The Inflation Reduction Act, which is expected to pass the House later this week before heading to President Joe Biden’s desk to be signed into law, will increase taxes on U.S. corporations while reducing the tax burden on middle-class households, according to an analysis released Tuesday by Congress’s Joint Committee on Taxation.
All told, corporations will pay nearly $296 billion more in taxes over 10 years due to provisions in Democrats’ bill, which is primarily focused on an array of efforts to mitigate climate change. About 75% of that total, or $223 billion, will come from a new 15% minimum income tax on U.S. companies that earn at least $1 billion annually. Most of the rest will come from a new 1% tax on stock buybacks.
High-income households will also pay a bit more due to indirect effects related to stock ownership in large firms, JCT said. Households earning more than $500,000 per year are projected to see their taxes increase by about 1%, even though the legislation does not contain any direct rate increase on households.
On the other hand, households earning less than $100,000 per year will see a new reduction in their aggregate tax burden through 2025, due in large part to an extension of Obamacare subsidies. The bill also includes tax breaks on the purchase of electric vehicles, but otherwise has no direct effect on tax rates.
Corporate tax revenues reduced: The corporate tax provisions were modified at the last minute in the Senate in order to win the support of Sen. Kyrsten Sinema (D-AZ), reducing the amount of revenue the bill is expected to bring in. Sinema effectively killed a provision that would have tightened the carried-interest tax loophole, which allows private equity investors to pay a lower tax rate on some of their investment income, reducing overall revenue produced by the legislation by $14 billion. Sinema also successfully lobbied to narrow the new 15% minimum corporate income tax to reduce its effect on manufacturers.
To make up for the lost revenues, lawmakers added a provision that will limit the size of losses claimed by the owners