The Inflation Reduction Act, a broad social spending law enacted this summer by President Joe Biden and congressional Democrats, will dramatically increase federal spending on climate and healthcare programs. The law also aims to shift the tax code dramatically, with changes Democrats say will only affect the wealthy.
“We’re cutting [the] deficit to fight inflation by having the wealthy and big corporations finally begin to pay part of their fair share,” Biden said just before signing the bill. He also promised that “no one — let me emphasize — no one earning less than $400,000 a year will pay a penny more in federal taxes.”
The conservative-leaning Tax Foundation argued, however, that the law will “raise taxes on work and investment, disincentivizing productive activity” and “reduce long-run GDP by about 0.2 percent.” Another component of the law is a new 1% tax on corporations’ stock buybacks, which is expected to bring in nearly $80 billion in government revenue, according to the Penn Wharton Budget Model, or about $74 billion, the congressional Joint Committee on Taxation estimated.
The new corporate minimum tax “fixes that,” DiVito said. Like Biden, she noted that in 2020, “50 corporations paid $0 in federal corporate income tax — despite recording substantial profits.
Another major tax change in the legislation is the approximately $80 billion in additional funding for the IRS, which includes $15 million to establish a free e-file tax return system. But more than half of the total funding will go toward enforcement “at a time when the tax gap — the difference between the taxes owed under law and revenue collected — is large and increasing,” Moody’s said.