In today’s polarized political climate, it seems rare that major legislative changes are passed through Congress. But one such bill was recently signed into law by President Biden: the Inflation Reduction Act of 2022. While the laws name suggests its essential purpose is to tackle rising inflation, this is a little misconceiving. The bigger impact of the law involves its effects on climate change, healthcare, and taxation revenues. And each of these areas of change will result on some legislative effects on businesses. For small and large businesses alike, it’s important to appreciate exactly what the Inflation Reduction Act of 2022 could mean. The following offers some important insights in this regard.
“The way to think about this is not about inflation at all, but about the tradeoffs between helping people who need more help, especially in health care and reducing carbon, versus the potential impact on future investment.” – Kent Smetters, Faculty Director of the Penn Wharton Budget Model
Tax and Revenue Impacts on Business
One of the most obvious concerns for any business is the impact the Inflation Reduction Act of 2022 will have on taxation. The legislation effects on businesses are two-fold from a general perspective. The first involves new taxation laws that are designed to collect more from large corporations. Specifically, the law requires all corporations to pay a minimum 15% tax rate for revenues over $1 billion. No matter what deductions may exist, this is the lowest rate for these companies. In essence, this tax change alone is expected to generate $300 billion in revenues yet only affect 150 companies. While this may be unwelcomed by these specific enterprises, small businesses may become more competitive in the process. Likewise, for companies earning under $1 billion in revenues, taxation amounts aren’t likely to change.
The second potential effect of taxation changes of the Inflation Reduction Act of 2022 relates to IRS enforcement. The law provides $80 billion in IRS reinforcement with the hiring of 87,000 new employees. Of course, the knee-jerk reaction to this news usually triggers audit fears among most business owners. Here again, the goal is to go after bigger corporations that have been failing to pay what is owed the IRS. Insufficient IRS agents in the past have not only led to delays in processing returns but insufficient tax reviews as well. According to financial experts, the legislative effects on business regarding taxation will again only affect the big earners. Small and medium-sized businesses are not expected to see any increase in audit rates.
“Because of limited resources, the IRS has been disproportionately targeting lower-income Americans rather than the big tax cheaters. These new funds make it possible for the IRS to go after the big guys.” – Rhonda Abrams, USA Today journalist
Energy-Related Impacts on Businesses
One of the most significant aspects of the Inflation Reduction Act of 2022 involves effects on climate change. Billions of dollars of subsidies and tax credits are being provided for a number of programs that reduce greenhouse gas emissions. Major tax credits are being provided for consumers buying electric vehicles and roof solar panels. Likewise, supports for carbon capture and storage and other renewable energy solutions are also included. Based on these efforts, it is predicted that the U.S. will fall 40% below its 2005 greenhouse gas emissions by 2025. Thus, proponents of the Inflation Reduction Act of 2022 cite this as a major achievement for climate change.
At first glance, the legislative effects on businesses from this component of the law may not seem significant. But in actuality, the subsidies and tax credits also benefit small and large businesses alike. Certain large energy corporations involved in renewable energy will see a marked increase in demand and support. Even oil and natural gas companies come out ahead by employing carbon capture and storage methods. At the same time, small businesses can reap advantages by shifting to renewable and sustainable energy solutions. This may range from more efficient HVAC units or solar panels for a business. Or it might involve acquiring electric commercial vehicles for transit needs. These are favorable legislative effects on businesses resulting from these aspects of the law.
“Investments in reducing health-care costs and energy costs not only help provide better access and cost-savings for small businesses and their employees but also help create small business contracting opportunities and therefore more job creation.” – Isabella Guzman, SBA Administrator
Healthcare Impacts on Businesses
In considering energy and healthcare subsidies combined, a total of $369 billion was included as part of the Inflation Reduction Act of 2022. While a significant portion went to climate change policies, healthcare received major support as well. Specifically, healthcare insurance premium subsidies for the Affordable Care Act will extend now to 2025 instead of ending this year. Likewise, the law enabled the government to now negotiate drug prices for its Medicare patients. And it capped out-of-pocket drug costs for Medicare recipients to $2,000 annually. The legislative effects on businesses from this aren’t necessarily profound. But there also not nonexistent either.
The main legislative effects on businesses with the healthcare changes mainly involve small businesses. A sizable portion of these companies took advantage of the Affordable Care Act insurance supports. By extending this support through 2025, this allows many companies to provide quality coverage to their staff and families. Plus, for companies that cannot provide such coverage, it allows them to be competitive in recruiting talent. Notably, the Medicare benefits of the Inflation Reduction Act of 2022 are as impactful on businesses. But there remain some beneficial aspects regardless.
The Long-Term View for Businesses
As may be evident from the key components of the Inflation Reduction Act of 2022, immediate inflation relief isn’t likely. Perhaps the best thing that can be said about the law is that it doesn’t add to current inflationary pressures. But over the next 10 years, the law is supposed to reduce the federal deficit by $300 billion. And by reducing healthcare costs and energy costs, pressures on consumers will gradually decline. In theory, this will help keep inflation in check over time. As such, one of the legislative effects on businesses may be the beneficial economic climate created by the law down the road. Naturally, not all impacts will be positive for all businesses. But in the balance, the Inflation Reduction Act of 2022 appears to have more good in it than bad.