Inflation Reduction Act Will Increase Middle Class, Small-Business Taxes: Tax Law Expert

August 10, 2022 in News by RBN Staff

source:  zerohedge

WEDNESDAY, AUG 10, 2022 – 09:17 AM

Authored by Joseph Lord via The Epoch Times (emphasis ours),

While Democrats insist that the Inflation Reduction Act won’t boost taxes on people making less than $400,000 a year, collateral effects from the legislation will cause workers and small businesses alike to pay more, according to Preston Brashers, a senior tax policy analyst at the right-leaning Heritage Foundation.

Senate Majority Leader Chuck Schumer (D-NY) speaks during a news conference about the Inflation Reduction Act outside the U.S. Capitol in Washington, Aug. 4, 2022. (Drew Angerer/Getty Images)

The measure, hammered out as a compromise agreement between moderate Sen. Joe Manchin (D-W.Va.) and Senate Majority Leader Chuck Schumer (D-N.Y.), serves to fulfill a series of broad Democratic aspirations: increasing federal revenue by closing so-called tax loopholes, enacting climate change policies, expanding the Affordable Care Act, and reducing prescription drug prices.

Its supporters say the legislation also will help to slow the growth of the ballooning U.S. national debt by decreasing the deficit.

While it authorizes about $433 billion in new spending, Democrats’ internal estimates suggest that the bill will bring in around $725 billion in new revenue to the federal government, thus reducing the federal deficit and slowing the growth of the national debt. Specifically, Democrats estimate that the bill will reduce the deficit by about $292 billion annually.

The bill won’t directly increase taxes on individuals at any income level, Brashers told The Epoch Times. The most substantial change will be a modification of corporate taxes, setting a mandatory minimum rate of 15 percent on corporations making $1 billion or more annually.

There’s nothing in here specifically targeting income levels,” Brashers said. “They’re not targeting people making $400,000 or more.

Neither, Brashers said, are they targeting businesses necessarily.

“A brand can’t pay a tax,” he said. “Technically, legally, the corporations are the ones paying taxes, but ultimately that has to be paid by people, one way or the other. It’s not like Jeff Bezos—if you tax Amazon—that this is coming out of Jeff Bezos’s pocket.

“It’s coming out of everyone’s pocket that’s involved in that operation, whether you’re a worker, if you buy the products, if you have any stock in the companies, if you have a 401(k).

“Basically, what they’re doing, they’re applying these taxes and they’re not specifically hitting lower-income people. What they’re doing is they’re applying general taxes across the whole economy, and so everyone’s gonna be caught up in it.

“These are gonna be taxes that are just kind of economy-wide.”

In addition, Brashers argued that through indirect effects, individuals below the $400,000 threshold will see an increase in how much they pay.

There’s no way to take … [Democrats’] claim about $400,000 seriously,” Brashers began, when asked about the truth of the assertion.

“You can quibble with details, but there’s simply no way you can say that these taxes are being exclusively paid by people making $400,000 [or more]. There’s no way you can say that because none of these taxes are being applied to people making $400,000. So you have to look at this as—some of these taxes are gonna hit labor, some portion of that might be shifted off to capital.”

But laborers will be hardest-hit, Brashers said. While investors are able to leave U.S. markets to invest in foreign markets like China, where such rules aren’t in place, laborers “are kinda stuck where [they] are.”

In addition to the economy-wide effects of the new corporate minimum tax, Brashers noted, the bill also contains provisions related to the IRS.

They’re expanding enforcement of [tax law by the IRS], they’re going to expand audits on individuals and businesses,” he said, noting the appropriation of $80 billion to bulk up the IRS.

Proponents of the bill suggest that, in addition to the new tax code changes, a bulkier IRS will bring in an additional $124 billion annually through enforcement efforts.

The funding for the IRS will go toward “necessary expenses for tax enforcement activities … to determine and collect owed taxes, to provide legal and litigation support, to conduct criminal investigations (including investigative technology), to provide digital asset monitoring and compliance activities, to enforce criminal statutes related to violations of internal revenue laws and other financial crimes … and to provide other services.”

Brashers argued that the IRS expansion will affect lower-income individuals and small businesses.

If you look at the [dispersion] of audits right now, there’s a lot of audits that happen on the lower end,” he said. “Especially on the business side: if you’re a small business, a sole proprietor—if you’re running your own books—a lot of times the IRS looks at that as a prime target because you don’t have the accountants that are keeping everything buttoned down necessarily.

“If you’re a sole proprietor and you’re keeping your own books … it’s probably just gonna be harder for you to keep up with the convoluted tax code.

“So, if anything, more of that weight is probably gonna hit small businesses.”

After a marathon session to vote on amendments, the Senate approved the bill in a party-line 51–50 vote on Aug. 7. The Democrat-led House is expected to approve the measure before sending it to President Joe Biden for his signature.