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$739B Inflation Reduction Act Passes Major Hurdle

The New Administration’s bill passed a major hurdle last night after Democratic Insiders made last minute changes to get Sen. Kyrsten Sinema (D. AZ) to allow it to move forward. After Sen. Manchin (D. W.Va.) announced his support last week, she was their lone holdout.

The bill will now head to the Senate Parliamentarian’s desk to see if it meets the strict rules necessary to allow the Democrats to use the new filibuster-proof budgetary process to pass the bill along strict party lines. If this new legislation meets that standard, then no Republican support will be necessary, and it could be passed by the end of next week. 

The most recent version of the bill includes the following.

Carried Interest

Currently, executives in the hedge fund, private equity, and real estate investment businesses are able to receive compensation based upon a percentage of profits. This income is treated as capital gains income and subject to the lower Cap Gains tax rate. 

The bill originally included provisions lengthening the amount of time an asset needed to be held for it to qualify for the lower tax rate. Given Sen. Sinema’s negotiated changes, no changes will be made.

1% Excise Tax On Stock Buybacks

A stock buyback occurs when a company wants to increase it’s stock price through purchasing its own shares thus reducing the number of outstanding shares and increasing the company’s equity per share. Many companies choose to do stock buybacks rather than dividend distributions, given the positive long-term effect that this has on the overall stock performance. Buybacks would now be taxed at a rate of 1%. 

Lower Priced Medicare Prescriptions And Free Vaccines For Seniors

The bill allows Medicare to directly negotiate pricing with drug companies beginning in 2023. It will also cap the out-of-pocket expenses seniors pay on Medicare to $2,000 annually and provide complimentary vaccines.

Energy Efficient Appliances

The bill includes $9B to provide credits for families to replace current appliances with electric ones. Another $1B is earmarked to do the same for affordable housing. These credits would last for 10 years and would apply to heat pumps, rooftop solar, electric HVAC, and water heaters.

Additional Electric Vehicle Credit

The bill provides a new credit of up to $4,000 when used electric vehicles are purchased. The current credit only applies to new ones.

Let me leave you with this.

Whether this is a good or a bad thing for America and our already struggling economy is a matter of opinion. But let’s lay out some facts so that you can make your own decision.

One of the most basic concepts that even the most uninformed and obtuse economics student understands is that increased spending only worsens inflation. When you increase spending, you increase the demand for goods and services.

With limited supply, this only makes the products and services we buy more expensive. How anyone has the arrogance to name this bill the “Inflation Reduction Act”, is beyond imagination. 

The 1% excise tax on stock buybacks will hurt all investors, no matter what their income level. The New Administration swore that they would not increase taxes on households earning below $400K annually, and they haven’t.

This is certainly not a tax on income, but it will affect the value of everyone’s retirement accounts in a negative way. I don’t understand how anyone could ever consider this to be a good thing.

On its face, giving Medicare the ability to negotiate prices sounds good but it will probably backfire. If the drug companies have to reduce their prices for Seniors, they’ll probably just increase them for the rest of us to make up the difference.

If you were the CEO of a drug company who was responsible for maintaining a specific level of profit for your shareholders, that’s exactly what you would do. The rest of us will, as always, be left holding the bag when our insurance rates go up.

The credits for replacing appliances with more energy efficient electric ones are great, but let’s put that into perspective. The current credit to install energy efficient items in your home caps out at $500.

That’s right. You put $20,000 worth of new windows into your home or you purchase a new $30,000 roof and you get a whole $500. Certainly, it’s better than nothing. But if the new credit is anything like the old, it won’t be much to write home about.

We’re doing a webinar on August 9th, 2022 at 2:00 pm (CST) on “How To Get Your Company Through A Bad Economy”. It will cover issues like Inflation, the Difficult Hiring Market, Supply Issues, and Replacing Clients.

This is a hot topic and there are only a few spaces left. You may register by going to the following web address.

We’re all going to get through this. Let’s get through it together.

*Words from our exceptional leadership