There are two significant developments coming out of Congress.
First, on July 28, 2022, the House voted to approve “The CHIPS and Science Act of 2022,” which was passed by the Senate on July 27, 2022. This bill passed in the House on a bipartisan basis with a vote of 243 to 187. It includes a 25% advanced investment tax credit for certain investments in semiconductor manufacturing, and it will be sent to the President for signature, which is expected because the administration has already expressed support for the legislation.
Second, after much back and forth over the past year, Sens. Manchin and Schumer announced that they have reached an agreement on a reconciliation bill affecting taxes, climate change, energy, and healthcare. It is called the Inflation Reduction Act of 2022, and it would also include $300+ billion of deficit reduction.
Among other things, the legislation would (i) impose a new 15% alternative minimum tax on financial statement (i.e., book) income of approximately 200 of the largest corporations – similar to the provision introduced as part of the Build Back Better Act that stalled in Congress last year, (ii) modify the carried interest rules, (iii) increase IRS funding by $80 billion over ten years, and (iv) provide new incentives for renewables and other sources of energy. The legislation is expected to raise more than $700 billion over the next 10 years.
The legislation is being touted as one that closes tax loopholes and enforces the tax code, but Democrats stress that it would impose no new taxes on families making $400,000 or less, and it would impose no new taxes on small businesses.
The legislation does not affect the gain exclusion for qualified small business stock, and, importantly, it does not provide for any SALT reform. The failure to include SALT reform is something that may prove to be a stumbling block among House Democrats, some of whom have stated publicly that they would not support any bill that did not remove or expand the SALT deduction limitation. Sen. Kyrsten Sinema also may object to the bill because she has long disfavored reform of the carried interest rules.
Even though there is now an agreement among the two key Senators, passage of the Inflation Reduction Act of 2022 is still uncertain because it requires the vote of every Democrat in the Senate and almost all of them in the House. Sen. Schumer is looking to advance the bill before the August recess beginning on August 5, and we expect more legislative wrangling to follow.