MYTH vs FACT: Tax Title of the “Inflation Reduction Act of 2022”
Democrats claim the latest version of their tax-and-spend bill, the mislabeled “Inflation Reduction Act of 2022,” will ensure the wealthiest Americans and corporations pay their “fair share” by closing tax loopholes and boosting IRS funding, all without raising taxes on anyone making less than $400,000 per year. However, analyses from nonpartisan experts show the legislation would raise taxes on low- and middle-income Americans during a period
of declining GDP and high inflation; raise taxes on manufacturers, exacerbating supply-chain disruptions, and costing U.S. jobs and investment; and do little to nothing to lower inflation.
“The more this bill is analyzed by impartial experts, the more we can see Democrats are trying to sell the American people a bill of goods,” said U.S. Senate Finance Committee Ranking Member Mike Crapo. “Non-partisan analysts are confirming this bill raises taxes on the middle class, raises taxes on manufacturers, and produces no
meaningful deficit reduction when gimmicks are removed and the full cost is accounted for.”
This document, 1 prepared by the staff of the Joint Committee on Taxation (“Joint Committee staff”), provides a summary of the present-law Federal tax system as in effect for 2022.
The current Federal tax system has four main elements: (1) an income tax on individuals, estates, trusts, and corporations (which consists of both a “regular” income tax and, in the case of
individuals, an alternative minimum tax);2 (2) payroll taxes on wages (and corresponding taxes on self-employment income) to finance certain social insurance programs; (3) estate, gift, and
generation-skipping transfer taxes; and (4) excise taxes on selected goods and services. This document provides a broad overview of each of these elements.
Several aspects of the Internal Revenue Code of 1986 (the “Code”), are subject to change over time. For example, some dollar amounts and income thresholds are indexed for inflation, including the standard deduction, tax rate brackets, and the annual gift tax exclusion. In general, the Internal Revenue Service (“IRS”) adjusts these numbers annually and publishes the inflation adjusted amounts in effect for taxable years beginning in a calendar year before the beginning of such calendar year. Where applicable, this document generally includes dollar amounts in effect for 20223 and notes whether dollar amounts are indexed for inflation. 4
Joint Committee on Taxation Report on Tax Treatment of Charitable Contributions
On March 11, 2022, the Joint Committee on Taxation published its 49-page report (the “Report”) relating to the federal tax treatment of charitable contributions. The Report was the subject of a public hearing held on March 17, 2022 where the Senate Committee on Finance considered economic issues relating to federal tax incentives for charitable giving and data relating to charitable contributions. See hearing at Hearing | Hearings | The United States Senate Committee on Finance.
Overall, the Report is a useful resource, although it is not “law” and there are many intricacies that the Report does not address or that may be addressed, just not in full detail. This Insights article provides a brief summation of some key statistics and content of the Report.
In March 2022, the Joint Committee on Taxation released a Bluebook on tax legislation enacted in the 116th Congress (JCS-1-22, 3/8/22). On page 315 of this report, there is what I find to be a troubling statement and footnote on how the Employee Retention Credit (ERC) works. The ERC was enacted in March 2020 by the CARES Act and applied to qualified wages from March 13, 2020 through September 30, 2021 (longer for recovery startup businesses). So this credit has been around for a while and widely claimed.
The issue is one I raised in a blog post on 6/4/20. The ERC is fairly complex due to numerous definitions and special rules and changes made when it was extended and one change enacted in December 2020 was retroactive. The ERC works differently depending if the employer is large or small based on number of full-time employees.
Let’s Avoid Unnecessary Costs And Complexities
The House Ways and Means markup of the Build Back Better Act (H.R. 5376) has over 120 tax changes included. This includes a lot of energy credits. Subtitle G on Green Energy is laid out in 257 or the 2466 pages of legislative text. The cost estimate over ten years from the Joint Committee on Taxation is $235 billion. In comparison, the social safety net provisions in Subtitle H cost almost four times as much, but will likely provide benefits to those more than in need than for the energy credits.
For example, there is a new refundable credit proposed at new IRC §36E for the purchase of an electric bicycle costing up to $5,000 (for a $750 credit) but the bike can’t cost more than $8,000. My Google search indicates that these bikes cost under $2,000. While there likely are ones costing more, if the buyer needs the $750 credit to buy it, why not skip the credit and the complexity it will add to our tax law and the buyer can instead buy one that costs $750 less.
Recent tax law changes have extended or changed many expiring tax law provisions, including:
~Treatment of mortgage insurance premiums as qualified residence interest
~Reduction in medical expense deduction floor
~Deduction of qualified tuition and related expenses
~Energy efficient homes credit
~Employer credit for paid family and medical leave
~Work opportunity credit
~Special rule for determining earned income
~Repeal of maximum age for traditional IRA contributions
~Increase in age for required beginning date for mandatory distributions
~Expansion of section 529 plans
Download a complete list of affected tax law provisions through the Joint Committee on Taxation List of Expiring Tax Provisions 2020.
This document, prepared by the staff of the Joint Committee On Taxation (“Joint Committee Staff”), provides a summary of the present-law Federal Tax System as in effect for 2018.
The current Federal tax system has four main elements:
(1) an income tax on individuals and corporations (which consists of both a “regular” income tax and, in the case of individuals, an alternative minimum tax);
(2) payroll taxes on wages (and corresponding taxes on self-employment income) to finance certain social insurance programs;
(3) estate, gift, and generation-skipping transfer taxes; and
(4) excise taxes on selected goods and services. This document provides a broad overview of each of these elements.
A number of aspects of the Internal Revenue Code of 1986 (the “Code”), are subject to change over time. For example, some dollar amounts and income thresholds are indexed for inflation, including the standard deduction, tax rate brackets, and the annual gift tax exclusion. In general, the Internal Revenue Service (“IRS”) adjusts these numbers annually and publishes the inflation-adjusted amounts in effect for tax years beginning in a calendar year before the beginning of that year. However the IRS publication for 2018 (Rev. Proc. 2017-58) is out of date due to the December 2017 passage of Public Law No. 115-97, An Act to Provide for
Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018, often referred to as the Tax Cuts and Jobs Act (“TCJA”).Where applicable, this document generally includes actual or estimated dollar amounts in effect for 2018 and notes whether dollar amounts are indexed for inflation.
Please download this 32 page document in its entirety here.
UPDATED 12/2/17: Tax reform is moving along. The House Ways and Means Committee introduced its bill – H.R. 1, on November 2 and the House passed it on November 16. The Senate Finance Committee released its proposal on November 9 and passed it on November 16. Late on 12/1/17, the Senate passed a bill that made numerous amendments to the bill passed by the Senate (see the list of amendments in this JCT document). Now the House and Senate need to create a conference committee to work out the differences among the bills and that version will go back to House and Senate for votes. Or, perhaps the House will just pass the Senate version, but I don’t think so. I think there are some items the House doesn’t like such as the corporate rate reduction not starting until 2019.