As it made its way through Congress, I wrote a piece on the Inflation Reduction Act (IRA) showing economic benefits from economists, policy experts and small business advocates. Last week the Senate approved the IRA and on Friday the House of Representatives approved it and sent it to President Joe Biden for his signature. The president is likely to sign this bill later this week. This groundbreaking legislation will help small businesses and working Americans by investing in deficit reduction to fight inflation, increase manufacturing, lower drug prices and level the playing field by creating a modest minimum tax that ensures that the richest companies of the land giving something back to the society that has enriched them.
Sometimes in the political debate we can lose the plot and distance ourselves from what policy can mean for people’s lives. Unfortunately, in the rush of debate, inaccurate information about the Inflation Reduction Act is circulating, particularly with regard to small businesses.
You’ve probably heard some of those myths, but we need to hear the benefits that small business experts love Rhonda Abrams have discussed. Here are five more truths about the IRA and what it means for small businesses and working families across America.
1. It will not raise taxes for the vast majority of small businesses or working families. It invests in them
This legislation is in no way funded by personal tax increases for small businesses or working families earning less than $400,000, which is about 98% of all Americans. Instead, it makes critical investments in it. Recently, 126 of the country’s top economists, including seven Nobel laureates and two former secretaries of the US Treasury Department, sent a letter to congressional leaders who support the Inflation Reduction Act, writing, “These investments will combat inflation and lower costs for American families while paving the way for strong, stable, and broadly shared long-term economic growth.”
2. The Bill Significantly Increases a Critical Tax Credit for Small Businesses
The Inflation Reduction Act doubles the refundable research and development tax credit for small businesses, raising it from $250,000 to $500,000. The credit can be applied to payroll taxes and a wide range of costs, including product development and technology.
3. Increased Funding for the IRS Will Not Be Used to Target Small Businesses or Working Families
The bill does provide $80 billion in additional funding for the IRS, but this: article on a recent tour of the IRS office in Austin highlights the plight for the IRS, which uses 1970s technology to process IRS returns. While the additional funding could mean hiring additional IRS agents, they will be targeted to seek revenue from taxpayers and large corporations who earn more than $400,000 a year and who have used tax gimmicks to fail to pay their fair share – this would not be aimed at middle class Americans. This was reinforced by current IRS Commissioner Charles Rettig (a Trump appointee) who in a letter of support for the additional funding, stated, “these funds are by no means intended to increase scrutiny of small businesses or middle-income Americans.” The IRS has been severely underfunded for decades, meaning wealthy companies and individuals who can afford to hire expensive lawyers and accountants can game with little fear of IRS oversight. This puts an end to that unfair advantage.
4. Legislation will make prescription drugs more affordable without harming innovation
The Inflation Reduction Act extends Medicare benefits by limiting out-of-pocket drug costs to $2,000 and allowing Medicare to negotiate prices for 100 drugs it selects. It also enacts provisions that save the average enrolled Affordable Care Act $800 a year in the marketplace. dr. Aaron S. Kesselheim, a professor of medicine at Harvard Medical School and Brigham and Women’s Hospital, said he believed the measure would spur innovation by “encouraging investment in key new products rather than encouraging pharmaceutical companies to develop the same product.” and delay the introduction of generic drugs for as long as possible.”
This is widely supported on Main Street. A recent Small Business for America’s Future Survey found that more than 80% of small business owners allow Medicare to negotiate prescription drug prices, limit out-of-pocket drug costs for seniors to $2,000, and ensure Affordable Care Act premiums are affordable for families.
5. The Inflation Reduction Act will not increase gas prices, but will move us towards energy independence
The war in Ukraine has highlighted the importance of America and its allies pursuing energy independence. Too many small businesses have felt the effects of extreme weather affecting their business and costing them too much. This law will start investing in clean energy. For example, it includes 10 years of tax credits to make modifications like heat pumps and rooftop solar more affordable, and offers $4,000 in tax credits for lower- and middle-income consumers to buy used electric vehicles.
One of the ways this bill is being funded is through a 16.4 cents-a-barrel tax increase on crude oil and imported petroleum products. When one considers how much a barrel of crude oil produces, it is clear that this increase is not passed on to the consumer. A barrel of crude oil is approximately 42 gallons and is used to produce approximately 19 US gallons of gasoline, 10 gallons of diesel, 4 gallons of jet fuel, and 9 gallons of other oil products. This means the tax hike will be just $0.0039 cents per gallon, with gas prices falling $1 per gallon since its peak in June.
Over the next few weeks, I’ll take a closer look at some of the key provisions in the Inflation Reduction Act and how small businesses can use them. But right now, the overarching message is that this legislation is a step forward for high streets and families across the country, despite the myths circulating.