Back

August 15, 2022

Inflation Reduction Act Would Raise Taxes On Pass Through Businesses

On Friday, August 12, the U.S. House of Representatives approved the Inflation Reduction Act (IRA) on a partisan 220-207 vote. The U.S. Senate already had approved the bill, so it now goes to President Joe Biden’s desk to be signed. President Biden is expected to sign the IRA this week.

As Connecting the Dots reported last week, MSCI had worked with other business trade associations to oppose this piece of legislation since it would increase taxes on many U.S. businesses. We continued those efforts to oppose the bill last week.

As a National Association of Manufacturers’ (NAM) summary explains, the IRA will result in:

  • A new 15 percent corporate alternative minimum tax (CAMT) on adjusted financial statement income for corporations with profits of more than $1 billion. This provision would raise taxes by about $324 billion over 10 years.
  • A one percent stock buyback tax that will reduce capital investment.
  • Current limits on business losses that can be deducted by noncorporate taxpayers ($270,000 for individuals and $540,000 for joint filers) being extended until 2028. This provision is a major tax increase on pass-through businesses.

As MSCI and the S-Corp Association explained in a letter sent to House lawmakers on August 11, the limits on business loss deductions amount to a $52 billion tax hike on pass-through businesses. The letter also noted the extension “was adopted with almost no consideration, and the revenues it raises were used to offset the cost of exempting private equity investors from the fifteen-percent corporate minimum tax.”

More than 70 trade associations representing millions of Main Street businesses from every corner of the country and every sector of the economy signed the letter, which also made it clear the IRA would not reduce inflation. Click here to read the full communication.

The IRA also includes $45 billion for increase for Internal Revenue Service enforcement funding, a provision that also could result in higher compliance burdens for small businesses.

According to the nonpartisan Joint Committee on Taxation (JCT), 52 percent of the new taxes in the IRA, or about $222 billion over the next 10 years, would be borne by the manufacturing industry.

Click here to view all of the JCT’s analysis.

On the spending and deficit reduction side, the $740 billion includes:

  • $350 million for the Federal Permitting Improvement Steering Council, which brings federal agencies together to coordinate the permitting process, to hire additional staff to be deployed in the field when there is an increased demand for permitting;
  • A new methane fee on oil and gas production;
  • Tax credits to help deploy commercial wind, solar, nuclear, hydrogen, and other no or low-carbon energies;
  • Tax credits for electric vehicles and to improve consumer energy efficiency and household clean energy generation; and
  • $200 billion toward deficit reduction.

To search, type what you're looking for and results will appear automatically