Senate Passes Inflation Reduction Act

Business Tax

Update: House Approves Inflation Reduction Act

The House of Representatives voted today to approve the 730-page bill and it now moves to the President’s desk for signature. The official name of the bill, as modified in the Senate, is “An Act to provide for reconciliation pursuant to title II of S. Con. Res. 14.”

Separately, the Joint Committee on Taxation on August 9, released its revenue estimates for the tax provisions in the bill. Below are the estimates for selected tax provisions:

  • The new 15% corporate alternative minimum tax on book income is expected to raise $222.2 billion over 10 years.
  • The 1% excise tax on stock buybacks is expected to raise $73.7 billion over 10 years.
  • The amount of deficit reduction is expected to be $295.9 billion over 10 years.
    • To put this in perspective, if we assume the national debt is about $30 trillion, this bill would reduce the national debt each year by about 0.09% ($29.6 billion/year divided by $30 trillion).
  • The reinstatement of Superfund taxes on certain oil and petroleum products is expected to raise $11.7 billion over 10 years.
  • The two-year extension on noncorporate taxpayers’ ability to use excess business loss is expected to raise $53.8 billion.

Original Publish Date: August 8, 2022

After a marathon weekend session, the Senate modified and passed the Inflation Reduction Act of 2022 on August 7 along partisan lines, with VP Harris casting the tie-breaking vote. The bill now moves to the House where it is likely to be approved this Friday, August 12. President Biden is expected to sign the bill shortly thereafter.

The bill is significantly smaller in size than the Build Back Better Act that stalled in Congress last year. The new bill contains provisions for prescription drug pricing, deficit reduction, and climate change, among other things. As Bill Gates wrote on August 5 in The New York Times, this bill is the “single most important piece of climate legislation in American history.”

The Bill’s Tax Provisions

The bill contains some tax provisions that are new to the tax code. First, there is a 15% minimum tax on the book income of companies earning at least $1 billion each year. This tax is expected to hit the largest 200 companies in the United States, and it applies to tax years beginning after December 31, 2022.

The bill also would impose a 1% excise tax on stock buybacks made by public companies. This provision takes effect on January 1, 2023.

There is a provision that extends for two years the section 461(l) loss limitation rules that apply to noncorporate taxpayers. The limitation would apply to tax years beginning before January 1, 2029.

The bill also provides about $80 billion of funding for the IRS over the next decade (which is expected to result in $204 billion of new enforcement revenue), a reinstatement of Superfund taxes on certain oil and petroleum products, and various tax incentives for renewable energy and fossil fuel companies.

What’s not in the bill? Due to objections by Sen. Sinema of Arizona, there are no provisions affecting the taxation of carried interest – the so-called tax loophole used by private equity professionals. There is also no change to the tax rules affecting qualified small business stock, no expansion or elimination of the SALT deduction limitation, and no change to the international tax rules, notably GILTI and BEAT.

The Joint Committee on Taxation has not scored the bill yet, so there is no official estimate of the revenue to be raised from the modified bill.

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