And We Thought Tax Policy Was Dead
Here we are in another unexpected turn of events: Senate Majority Leader Chuck Schumer and Manchin have struck a deal to add tax and climate provisions to the reconciliation bill.
Previously, Manchin said he would not support tax increases or spending on energy and climate programs due to rising inflation. So, the Democrats proceeded with a package including only Medicare drug prescription cost reform and extending Obamacare healthcare subsidies.
But now we have the Inflation Reduction Act of 2022, which includes:
- A 15% corporate minimum tax on adjusted financial statement income for corporations with profits in excess of $1 billion, effective for tax years beginning after December 31, 2022.
- IRS funding for the next 10 years, with no use of the funds intended to increase taxes on taxpayers with income below $400,000 and an additional $15 million allotted for the IRS to develop a report to Congress on the cost of setting up a free direct e-file tax return system.
- Changing carried interest rules for private equity and hedge fund managers. Currently, investment manager income can be classified as long-term capital gain and taxed at 23.8% if held for over three years. This proposal would tax that income as short-term capital gain, with the top rate of 37% unless held for five years, with certain exceptions.
- Energy and climate provisions, including
- Consumer tax credits to help make homes energy efficient and run on clean energy
- $4,000 tax credits for lower- and middle-income individuals to buy used clean vehicles and up to $7,500 for new clean vehicles
- Billions in tax credits for clean energy domestic manufacturing and technology development
- Tax credits and grants for clean fuels and clean commercial vehicles, as well as to support domestic production of biofuel
- Allowing the government to negotiate with pharmaceutical companies for lower prices on certain medications and put a cap on how much senior citizens spend on Medicare at $2,000.
- Extending the Affordable Care Act healthcare premium subsidies through 2025.
We’ll have a more detailed overview of this proposed legislation available soon, including how this could impact you. In the meantime, we’ve included links to official summaries of the bill above, and here is a link to the proposed legislative text.
Timing: Next, the Senate Parliamentarian will review all of the new additional legislative text. This will take a couple days, but Schumer hopes to have this ready for a floor vote next week. The House will likely come back in the second or third week of August to vote on this package.