On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (H.R. 5376) (“IRA”), a 730-page successor to the House-passed Build Back Better Act that failed to become law. By any measure, this is an important bill, one that makes major changes in a number of key policy areas. The Congressional Budget Office predicts that the IRA will result in a net decrease in the deficit, totaling $102 billion over the 2022-2031 period. The Joint Committee on Taxation estimates that it will do so by raising about $324 billion in revenue ($676 billion in gross revenue raisers – $352 billion in tax credits). And while it can be difficult to predict just how a bill of this size and breadth will affect the economy, especially one filled with this many changes to the tax code and other federal laws, what is clear is that the impact could be significant.
The following is a summary of major provisions in four policy areas:
- Imposes an alternative minimum tax of 15% of the average annual adjusted financial statement income of domestic corporations (excluding Subchapter S corporations, regulated investment companies, and real estate investment trusts) that exceed $1 billion over a specified 3-year period (tax years beginning after December 31, 2022).
- Creates a 1 percent excise tax on the value of stock repurchases (“stock buy-backs”) by domestic corporations during the taxable year, net of new issuances of stock, effective for repurchases after December 31, 2022. Excluded from the tax are stock contributed to retirement accounts, pensions, and employee-stock ownership plans (ESOPs).
- Additional funding for the Internal Revenue Service in the amount of $80 billion (over 10 years) for operations support, business systems modernization, and the development of a free direct e-file tax return system.
- Requires the Centers for Medicare & Medicaid Services (CMS) to negotiate the prices of certain prescription drugs under Medicare beginning in 2026 (maximum prices for brand-name drugs that do not have other generic equivalents and that account for the greatest Medicare spending) – starting with 10 drugs in 2026, increasing to 20 drugs by 2029.
- Drug manufacturers must issue rebates to the CMS for brand-name drugs without generic equivalents under Medicare that cost $100 or more per year per individual and for which prices increase faster than inflation.
- Caps insulin out-of-pocket costs for Medicare beneficiaries at $35 per month and requires pharmaceutical companies to offer rebates to Medicare if they raise the price of drugs faster than the rate of inflation for beneficiaries.
- Extends the expanded Affordable Care Act (ACA) program subsidies through 2025 (they were set to expire this year), through the federal Health Insurance Marketplace.
- Implements a $2,000 per year cap for Medicare beneficiaries’ Part D spending (no cap, at present), starting in 2025 and includes a cap on Part D premium growth at 6 percent from 2024 – 2029.
- Modifies and extends through 2024 tax credits (1) for producing electricity from renewable resources, specifically for wind, biomass, geothermal and solar, landfill gas, trash, qualified hydropower, and marine and hydrokinetic resources; (2) for investment in certain energy properties (e.g., solar, fuel cells, waste energy recovery, combined heat and power, small wind property, and microturbine property); and (3) for alternative fuels and fuel mixtures, and biodiesel and renewable diesel.
- New tax credits for (1) qualifying zero-emission nuclear power produced and sold after 2023, (2) the sale or mixture of sustainable aviation fuel beginning in 2023, (3) the production of clean hydrogen, (4) the production of clean electricity and for investment in zero-emissions electricity generation facilities or energy storage technology, (5) domestic clean fuel production beginning in 2025, and (6) the domestic production and sale of qualifying solar and wind components.
- Creates a new credit for commercial clean vehicles and modifies the refundable tax credit for the purchase of fuel cell and plug-in electric vehicles (EVs) and previously-owned EVs, including (1) $7,500 tax credit for EVs and $4,000 for used EVs; (2) must be assembled in North America (see the U.S. Department of Energy’s current list of Qualifying EVs); and (3) lifts the 200,000 vehicle cap for manufactures to qualify for the credits (Tesla, GM, and Toyota). However, credits are capped for sedans, hatchbacks, and wagons costing $55,000, and at $80,000 for trucks. Buyer credits are limited to those with taxable incomes of $150,000 for individuals and $300,000 for joint filers.
- Allows for leases of federal lands in the Outer Continental Shelf (OCS) for offshore wind development.
- Appropriates $2 billion (available until September 30, 2030), for a direct loan program for transmission projects located in a National Interest Electric Transmission Corridor (NIETC). Under the Energy Policy Act of 2005, the DOE may designate an area as a NIETC if it meets certain criteria, such as promoting energy security or enabling the use of intermittent energy sources such as wind and solar.
- A new Methane Emissions Reduction Program provides up to $1.55 billion to the Environmental Protection Agency (EPA) to issue loans, rebates, contracts, and grants to help the oil and gas sector reduce methane emissions.
- The Greenhouse Gas Reduction Fund will provide $27 billion for nonprofits, states and other institutions to use for projects that combat climate change.
- $5 billion in competitive grants for states, tribes, and municipalities for Climate Pollution Plans and Implementation Grants.
- Environmental and Climate Justice Block Grants in the amount of $3 billion for financial aid and technical assistance to address clean air and climate pollution in disadvantaged communities.
- Replacement of medium and heavy-duty vehicles with zero-emissions vehicles will be made possible with a $1 billion fund.
- A range of other program funding will also be made available to help reduce pollution at ports, curb diesel emissions near disadvantaged communities, standardize environmental claims for building products, increase staff and resources for EPA, and update the nation’s air pollution monitoring network.
- State-by-state fact sheets on climate change benefits have also been made available by the White House.
In addition, the bill includes provisions affecting public lands, an EPA greenhouse gas reduction fund, funding for the United States Fish and Wildlife Service to address habitat changes, funding to convert federal facilities to green buildings, and additional funding for the Defense Production Act.
Attorneys at Butler Snow in these practice areas will be analyzing this legislation more closely and following further developments as these program changes are implemented by the various federal agencies.