WASHINGTON – Republicans have seized on the tax provisions of the Inflation Reduction Act to hammer Democrats, saying the bill would raise every Americans’ taxes.
The tax issue has become a favored Republican talking point, espoused by party candidates across the nation, including the heated contest in the 2nd congressional district between Republican Tyler Kistner and Rep. Angie Craig.
“Angie Craig plans to raise your taxes,” said a recent release from Kistner’s campaign.
Under the Inflation Reduction Act corporations with earnings of $1 billion or more would be required to pay a minimum tax of 15 percent on earning reported to shareholders on their financial statements, commonly known as book income.
Kistner and other Republicans are right about the proposed increase on some large corporations, but in a limited way. And those attacking the tax provisions of the bill largely fail to mention measures in the Inflation Prevention Act aimed at reducing taxes and other costs to American families.
The Republicans have a point because any increase in the corporate tax rate, which would affect a company’s earning, is considered by most economists to be borne by the corporation’s workers, investors and customers.
“Corporations do not pay taxes, people do,” said V.V. Chari, University of Minnesota professor of economics.
Kistner and other Republicans have made much of an analysis by the Joint Committee on Taxation, a non-partisan congressional agency that analyses tax legislation. That analysis said the tax provisions in the Inflation Reduction Act would raises the average tax rate of Americans from 20.3 percent to 20.6 percent.
But most Americans would not experience a tax hike – the cost of that new corporate tax would be paid largely by the investors of a corporation who could see their dividends and the value of their holdings decrease and the corporation’s workers, whose wages and benefits could shrink.
The Inflation Reduction Act was approved by the U.S. Senate on Sunday on a strict party line vote, 50-50, with Vice President Kamala Harris casting the tie breaker.
The U.S. House, now on it’s August recess, will return to Washington D.C. on Friday to vote on the massive bill, which would provide $370 billion in incentives to reduce greenhouse gas emissions and extend expanded Affordable Care Act subsidies for three years, at a cost of about $64 billion. The bill would also reduce prescription drug costs for the elderly and cap the cost of insulin for Medicare patients to $35 a month. A broader insulin cap on all insured was rejected, thanks largely to the votes of Senate Republicans.
But to pay for clean energy incentives and other provisions, the bill imposed new taxes, targeting corporations that were able to avoid paying any levies.
Chari said politicians “should be upfront” and say a corporate tax that trickles down to others “is for a good cause.”
Still most Minnesotans – and most Americans – will not lose any money under the new corporate tax.
In addition, the nonpartisan Committee for a Responsible Federal Budget, said that by 2027, the bill would actually amount to a net tax cut each year, as new credits, including an expansion of premium subsidies for those who purchase health insurance through an Affordable Care Act exchange, and other incentives for low-emission energy sources outweigh the new minimum tax on certain large corporations.
Nevertheless, the Inflation Reduction Act continues to be called a tax hike bill.
“In 2009 President Obama said, ‘The last thing you want to do is to raise taxes in the middle of a recession.’ Yet here today, Democrats in Washington are planning on raising taxes on American families to fund a $700 billion dollar spending package that will in fact raise taxes on American families in the midst of a recession,” Kistner said in an emailed statement.
The Republican who is locked in a “toss-up” race with Craig also said this 700-page bill may very well include small bits of positive policy but at the end of the day that does not justify raising taxes on Minnesotans who are feeling the pain of skyrocketing inflation and a recession.”
Rep. Tom Emmer, R-6th, called the new corporate tax a “shell game” because it’s cost would be paid by American taxpayers.
“Everybody making $30,000 a year or more is going to pay more taxes,” he said Monday during a virtual event by the University of Minnesota’s Center for the Study of Politics and Governance.
Meanwhile, Sen. Mike Crapo of Idaho, the top Republican on the Senate Finance Committee who requested the analysis from the Joint Committee on Taxation, said “the Democrats’ approach to tax reform means increasing taxes on low- and middle-income Americans to fund their partisan Green New Deal.”
Craig shrugged off the attacks on Inflation Reduction Act.
“If billion-dollar companies have to pay taxes, it’s just leveling the playing field,” she said.
Craig also said “the bill overall is going to lower the cost for working families and reduce the deficit.”
A report by non-profit group Rewiring America said clean energy tax incentives in the bill would save the average American household $1,800 per year on energy bills.
The Joint Committee on Taxation’s analysis was completed before Sen. Kyrsten Sinema, D-Ariz., forced change in the tax section of the bill to secure her support for the legislation.
The corporate alternative minimum tax was tweaked to help manufacturers by allowing them to continue to take accelerate depreciation of their assets. Another proposed tax, on hedge fund managers, was completely eliminated.
Hedge fund managers make most of their millions and billions of dollars in “carried interest,” a fee on the gains of the money they invest for other individuals and institutions. That earned interest is taxed at 15 percent as capital gains by the Internal Revenue Service. That tax rate is lower than the one most Americans pay the IRS. The Inflation Reduction Act sought to remedy that before Sinema insisted the provision be tossed.
To make up for the revenue lost by Sinema-driven changes to the tax section, a new 1 percent tax on company stock buybacks was added to the bill.
Companies buy back their stocks as a way to reward investors, whose shares usually increase in value. The company also benefits because their per-share measure of earnings increases.
Barron’s said 2022 is set to be a record year for U.S. company buybacks, with some $1.2 trillion forecast to be spent. Companies undertaking buybacks include Apple and Google owner Alphabet.