Tax Fairness Provisions and Tax Credits in the Inflation Reduction Act Level the Playing Field for Working Montanans
In August 2022, President Biden signed The Inflation Reduction Act into law. The law makes groundbreaking investments in the American economy, energy security and clean energy. Among the historic provisions in the law are the tax fairness provisions that ensure corporations and the wealthy now pay more of their fair share in taxes. The corporate minimum tax, the stock buyback tax and increased funding for the Internal Revenue Service (IRS) to crack down on corporate and wealthy tax cheats are helping ensure that corporations and the wealthy pay their fair share and level the playing field for working Montanans. In addition, health care and clean energy tax credits included in the law are helping lower costs for working families and small businesses.
The Corporate Minimum Tax
The Inflation Reduction Act created a 15% minimum tax on corporations that have at least $1 billion in income – in other words, the largest and most profitable companies. For too long, the biggest, wealthiest corporations haven’t paid their fair share. The overhaul of the tax system that became law in 2017 lowered the corporate income tax rate and created even more loopholes and breaks for corporations. That tax law enabled increased corporate tax avoidance. In 2020, 55 of the biggest, wealthiest corporations paid nothing in federal income taxes. When the alternative minimum tax took effect for the 2023 tax year, it marked a step towards cracking down on rampant corporate tax avoidance. The Joint Committee on Taxation has estimated that 150 companies will pay the minimum tax and that the tax will bring approximately $222 billion to the government over ten years. In the first year of the tax, it applied to corporations including utility company Duke Energy, Whirlpool, and two large investment firms.
The Stock Buyback Tax
The Inflation Reduction Act also created a 1% excise tax on stock buybacks. Stock buybacks are when a public company has extra cash and purchases shares of the company’s stock on the public market or offers it to shareholders. Critics of the practice say that stock buybacks create stock options for executives and employees, while reducing benefits for regular investors. Stock buybacks hurt workers and consumers because the extra profits could be used to support workers through increased wages and investments in infrastructure or easing the burden on consumers through lower prices. Instead, stock buybacks enrich the already wealthy executives. The Joint Committee on Taxation has estimated that the tax on stock buybacks will generate approximately $74 billion in revenue over ten years.
Cracking Down on Wealthy And Corporate Tax Cheats with Increased Internal Revenue Service Funding
Estimates show that the top one percent of income earners is estimated to evade $160 billion in taxes each year. The Inflation Reduction Act provided $80 billion in additional IRS funding, much of which is directed to enforcing tax compliance by very wealthy tax evaders. In July 2024, the IRS and the Department of the Treasury made an announcement highlighting a significant milestone reached since beginning to crack down on wealthy and corporate tax cheats using funding from the law: they have collected $1 billion in overdue taxes from millionaires.
In addition, in the past two years, the IRS has launched other tax fairness initiatives that include:
Collecting taxes that are owed by 125,000 high-income, high-wealth earners who have not filed taxes in years
Auditing the 60 largest corporate taxpayers, with average assets of $24 billion
Auditing 76 of the largest partnerships with average assets of $10 billion, representing industries that include hedge funds, real estate investment partnerships, publicly traded partnerships, and large law firms.
Health Care and Clean Energy Tax Credits For Working Families
The Inflation Reduction Act also included health care and clean energy tax credits that are helping to lower costs for working families and small businesses in Montana and across the country. The law extended enhanced premium tax credits for Affordable Care Act (ACA) exchange plans so that more people can access high quality, affordable health care. ACA coverage provides affordable health coverage to 10,000 small business owners and self-employed adults in Montana, making the tax credit particularly important to these populations. In Montana, in the first year of these Inflation Reduction Act tax credits, 53,860 people saved an average of $424 on their ACA plan premiums.
The Inflation Reduction Act is the largest investment our country has ever made in fighting climate change and in clean energy production. The law included approximately two dozen tax provisions that will help families save money on their energy bills and speed the production and use of clean energy and manufacturing. Electric cooperatives serve approximately 210,000 homes, businesses and other customers in Montana. The Inflation Reduction Act makes these cooperatives eligible for direct-pay clean energy tax credits, which means they can directly receive a payment equal to the value of tax credits to build qualifying clean energy projects. In addition, the law helps Montana’s 126,219 small businesses save money through a tax credit that provides up to $5 per square foot for energy efficiency improvements that lower utility bills, a tax credit that covers 30% of the cost of installing low-cost solar power and purchasing clean vehicles. The law also contained clean energy provisions specifically for tribal communities, including direct payments that are available to tribes and tribal members to implement clean energy projects.
In the nearly two years since the Inflation Reduction Act became law, working individuals and families in Montana and across the country have benefitted from its historic investments in tax fairness, health care and clean energy. The law’s tax fairness provisions are making sure that the wealthy and large corporations pay more of their fair share and updating and modernizing the filing system to make it more efficient and accessible. The Inflation Reduction Act’s health care and clean energy tax credits have already expanded access to high quality, affordable health care for Montanans and increased the affordability of clean energy. The Inflation Reduction Act is leveling the playing field for working Montanans.
