WASHINGTON — Republicans have seized on the tax provisions of the Inflation Reduction Act to hammer Democrats by saying the law would raise taxes for all Americans.
The tax issue has become a popular topic of conversation among Republicans, championed by party candidates across the country, including the heated World War II contestnd Congressional District between Republican Tyler Kistner and Rep. Angie Craig.
“Angie Craig plans to raise your taxes,” according to a recent publication of Kistner’s campaign.
Under the Inflation Reduction Act, companies with earnings of $1 billion or more would be required to pay a minimum tax of 15 percent on income reported to shareholders in their financial statements, commonly known as book income.
Kistner and other Republicans are right about the proposed increases for some large companies, albeit on a limited scale. And those who attack the bill’s tax provisions largely fail to mention measures in the Inflation Prevention Act aimed at reducing taxes and other costs for American families.
Republicans are right, because any increase in the corporate tax rate that would affect a company’s profits is viewed by most economists as having to be borne by the company’s employees, investors and customers.
“Companies don’t pay taxes, people do,” said VV Chari, an economics professor at the University of Minnesota.
Kistner and other Republicans made much of an analysis by the Joint Committee on Taxation, a bipartisan congressional agency that analyzes tax laws. This analysis states that the tax provisions in the Inflation Reduction Act would raise the average tax rate for Americans from 20.3 percent to 20.6 percent.
But most Americans wouldn’t see a tax hike — the cost of this new corporate tax would be borne largely by a company’s investors, who could see their dividends and the value of their holdings fall, and by the company’s workers, whose wages and benefits could shrink .
The inflation-mitigation bill was passed by the US Senate on Sunday after a tight 50-50 party-line vote, with Vice President Kamala Harris throwing the tie-breaker.
The U.S. House of Representatives, now on its August recess, will return to Washington DC on Friday to vote on the massive bill that would increase $370 billion in stimulus to reduce greenhouse gas emissions and extend the Affordable’s expanded subsidies Care Act would offer three years for a fee of about $64 billion. The bill would also lower the cost of prescription drugs for the elderly and limit insulin costs for Medicare patients to $35 a month. A broader insulin cap for all insured members was rejected, largely thanks to Senate Republican votes.
But to fund clean energy incentives and other regulations, the bill introduced new taxes targeting companies that could avoid paying levies.
Chari said politicians “should be upfront,” saying a corporate tax that trickles down on others “is for a good cause.”
Still, most Minnesotans — and most Americans — won’t lose money from the new corporate tax.
Additionally, the bipartisan Committee on Responsible Federal Budgeting said the bill would actually mean a net tax cut as new loans every year through 2027, including an expansion in premium subsidies for those who purchase health insurance through an Affordable Care Act Exchange and other low-carbon incentives Energy sources outweigh the new minimum tax for certain large companies.
Nevertheless, the Inflation Reduction Act is still referred to as the Tax Increase Act.
“In 2009, President Obama said, ‘The last thing you want to do is raise taxes in the middle of a recession.’ But today in Washington, Democrats plan to raise taxes on American families to fund a $700 billion spending package that will actually raise taxes on American families in the midst of a recession,” Kistner said in an email sent statement.
The Republican, who is locked in a “toss-up” race with Craig, also said that this 700-page bill could very well contain small pieces of positive policy, but at the end of the day it doesn’t justify a tax hike for Minnesotans who do feeling the pain of skyrocketing inflation and recession.”
Rep. Tom Emmer, R-6th, called the new corporate tax a “shell game” because its cost would be borne by American taxpayers.
“Anyone who makes $30,000 or more a year is going to pay more in taxes,” he said Monday during a virtual event at the University of Minnesota’s Center for the Study of Politics and Governance.
Meanwhile, Idaho Sen. Mike Crapo, the top Republican on the Senate Finance Committee who requested the Joint Tax Committee’s analysis, said, “The Democrats’ approach to tax reform means raising taxes on low- and middle-income Americans to help them to fund their partisan Green New Deal.”
Craig fended off attacks on the Inflation Reduction Act.
“If billionaire companies have to pay taxes, it just levels the playing field,” she said.
Craig also said that “overall, the bill will lower costs for working families and narrow the deficit.”
A report by the nonprofit group Rewiring America states that tax incentives for clean energy in the bill would save the average American household $1,800 a year in energy bills.
The Joint Committee on Taxation’s analysis was completed before Sen. Kyrsten Sinema, D-Ariz., forced an amendment to the tax section of the bill to ensure her support for the legislation.
The alternative corporate minimum tax has been streamlined to help manufacturers by allowing them to continue to apply accelerated depreciation of their assets. Another proposed tax on hedge fund managers has been abolished entirely.
Hedge fund managers make most of their millions and billions of dollars in carried interest, a fee on the profits of the money they invest for other individuals and institutions. This earned interest is taxed at 15 percent as a capital gain by the Internal Revenue Service. This tax rate is lower than what most Americans pay to the IRS. The Inflation Reduction Act attempted to remedy the situation before Sinema insisted on scrapping the provision.
To compensate for the loss of revenue from Sinema-related changes in the tax section, a new 1 percent tax on company share buybacks has been included in the bill.
Companies buy back their stocks to reward investors whose stocks typically appreciate in value. The company is also benefiting because its earnings per share are increasing.
Barron’s said 2022 will be a record year for US corporate buybacks, with spending expected to be around $1.2 trillion. Companies making buybacks include Apple and Google-owner Alphabet.