Autos and utilities are among market winners from climate incentives in the Inflation Reduction Act, but big firms from Amazon to Ford will pay more in taxes.
Want to know what the Inflation Reduction Act means for the market’s biggest companies, as well as for your wallet? When it comes to politics, you always have to follow the money – and remember that the devil is in the details.
The Senate on Aug. 7 passed the bill that’s designed to fight climate change, make significant tax changes, trim the federal deficit, cut drug prices for Medicare recipients and extend expanded health insurance subsidies under the Affordable Care Act. As it moves to the House of Representatives, the roster of the winners and losers under the bill is coming into sharper focus even before it goes to President Joe Biden.
For both winners and losers, the impact is more modest than you would think, given the sheer size of numbers being bandied about. That’s because of details like strings attached to some of the new or extended tax breaks, or the schedule for implementing Medicare’s negotiations with big pharmaceutical companies over drug prices.
Changes will be more gradual than many headlines imply.
Beginning with the biggest-dollar provisions of the ten-year package of spending and tax cuts, these are some of the effects American corporations and citizens will see from the law. The two biggest changes are the bill’s deficit reducers – just two provisions of the law that account for 80% of its $300 billion in deficit reduction, according to Moody’s Analytics.
The biggest provision by far of the package is the $313 billion Moody’s Analytics says will be raised over 10 years by imposing a 15% minimum tax on corporate profits for businesses that earn at least $1 billion a year.
The law also cracks down on the practice of letting companies announce one set of profit figures to investors, while using another set of numbers that include tax loopholes to show the government. This happens by applying the 15% rate to the “book rate” profits companies disclose to Wall Street, says the liberal-leaning Roosevelt Institute.
The institute says 55 big companies paid no net federal taxes in 2020, including names like Nike, Salesforce.com, Archer Daniels Midland and Fedex. They would have owed $8.5 billion in 2020 at the standard corporate tax rate of 21%, the institute said.
A report by the Center for American Progress says 19 companies in the Fortune 100 alone paid little or no tax in 2021. Among companies that paid 6% or less, as calculated by liberal-leaning think tank: Amazon, Exxon Mobil, AT&T, Bank of America, and both Ford and General Motors. All of them will likely be paying more.
The government will save $288 billion by negotiating over drug prices, Moody’s says, and that’s a win for senior citizens – but some experts say the change will be more gradual and phased in than many consumers expect.
That’s because the law will only let Medicare negotiate over a few drugs in the early years of the law’s implementation. Medicare will only be able to haggle over 10 drugs in fiscal 2026, and new drugs will not be subject to negotiation for nine to 13 years after their market introduction, said Tricia Neuman, executive director of the Program on Medicare Policy at the Kaiser Family Foundation.
“Savings are exponentially smaller than under the [2019] House bill, which covered many more drugs,” Neuman said.
