Tax Provisions in the Inflation Reduction Act – and What They Mean for Nebraskans
New tax provisions enacted within the Inflation Reduction Act are designed to level the playing field by making corporations and the wealthy pay closer to their fair share in taxes and cut costs for small businesses and families. And Nebraskans are already benefiting. Here are the new tax provisions enacted by the Inflation Reduction Act, and how they help Nebraska families.
Tax Provisions to Hold Corporations and the Wealthy Accountable
As Warren Buffet put it, “The wealthy are definitely undertaxed relative to the general population.” The Inflation Reduction Act moves to right this imbalance by reforming the ways highly profitable corporations are taxed and adding enforcement muscle to crack down on rich tax cheats.
Corporate Minimum Tax
The Inflation Reduction Act’s Corporate Minimum Tax requires corporations with more than $1 billion in profits to pay at least 15% in taxes on their book profits (the profits they report to their shareholders). Before the Inflation Reduction Act, highly profitable corporations reported billions of dollars in profits to their shareholders, but through tax and accounting loopholes, were able to report zero profits to the IRS, therefore paying nothing in federal income tax.
One example of a company likely subject to the new tax is Berkshire Hathaway, a multi-billion dollar corporation based in Nebraska. Researchers have estimated that if this corporate minimum tax was in effect in 2021, Berkshire Hathaway would have owed over $8 billion in taxes.
Stock Buyback Excise Tax
The Inflation Reduction Act also cracks down on stock buybacks by introducing a 1% excise tax. A stock buyback is when a company uses excess cash to purchase stocks back from shareholders and return cash to those who sell their shares. While most dividends are taxed as ordinary income, investors don’t pay taxes on bought-back shares. Companies favor stock buybacks as a way to redistribute value to shareholders while limiting taxes. In the first six months after it took effect, the tax was projected to bring over $3.5 billion more dollars back into the economy.
IRS Funding Increase For Enforcement Against Rich Tax Cheats
Another key provision of the Inflation Reduction Act’s tax reforms was a substantial funding increase for the IRS – nearly $80 billion. The funding is available for the IRS between FY 2022 and 2031 and can be used for improving enforcement on wealthy tax evaders, operations, business systems, and taxpayer services.
Thanks to the funding increase, the IRS has already been able to collect nearly half a billion dollars in delinquent taxes from rich tax cheats in 2023 and so far in 2024.
As a result of resources from the Inflation Reduction Act, the IRS also rolled out a new service in underserved areas – including locations in Nebraska – where community members would have opportunities to meet face-to-face with IRS service representatives. And since the passage of the Inflation Reduction Act, the IRS has opened 35 Taxpayer Assistance Centers, including one in Lincoln.
Drug Pricing
Under the Drug Price Negotiation Program introduced by the Inflation Reduction Act, pharmaceutical companies will negotiate a "maximum fair price" with the Department of Health and Human Services for certain prescription drugs covered by Medicare. Failure to comply with this process could subject companies to steep excise taxes, beginning at 65% of the product’s domestic sales and potentially reaching as much as 95%. For the first cycle of Medicare drug price negotiations in 2022, 10 drugs were chosen, benefitting the millions of Medicare enrollees – and over 50,000 Nebraskans – who take one or more of those drugs.
Tax Provisions for Families and Working People
In addition to making corporations and the wealthy pay their fair share by cracking down on loopholes and delinquency, the Inflation Reduction Act introduced a range of tax credits designed to benefit families and working people.
Health Insurance Premium Tax Credit
Currently, 111,680 Nebraskans (95% of Nebraskans with ACA marketplace plans) are benefiting from enhanced premium tax credits from the Inflation Reduction Act, ensuring affordability. The Inflation Reduction Act could save a Nebraska family of four $12,628 annually on premiums.
Green Energy Tax Credits
The Inflation Reduction Act expanded or established 22 tax credits aimed at promoting green energy adoption and saving households money on energy costs. These credits are aimed at fostering the advancement and utilization of low- or zero-emission technologies, stimulating investment in the U.S. economy broadly, and cutting costs for families. These credits subsidize a range of technologies linked to zero-carbon energy production, electric vehicles, residential clean energy, alternative fuels, and advanced manufacturing. Here are just some of the tax credit-eligible services that Nebraskan homeowners are eligible for:
Home energy audit
Purchase of appliances that meet energy certification requirements
Heat pump purchase and installation
Solar panel purchases
The home energy rebates were expected to save households up to $1 billion annually on energy bills.
And for vehicle owners, the list goes on. Nebraskans can claim a tax credit of up to $7,500 on eligible electric vehicles – new or used – and get a tax credit for installing electric vehicle charging equipment at home. Since January 1, buyers of eligible vehicles have collectively saved over $600 million – saving on average $6,900 per sale.
The new measures aren’t just for individual taxpayers – businesses and non-profits can also benefit from the green energy tax credits if they buy a qualified commercial clean vehicle.
More Potential Changes In President Biden’s Budget
More changes to the tax code may be on the horizon thanks to President Biden’s 2025 budget proposal, which would build on the progress of the Inflation Reduction Act. For example, one of the budget’s provisions would require corporations to pay more of their fair share through an increased corporate income tax rate of 28% (up from 21%). The corporate alternative minimum tax would also go up even further than the Inflation Reduction Act stipulates – to 21%. And the stock buyback tax implemented in the Inflation Reduction Act would quadruple.
President Biden’s budget would also provide further tax relief for working families. For starters, the budget would restore the full child tax credit, which was enacted by the American Rescue Plan. This previous iteration of the child tax credit was estimated to benefit 241,000 Nebraskan families. The budget also strengthens the Earned Income Tax Credit, cutting taxes for an additional 19 million working individuals or couples.
Inflation Reduction Act Holds Wealthy And Corporations Accountable; Cuts Costs For Families
With new tax provisions like the Corporate Minimum Tax and the Stock Buyback Excise Tax, the Inflation Reduction Act cracks down on tax loopholes for profitable corporations. And thanks to increased IRS funding, wealthy tax cheats are being held accountable.
And Nebraskan households are getting relief thanks to new green energy tax credits and health insurance tax credits. With President Biden’s 2025 budget proposal, more changes could be on the horizon, building on the Inflation Reduction Act’s progress.
Thanks to the Inflation Reduction Act, Nebraskans are already feeling the benefits of new tax credits – and the biggest corporations are paying closer to an equitable portion.
