On August 7, 2022, the U.S. Senate passed the Inflation Reduction Act (IRA) of 2022 (H.R. 5376) with a 51 to 50 tally, with Vice President Kamala Harris casting the tiebreaking vote. Overall, the bill is a significantly scaled-down solution to what many Democrats, including President Biden, had asked for originally. Nevertheless, the bill aims to impact climate, tax, and health care policy substantially. Although the Joint Committee on Taxation (JCT) released a revenue table for the draft form of this bill released on July 27, 2022, the JCT has not yet released its estimates of the bill that passed the Senate on Sunday.

While the bill will continue to undergo revisions, here are the significant tax revenue provisions included:

Corporate Alternative Minimum Tax (CAMT)

The current statutory corporate tax rate is 21%. However, some 200 or more large corporations utilize tax deductions and credits and pay less than 15%. The corporate alternative minimum tax (AMT) proposal would impose a 15 percent minimum tax on adjusted financial statement income for corporations with profits over $1 billion.

Tax on Stock Buybacks

While the provision regarding the treatment of carried interest was removed from the bill the Senate passed, a 1% excise tax on stock buybacks beginning after December 31, 2022, was added. This excise tax would apply to repurchases of stock by publicly traded U.S. corporations for the value of any stock that is repurchased during the taxable year by the corporation or specified affiliates in which the corporation owns a 50% or greater equity interest.

Health Care

Medicare could directly negotiate prescription drug prices with drugmakers for some of their most expensive medications. If drug companies raise prices faster than inflation, the new bill would require them to rebate the difference to Medicare patients. There would also be a $2,000 annual cap on Medicare enrollee’s out-of-pocket spending for prescription drugs.

Energy-Related Tax Credits

The bill extends and expands key energy tax credit provisions that have supported the growth of the renewable energy sector and promoted carbon capture, and introduces new tax credits intended to promote clean hydrogen and other efforts to mitigate greenhouse gas emissions.

What Was Not Included in the Bill?

Closing the Tax Loophole for Carried Interests

Under current law, taxes on carried interests are not paid until a realization event. Proceeds from the realization event are taxed at long-term capital gain rates (20% Federal). Attempts to close this loophole have been removed from the bill.

Increase/Elimination of the SALT Deduction

This was a key provision for many Democrats to support that was not included in the bill. For individuals who itemize their taxes, there is a $10,000 limitation on the state and local tax (SALT) deduction. This is particularly relevant for many states with high property tax rates. 

The House is planning to reconvene on Friday, August 12, 2022, to consider the Senate bill. Your NewEdge Wealth team will continue to keep you informed.

Sources:

• Text of the Senate Bill as released on August 6, 2022, prior to amendments offered on Senate floor.
• Text of amendment offered on Senate floor and adopted by a vote of 51-50 [modifies amendment listed immediately below to change its revenue offset].
• Text of amendment offered on Senate floor and adopted by a vote of 57-43 [modifies bill’s AMT provisions].
• https://taxnews.ey.com/news/2022-1198-senate-approves-inflation-reduction-act
• https://www.democrats.senate.gov/imo/media/doc/summary_closing_tax_loopholes_in_the_inflation_reduction_act_of_2022.pdf