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On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (HR 5376) (“IRA”), a 730-page successor to the House-passed Build Back Better Act that did not failed to become law. By all accounts, this is an important bill, bringing major changes to a number of key policy areas. The Congressional Budget Office projects that the IRA will lead to a net decrease in the deficit, totaling $102 billion over the period 2022-2031. The Joint Committee on Taxation estimates that it will achieve this by raising about $324 billion in revenue ($676 billion in gross revenue – $352 billion in tax credits). And while it can be difficult to predict how much a bill of this size and scope will affect the economy, especially a bill filled with so many changes to the tax code and other laws federal, it is clear that the impact could be significant.
Here is a summary of the main provisions in four policy areas:
- Impose a alternative minimum tax of 15% the average annual adjusted financial statement income of domestic corporations (excluding Subchapter S corporations, regulated investment companies, and real estate investment trusts) that exceeds $1 billion over a specified 3-year period (tax years beginning after December 31, 2022).
- Creates a 1% excise tax on the value of share buybacks (“share buybacks”) by domestic corporations during the tax year, net of new share issues, effective for buybacks after December 31, 2022. Excluded from tax are shares paid retirement accounts, pensions and employee stock ownership plans (ESOPs).
- Additional funding for the Internal Revenue Service $80 billion (over 10 years) for operations support, modernization of business systems and the development of a free direct electronic tax filing system.
- Requires the Centers for Medicare & Medicaid Services (CMS) to negotiate prices for certain prescription drugs under Medicare starting in 2026 (maximum prices for brand name drugs that have no other generic equivalents and represent largest Medicare spend) – starting with 10 drugs in 2026, growing to 20 drugs by 2029.
- Drugmakers must provide rebates to CMS for brand-name drugs with no generic equivalents under Medicare that cost $100 or more per year per person and for which prices are rising faster than inflation.
- Caps insulin costs for Medicare beneficiaries at $35 per month and requires drug companies to offer Medicare rebates if they raise drug prices faster than the rate of inflation for beneficiaries.
- Extends expanded Affordable Care Act (ACA) program subsidies to 2025 (scheduled to expire this year), through the federal health insurance market.
- Puts in place a cap of $2,000 per year on Part D expenses for Medicare beneficiaries (no cap, currently), starting in 2025 and includes a cap on premium growth for Part D at 6% from 2024 to 2029.
- Modify and extends to 2024 tax credits(1) for the generation of electricity from renewable resources, including wind, biomass, geothermal and solar, landfill gas, waste, qualified hydroelectricity, and marine and hydrokinetic resources; (2) to invest in certain energy properties (eg solar, fuel cells, waste energy recovery, combined heat and power, small wind properties and microturbines); and (3) for alternative fuels and fuel blends, as well as biodiesel and renewable diesel.
- New tax credits for (1) qualifying zero-emissions nuclear energy produced and sold after 2023, (2) sale or blending of sustainable aviation fuel from 2023, (3) production of clean hydrogen, (4) clean electricity generation and for investment in zero-emission electricity generation facilities or energy storage technology, (5) domestic clean fuel generation from 2025, and (6) the domestic production and sale of eligible solar and wind components.
- Creates a new credit for clean utility vehicles and modifies the refundable tax credit for the purchase of fuel cells and
plug-in electric vehicles (EV) and used EVs, including (1) a tax credit of $7,500 for EVs and $4,000 for used EVs; (2) must be assembled in North America (see current list of eligible electric vehicles from the US Department of Energy); and (3) lifts the cap of 200,000 vehicles for manufacturers to qualify for credits (Tesla, GM, and Toyota). However, credits are capped for sedans, sedans and wagons costing $55,000 and $80,000 for trucks. Buyer credits are limited to those with taxable income of $150,000 for individuals and $300,000 for joint filers.
- Allows the leasing of federal lands on the Outer Continental Shelf (OCS) for offshore wind development.
- Allocates $2 billion (available through September 30, 2030) for a direct lending program for transmission projects located in a
Electrical transmission corridor of national interest(NIETC). Under the Energy Policy Act of 2005, the DOE can designate an area as a NIETC if it meets certain criteria, such as promoting energy security or being able to use intermittent energy sources such as electricity. wind and solar.
- A new Methane Emissions Reduction Programprovides up to $1.55 billion to the Environmental Protection Agency (EPA) to issue loans, rebates, contracts and grants to help the oil and gas sector reduce methane emissions.
- The Greenhouse Gas Reduction Fund will provide $27 billion to nonprofits, states and other institutions to use for climate change projects.
- $5 billion in competitive grants to states, tribes and municipalities for Climate Pollution Plans and Implementation Grants.
- Environmental and Climate Justice Block Grants$3 billion in financial aid and technical assistance to address air and climate pollution in disadvantaged communities.
- Replacement of medium and heavy vehicles by
zero emission vehicles will be made possible thanks to a fund of 1 billion dollars.
- A range of other funding programs will also be made available to help reduce pollution in ports, reduce diesel emissions near disadvantaged communities, standardize environmental claims for building products, increase EPA staff and resources, and update the national air pollution monitoring network.
- State by State fact sheets on the benefits of climate change have also been made available by the White House.
In addition, the bill includes provisions for public lands, an EPA greenhouse gas reduction fund, funding for the United States Fish and Wildlife Service to address habitat changes, a funding to convert federal facilities to green buildings and additional funding for the Defense Production Act.
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