Winners and Losers in Inflation Reduction Act of 2022
Here’s who we feel comes out on top from the Inflation Reduction Act of 2022 and who takes a hit:
None of the billions of dollars in tax increases Democrats floated a year ago on high-earning Americans made it into the final version of the bill, including proposals to double the capital gains rate, increase taxes on inheritances and levy a surcharge on millionaires. Despite rhetoric from Democrats that they wanted the richest Americans to pay much more, there wasn’t consensus within the party to pass a bill that raises levies on the 1%.
Private equity fund managers were able to dodge a tax increase that Senator Joe Manchin wanted, but fellow moderate Democrat Senator Kyrsten Sinema insisted it be taken out of the bill. Manchin had wanted to narrow a tax break known as carried interest that allows fund managers to pay lower capital gains rates on their earnings. The private equity industry was able to gain an additional win shortly before the final passage of the bill when a handful of Democrats broke with their party to vote on a Republican amendment that created a carveout for private equity-owned companies in the corporate minimum tax.
The entire contents of the bill were essentially cherry-picked by Manchin and then tweaked to fit Sinema’s preferences. The two moderates amassed huge leverage with their willingness to accept no bill at all — and attacks from progressives — rather than a bill with provisions they opposed. The pair were also able to score some direct benefits for their states as part of the negotiations: Manchin secured an agreement to permit the completion of the Equitrans Midstream Corp.’s Mountain Valley Pipeline, and Sinema was able to get $4 billion for drought relief in western states.
The deal extends a popular $7,500 per vehicle consumer tax credit for the purchase of electric vehicles, a win for EV makers like General Motors Co., Tesla Inc., and Toyota Motor Co. But to win the backing of Manchin, companies will have to comply with tough new battery and critical minerals sourcing requirements that could render the credits useless for years for many manufacturers. Not all manufacturers stand to benefit from the credit. New cars that cost more than $55,000 and $80,000 for pickups and SUVs won’t qualify for the credits.
Manchin negotiated $300 billion in deficit reduction into the bill, the first major effort by Congress in 11 years to reduce the difference between how much the country spends versus how much tax revenue it takes in. The deficit cuts are minor compared to the $24 trillion national debt but hawks say it’s a start.
The Internal Revenue Service will get an influx of $80 billion over the next decade to expand its audit capability and upgrade technology systems after years of being underfunded.
The GOP was confident they had beaten back Biden’s tax and climate agenda and were stunned in late July when Schumer and Manchin announced a deal. While still the favorite to gain seats in the midterm elections, the passage of the bill is a major setback for the GOP’s policy aims.
Technology companies are set to bear the brunt of the two major tax increases in the proposal — a 15% minimum tax on financial statement profits and a new levy on stock buybacks. Corporations like Alphabet Inc.’s Google and Meta Inc.’s Facebook have both been able to deftly use the tax code to cut down on the taxes they owe, while still being profitable. The minimum tax is designed to increase levies on companies that report large profits to shareholders but can claim many deductions and credits to cut their IRS bills.
The SALT Caucus
The legislation does not include an expansion of the $10,000 cap on the state and local tax deduction, or SALT. The omission is a blow to residents of high-tax states on the Northeast and West Coast.
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