This week, we are going to talk about the provisions of the Inflation Reduction Act (IRA) which allow us to recoup taxes due to the Federal government which go towards funding the environmental programs in the Act, and help to bring down the deficit.
Let’s be honest, no one likes paying taxes! But what we want to be sure of is that everyone is paying their fair share, and that the benefits of Federal spending are spread across the economy. Right now we have a taxation system that does none of that. Since the Reagan era, Republicans have insisted that the path to wealth for all was little or no regulation, low taxes, and cuts to government benefits. That has worked - if you are at the top end of the income scale. As this chart shows, bad luck if you are not in the top 10% or better……
The IRA made no grandiose plans to radically reform the US taxation system, much as you may feel that it is needed. Instead, it made common sense proposals to make sure that we are collecting taxes in a fair and equitable fashion. It did that in 3 ways.
First, by increasing the IRS budget by roughly $80 billion over 10 years. This is a HUGE deal for the IRS, which has faced funding and staffing shortages for many years, and consequently a widening tax gap - the gap between taxation owed and taxation paid, about $600 billion a year. Who owes those taxes? The wealthy. And it's coming from people who earn incomes from stocks and other hard-to-value assets. If you're a teacher, if you're a fireman, if you're a police officer, you get a W-2, so the IRS knows how much money you earn. But if you're a billionaire or a millionaire, you're far more likely to be able to avoid taxes. Increased funding will allow for more auditing of higher income tax returns. AND - maybe you noticed if you called the IRS this year, they picked up the phone! Increased personal service for all of us. The IRS expects to collect about an additional $124 billion over the next decade as a result of improved collection.
Just to put it in perspective, if you earn wages of less than $400,00 a year, this will cost you nothing. If you are in the top 1%, with an average annual income of about $600,000, it will cost you about $6000 in additional taxes each year. And if you are in the stratospheric top 0.1% income bracket - meaning you have income in excess of $3 million, you will face writing a check for an additional $41,580. To help save the planet!
Second, most of the revenue is generated by the introduction of a 15% alternative minimum tax on the domestic profits of American corporations. Why is the minimum tax required? After all, there is a “statutory” corporate tax rate of 21%. There are so many “loopholes” in that statutory rate, that many companies pay an effective rate that is far less. For example, Amazon alone reported $43.4 billion in profits from 2018 through 2020 while paying just 4.3 percent of those profits in federal corporate tax. Indeed, a rigged tax code, riddled with loopholes, allows many of the largest and most profitable corporations to pay little or no federal income tax, often year after year. A15% “alternative minimum tax” is expected to generate $313 billion in revenue over the next decade.
Third, a 1% excise tax on stock buybacks. Why tax stock buybacks? When a company announces stock buybacks, they are telling the world that they do not have productive investments to make within the company and would rather give their cash to their shareholders. The public does have productive investments to make with the tax revenue, like schools, roads, and healthcare. Companies use cash holdings to purchase their own stock when they determine that this will improve the share price. This can be an enormous boon for corporate executives who are often compensated through equity in the corporation, and whose relationship with their boards depends largely on stock performance. A1% Excise Tax on stock buybacks is expected to generate $73 billion over the next decade.
You can imagine that the GOP hates this. And they do! McCarthy insisted in recouping $21 billion of the $80 billion promised in IRS funding as part of his debt ceiling negotiation strategy. As usual, he claimed the IRS would be going after the “little people.” But in fact, the Inflation Reduction Act primarily impacts only the top 1% of taxpayers - who as we have seen, are doing just splendidly, thank you very much!
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