Will the Inflation Reduction Act Increase Taxes? Targets Corporate Taxes

The proposed climate bill that Senator Joe Manchin has pivoted to support (the Inflation Reduction Act of 2022) could soften inflation’s blow — but what about taxes?

Rachel Curry - Author

Aug. 5 2022, Published 11:17 a.m. ET

The proposed climate bill, otherwise known as the Inflation Reduction Act of 2022, could potentially soften the blow of inflation. That’s exactly why Senator Joe Manchin (D-W.V.) has pivoted in favor of the bill’s laid-out spending and revenue. What about the bill’s impact on taxes?

Article continues below advertisement
Article continues below advertisement

The Inflation Reduction Act primarily targets corporate taxes, though it does have some impact on individuals and energy. This means more tax revenue to help fund sustainable energy infrastructure and trim the federal deficit, though members of Congress will have to decide if it’s worth the leap. With Manchin’s support and Vice President Kamala Harris’ tie break, it could go all the way.

Here's the latest update on the Inflation Reduction Act of 2022.

inflation act
Source: Getty

Sen. Kyrsten Sinema (D-Ariz.)

Late on Aug. 4, Senator Kyrsten Sinema (D-Ariz.) announced her support for the climate and tax bill spearheaded by Democrats. Like Manchin, Sinema is a Democratic centrist who often sides with Republicans. Without unanimous support from all Democrat senators, Harris won't have the chance to break the tie and push the Inflation Reduction Act through.

Article continues below advertisement

Sinema said in a statement, “We have agreed to remove the carried interest tax provision, protect advanced manufacturing, and boost our clean energy economy in the Senate's budget reconciliation legislation. Subject to the Parliamentarian's review, I'll move forward.”

The Inflation Reduction Act primarily targets corporate taxes.

The Inflation Reduction Act earns revenue through a few tax pathways. The key one is corporate and international taxes. If it passes, the bill will institute a 15-percent minimum tax on corporate book income for all corporations with at least $1 billion in profits annually. This tax rate would begin on January 1, 2023.

Article continues below advertisement
Article continues below advertisement

The U.S. corporate tax rate in 2018 became a flat 21 percent, but write-offs often bring this percentage down. The corporate tax provision wasn't a target in the latest round of negotiations. Rather, centrists targeted a particular individual tax provision.

There are some proposed individual tax adjustments in the Inflation Reduction Act.

The bill initially aimed to narrow the carried interest loophole by extending the required holding period from 3–5 years. That change is now gone, which led to Sinema’s support. Without the carried interest provision, the bill loses some funding, but the majority of the bill remains intact.

Article continues below advertisement

Meanwhile, individuals would continue to benefit from expanded health insurance Premium Tax Credits through the end of 2025. More people would be eligible for more money under the subsidy provision.

Article continues below advertisement

Green energy companies and other approved initiatives would receive enhanced tax credits. This provision would last until 2031–2033. On the flip side of the same coin, crude oil and imported petroleum would see an increased Superfund tax, up to 16.4 cents per barrel. This is more in line with inflation and could help reduce the deficit (or at least keep it from widening).

Sinema said the latest negotiations have been productive. She said, “I have had many productive discussions with members of our conference over the past three days and we have addressed a number of important issues they have raised.” Constituents can expect a final bill introduction on Saturday, Aug. 6.


Latest U.S. Economy & Politics News and Updates

    Opt-out of personalized ads

    © Copyright 2024 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.