The "Inflation Reduction Act," one of the most significant pieces of legislation we've seen in many years, was enacted by the Senate over the weekend.
The bill is expected to become law in pretty much the same form as it is right now, even though the House of Representatives must still approve it and President Joe Biden must sign it into law. In order to understand what the law entails for small businesses, I dove deep into it.
The legislation is referred to as "Inflation Reduction" because it aims to cut the deficit by taxing the biggest firms and cutting the price of prescription medications. It is comprehensive legislation to tackle climate change at the same time.
The United States should significantly reduce its greenhouse gas emissions by the end of the decade, assuming that no subsequent Congress or president comes along to repeal these rules.
The bill passed on a strict party-line vote with Vice President Kamala Harris casting the deciding vote while being opposed by every Senate Republican, and the feedback has been largely positive. This is due to the fact that Senate Majority Leader Chuck Schumer, D-New York, designed the legislation to have "all incentives and no sticks," meaning that everyone benefits except for a few large corporations and large pharmaceutical companies.
Consider the following implications of the Inflation Reduction Act for you and your small business:
Taxation and inflation
- Provisions: 15% minimum tax on businesses with annual revenues over $1 billion
- 1% excise tax on share repurchases by corporations
- Increasing IRS enforcement by $80 billion
Impact on small firms: The 15% minimum tax on large corporations helps level the playing field, even if these laws won't directly affect small enterprises. Although it only applies to 150 firms, it is expected to generate more than $300 billion in tax revenue.
Let's face it: Your rivals haven't been contributing fairly. For instance, Amazon made $35.1 billion in earnings in 2021 but only paid out 6.1%.
I paid a bigger percentage of my profits to most small firms, and I'm willing to bet you did too. Furthermore, Amazon did not pay federal income tax for at least two years.
Increasing IRS enforcement budgets will also aid in reducing the deficit. Now, if you're worried that the IRS will pursue you because you wrote off some office supplies you provided to your children, don't be.
The exact opposite. The IRS has been disproportionately focusing on lower-income Americans rather than the major tax offenders due to budget constraints.
In a statement to USA TODAY, SBA Administrator Isabella Guzman stated, "The Inflation Reduction Act will put downward pressure on inflation, strengthening balance sheets for small businesses and their consumers."
Provisions for health care
- Granting subsidies under the Affordable Care Act until 2025
- Allow Medicare to bargain drug pricing beginning in 2026 with 10 pharmaceuticals
- limits drug costs for Medicare participants to $2,000 per year.
Impact on small businesses: Prior to the passage of the Affordable Care Act, many small businesses were unable to afford health insurance. It was not unusual for a lone operator to pay over $1,000 per month for a pretty basic policy. I am sure I did.
Discounts made health insurance more cheap for people purchasing it on the ACA exchanges under the American Rescue Plan, but those subsidies were set to expire at the end of this year. These incentives are extended under this bill until 2025. According to the SBA, small companies, their employees, and the self-employed use the ACA exchanges disproportionately more than other groups.
Opportunities for business and climate change
$369 billion in financial subsidies for renewable energy, especially for electric cars
Homeowners Installers of solar panels and buyers of energy-saving appliances including water heaters, air conditioners, and heat pumps are eligible for clean energy tax credits.
Extension of tax credits of up to $7500 for the purchase of new or used electric vehicles through December 2032; new restrictions on vehicle cost, household income, and North American assembly; not all of these restrictions apply to commercial vehicles.
For cars exceeding 14,000 pounds, tax incentives on electric commercial vehicles are available up to $40,000.
Automakers' group: Senate bill's tax credit won't apply to the majority of electric vehicles
Impact on small businesses: Along with climate change, I've included this as a "business opportunity" because many small businesses would experience an increase in demand for their services and goods as a result of this law. A small firm is nearly always hired by homeowners to upgrade to energy-efficient home energy items, such as new HVAC systems or heat pumps.
Additionally, as many provisions for additional incentives require products to be assembled in America, small manufacturers and suppliers should experience a rise in demand for their goods and services.
What does the Inflation Reduction Act mean for combating climate change?
Investments in lowering energy and health care expenses "not only help provide cost savings and greater access for small businesses and their employees, but also help promote small company contracting possibilities and thus more job creation," Guzman said.
Already, small businesses are fast switching to electric vehicles in order to save money (as well as being better for the environment). This law will aid in funding that transformation. Ford struggles to meet demand for the F150 Lightning truck. Additionally, "business" car benefits are more forgiving and may be greater than those for "consumer" vehicles.
Overall, most small businesses benefit moderately from the Inflation Reduction Act, while others stand to gain significantly.