On Sunday, Senate Democrats voted to pass one of the most significant climate, healthcare, and tax reform packages this country has seen in decades: the Inflation Reduction Act of 2022 (IRA). This bill now awaits a vote in the House (where it is extremely likely to pass) before it moves to President Biden’s desk to be signed into law.
The passage of the IRA is cause for enormous celebration. Its tax provisions – the 15% corporate minimum tax, increased funding for the IRS, and a 1% excise tax on stock buybacks – mark the biggest changes to the federal tax code since the 2017 passage of the Tax Cuts and Jobs Act (TCJA). This time around though, thankfully, the tax changes point in the right – i.e. progressive – direction as they force corporations and wealthy tax cheats to finally start paying more of what they owe the country.
The 15% corporate minimum tax is a very, very big deal. With the passage of the IRA, billion-dollar companies like AT&T, AIG, FedEx, and Nike won’t be able to get away with paying nothing or next to nothing in taxes. They will not be able to drive on our roads and bridges, hire workers that we educate in our public schools, and sue contractors in our courts without paying their dues for those services like the rest of America does. There’s still more to be done to crack down on the worst of corporate tax abuse, but this is undoubtedly a fantastic start.
The $80 billion in additional funding that the bill appropriates to the IRS over the next decade, with $45 specifically allocated for enforcement, is also a very, very big deal. With this critical funding, the IRS will be able to rebuild from years of painful budget cuts from Republicans that have deliberately left the agency ill-equipped to chase after ultra-rich tax cheats. For years now, America’s richest have stashed their millions and billions in tax havens like the Bahamas and Cayman Islands under the (largely correct) assumption that the IRS didn’t have what it took to follow their deliberately complex and elusive money trails. With the passage of the IRA, now the IRS will have what it takes, so any wealthy taxpayer that wants to try to game the system should beware!
Finally, the IRA will also impose a 1% excise tax on stock buybacks. This was a last minute addition, but that doesn’t make it any less fantastic of an initiative than the corporate minimum tax or the boosted IRS funding. In 2017, Republicans promised that corporations would re-invest the tax cuts they received from the TCJA into their own productions, which would create jobs, raise wages, and grow the economy. But they didn’t – instead, corporations used the money they saved from tax cuts to buy back trillions of their own stock, which ultimately benefited no one outside of already-wealthy shareholders and ultra-rich C-suite executives. They’ve continued to do so to this day, spending tens of billions of dollars enriching shareholders even in the face of record-breaking inflation. This new tax takes an important first step in disincentivizing this egregious behavior and encourages companies to invest their profits in more productive ways that may actually “trickle down” to workers and consumers.
The passage of the IRA is certainly good news that is worth celebrating. It will likely be remembered as President Biden’s signature domestic economic achievement and one of his biggest legislative victories. But, like with most “wins” on Capitol Hill and in life in general, there are some important things that went on behind the scenes of the successful passage of this bill that we are not celebrating.
For starters, this bill does not go anywhere near as far as was originally planned in terms of tax reform. The IRA is a watered down version of President Biden’s original $3.5 trillion Build Back Better Act that included progressive tax initiatives such as a millionaire surtax and a tax on pass-through businesses. We are happy with the tax changes that Democrats did manage to pass this week, but we can’t lose sight of the fact that, even with those changes, there are still far too many problems left in our tax code.
What’s the main reason the IRA isn’t more aggressive on the tax front? Senator Kyrsten Sinema. Throughout the year and a half that Democrats have been negotiating this bill, she has consistently opposed almost any tax increases on wealthy individuals and corporations. As a deciding vote in a 50-50 Senate, she had immense power to shape this legislation, and she used that power to do almost nothing besides kill any tax hikes on the rich.
Just last week, we told you about the big changes that the IRA was going to make to the carried interest loophole, which predominantly benefits ultra-rich private equity and hedge fund managers. Before Sunday, however, those changes were removed at the insistence of Sinema and “replaced” with the stock buyback tax.
Make no mistake about it – we like the tax on stock buybacks. But there is absolutely, positively, categorically no good reason whatsoever as to why Democrats could not have included both initiatives in their package and needed to “replace” anything at all. Sinema’s demand to remove the carried interest provision is just the latest in a years-long crusade on her part to carry water for her ultra-rich, private equity donor friends. She even put the bill in jeopardy as votes were being cast with a demand to exempt certain private equity companies from the new corporate minimum tax.
At this point, it’s clear that she doesn’t care at all about her constituents. She’s stopped even pretending to legislate – she’s just interviewing for a job with private equity after she leaves office.
Thanks in large part to Sinema, there’s a lot more to be done. More needs to be done to fix our broken tax code that lets corporations and wealthy Americans like us off easy. More needs to be done to reverse the dangerous trends of widening wealth and income inequality. More needs to be done to protect unions. More needs to be done to raise the minimum wage. More needs to be done to get the “big money” out of politics that allows people like Kyrsten Sinema to be in office in the first place.
But despite that, the Inflation Reduction Act is a huge win, and we should appreciate it as such. We celebrate this historic and momentous legislative moment and plan to build on the momentum created this weekend to continue the fight for economic justice in America.
