Upcoming US Inflation Reduction Bill: Winners & Losers
TL/DR –
The U.S. Senate has passed the Inflation Reduction Act, which includes tax and spending provisions benefiting wealthy individuals, private equity, the Internal Revenue Service, the green energy sector, and participants in Medicare and the Affordable Care Act. The bill, which was stalled due to intra-party disagreements among Democrats, does not include President Biden’s proposed tax on billionaires or a 1% tax on the wealthiest Americans. Critics argue that the bill could indirectly increase taxes on low-income households through a potential rise in corporate tax rates, while private equity firms and large corporations, including tech giants, are said to be among the biggest losers from the bill.
US Senate Passes Inflation Reduction Bill, Revealing Winners and Losers
The US Senate, on Sunday August 7, approved the Inflation Reduction Act, driving forward President Biden’s stalled economic agenda. Despite the seeming internal rifts within the Democratic Party, a temporary consensus was reached. “This is one of the most important pieces of legislation passed in the past decade,” said Chuck Schumer, Democratic Senator and Senate Majority Leader.
On analyzing the economic impact of the bill, some groups stand to gain while others lose. Here’s a comprehensive list of winners and losers based on the media’s compiled data.
Who are the Winners?
The winners’ list includes the affluent, private equity firms, the Internal Revenue Service (IRS), proponents of the Green agenda, Medicare and Obamacare beneficiaries, and Senators Manchin and Sinema.
Biden’s proposed tax plan in March 2021, aimed at American billionaires, failed to make the final cut. The tax initiative, dubbed “minimum income tax for billionaires”, was to impose a 20% tax on American households with assets exceeding $100 million. The plan was the Biden administration’s most ambitious attempt to increase taxes on American millionaires. However, no plan to even tax the top 1% of the population made it to the final version of the bill.
John Thune, a Republican senator from North Dakota, citing the Joint Committee on Taxation, noted that low-income groups would end up paying more federal taxes indirectly due to an increase in corporate tax rates, particularly those from the manufacturing sector.
For private equity firms and hedge funds, there’s good news. The bill keeps intact the tax breaks linked to their tax increases, allowing them to enjoy a lower capital gains tax.
The bill enables the IRS, which has been underfunded for years, to expand its audit capabilities with an $80 billion allocation over the next decade. As Alan Blinder, a former vice chairman of the federal reserve, stated, more than one-fourth of the new revenue generated by the bill will come from the IRS’s enhanced enforcement of existing tax laws.
In a historic move, the Inflation Reduction Act contains $370 billion for ambitious climate targets. The bill, which Biden termed as “historic”, is the largest climate investment bill in the US history. “The bill is a potent tool to transform the working family environment,” he said.
The health care sector will receive $64 billion from the act. The final version of the bill limits out-of-pocket prescription drug costs for seniors to $2000 annually and allows Medicare to negotiate the prices of 10 drugs in four years’ time.
Who are the Losers?
On the losers’ side of the equation are the Republicans, technology companies, and Bernie Sanders.
The bill has been a major setback for Republican policy goals and has them relying on Senators Manchin and Sinema to reject tax increases during the recession. The bill also provides Democrats ammunition for their autumn campaign.
The bill, which spans 755 pages, covers energy and climate, health care, tax reform, among others. The bill imposes a 15% minimum tax rate on US companies with incomes of $1 billion or more, reducing the federal deficit by roughly $300 billion over the next decade.
Big tech companies, particularly those with annual revenues exceeding $1 billion, will be hit hard by the tax increases in the bill. This is because the bill levies a 1% tax on share buybacks, putting pressure on companies like Apple Inc, Morgan Stanley, and Nike Inc who may now have to reconsider their share buyback plans.
Bernie Sanders, a Vermont senator and chairman of the Senate Budget Committee, had proposed a $6,000bn package that went beyond Biden’s agenda but fell short of the $43.7 billion in new spending approved this time. The approved bill excluded all proposals for new social programs, including tuition-free universities, child care, housing spending, and expanded monthly tax breaks for children.
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