

• A real GDP reduction of $68.45 billion

• 218,108 fewer workers in the overall economy

• A labor-income decrease of $17.11 billion

Further, the BMT will not prevent large companies from paying zero tax.  The energy tax provisions included in the “Inflation Reduction Act of 2022” would permit companies to receive those tax credits in excess of their tax liability.  In other words, not only will companies in Democrat-favored industries - such as automakers, utilities, and lithium refiners - be able to pay zero tax, but some will also even be able to receive taxpayer-funded subsidies in excess of the tax due for engaging in an activity that has been picked for government handouts.