The Inflation Reduction Act: What Does It Contain?

On August 12, Congress passed the Inflation Reduction Act, over 700 pages of economic changes. What does the act do? And just as important, what does it not do?

To start with the name, the act’s proponents say the new law will fight inflation with deficit reductions — which makes most people ask, “Does it raise my taxes?” The good news is that for a vast number of people, the answer is no. Taxes are changing, but not for average individuals. The two major tax provisions are for corporations:

  • 15% minimum tax on corporations with over $1 billion in revenue.
  • 1% excise tax on corporate share buybacks.

A statement released by the Senate Democratic leaders said, “There are no new taxes on families making $400,000 or less and no new taxes on small businesses.”

On the plus side

Indeed, according to an analysis by USA Today, there are some definite benefits for individuals, including:

  • An Affordable Care Act subsidy extension through 2025.
  • Permission for Medicare to negotiate drug prices.
  • A cap on Medicare recipients’ drug expenditures at $2,000 per year.

Climate change offerings

The new act also provides:

  • Tax credits for buying a new or used electric vehicle, extended until December 2032.
  • Tax credits on electric commercial vehicles over a certain size.

According to USA Today, the net result could be a benefit for small businesses, because they avoid the tax hike large corporations face. Also, the climate-change benefits will encourage homeowners to upgrade to energy-efficient systems. This work is typically done by small companies.

Fighting the rumors

A key provision in the act is substantially increased funding for the IRS, which the bill’s opponents say will be used to investigate all taxpayers to squeeze every last dime to fill federal coffers. However, the administration has denied this is the case. Treasury Secretary Janet L. Yellen sent a letter to IRS Commissioner Charles P. Rettig with the following paragraph:

“Specifically, I direct that any additional resources — including any new personnel or auditors that are hired — shall not be used to increase the share of small business or households below the $400,000 threshold tha