After months of stalled negotiations, congressional Democrats were able to move broad climate, clean energy, and health care legislation in the first two weeks of August. This bill, called the Inflation Reduction Act and signed into law by President Biden, is smaller than the original ‘Build Back Better’ proposal but invests in key Democrat priorities ahead of the midterm elections.
A key negotiator, Sen. Joe Manchin (D-WV), had previously withheld support for a broad spending package given record high inflation. The investments in clean energy extend current tax credits for renewable energy sources and create new programs for consumers to purchase electric vehicles and install clean energy upgrades in their homes. Small businesses will also be eligible for special tax treatment for upgrades – a 30% tax credit available to switch to solar power and the ability to deduct up to $1 per square foot for making high-energy efficiency upgrades. Another priority included in the bill is the ability for Medicare to negotiate drug prices – capping out-of-pocket pharmacy costs for seniors at $2,000 and capping insulin costs at $35 per month.
These investments would be paid for with new taxes on corporations – HFA has been clear that we oppose any tax increases during these economic conditions. However, Democrats decided to move forward with tax increases focused on larger corporations. The tax provisions include:
- 15% domestic tax on book income for corporations with more than $1 billion in average annual income over a three-year period.
- S. corporations that are members of a foreign-parented multinational group for any taxable year would need to have earned at least $100 million in such income
- Importantly for HFA members, S Corporations are excluded from this provision. HFA addressed this issue with Senate Finance Committee staff during our recent GRAT Washington DC Fly-In.
- 1% excise tax of the fair market value of any stock repurchase in a tax year by a publicly traded U.S. corporation, including any subsidiary that has 50% or more of its stock owned by a corporation
Another provision included in the legislation provides an additional $80 billion to the Internal Revenue Service (IRS) to address the $1 trillion+ outstanding tax liability. While not to this magnitude, there had been recent bipartisan conversations about increasing funding for the IRS. HFA recognizes these outstanding liabilities are a national issue – we have compared it to a business running with overdue Accounts Receivable. It would not be sustainable for a business, nor is it for the nation. We hope these provisions are implemented fairly and allow the IRS to address these uncollected revenues.
Furniture retailers are the ‘canaries in the coal mine’ for inflation as we have been discussing its impact on HFA members and consumers over the last two years. It is unclear whether the Inflation Reduction Act will actually reduce inflation, but anything that Congress or the Biden Administration can do to address those rising costs is critical.
