What impact will this have on small businesses?
Over the weekend, the Senate passed one of the most important pieces of legislation we have seen in many years – the ‘Inflation Reduction Act’. Although the bill still needs to pass the House of Representatives and be signed by President Biden, it is likely to become law in much the form it is in now. So I dove into the legislation to see what it means for small businesses.
The bill is called “inflation reduction” because it aims to reduce the deficit through taxes on the biggest corporations and reduce health care costs on prescription drugs. At the same time, this is far-reaching legislation to combat climate change. As long as no future legislature or president overrides these provisions, the United States should significantly reduce its greenhouse gas emissions by the end of the decade.
Although the bill was opposed by all Senate Republicans — adopting a strict party-line vote with Vice President Kamala Harris in the event of a tie — the response has been overwhelmingly positive. That’s because the legislation was designed to be “all carrots and no sticks,” by Senate Majority Leader Chuck Schumer (D-NY). Everybody wins – even the oil and gas companies – well, except big pharma and a handful of huge corporations.
Let’s see what the Cut Inflation Act could mean for you and your small business:
Inflation and taxes
- Minimum tax of 15% on corporations with over $1 billion in revenue
- 1% excise duty on corporate share buybacks
- $80 billion more in IRS enforcement
Impact on small businesses: While these provisions have no direct effect on small businesses, the 15% minimum tax on large corporations helps level the playing field. It applies to around 150 corporations but is expected to bring in over $300 billion. dollars in tax revenue.
Let’s face it: your competitors haven’t paid their fair share. For example, in 2021, Amazon made $35.1 billion in profit and paid just 6.1%. Most small businesses paid a higher percentage of their profits – I certainly did, and I bet you did too. There have also been at least two years in which Amazon paid no federal income tax.
More funds for IRS enforcement will also help reduce the deficit. Now, don’t be nervous if you think the taxman will sue you because you wrote off office supplies that you gave to your kids. Rather the opposite. Due to limited resources, the IRS disproportionately targets low-income Americans rather than serious tax evaders. These new funds allow the IRS to go after the bigwigs.
“The Inflation Reduction Act will put downward pressure on inflation, strengthening the balance sheets of small businesses and their consumers,” SBA Administrator Isabella Guzman said in a statement to USA. TODAY.
- Extend Affordable Care Act grants through 2025
- Allow Medicare to negotiate drug prices, starting with limiting to 10 drugs in 2026
- Caps drug spending for Medicare beneficiaries at a maximum of $2,000 per year
Impact on small businesses: Before the Affordable Care Act (ACA) was passed, many small businesses couldn’t afford health insurance and it was not uncommon for a sole proprietor to pay more than $1,000 a month for a policy. quite skinny. I know I did.
Under the U.S. bailout, the grants made health care more affordable for those who buy insurance on ACA exchanges, but those grants were set to expire at the end of this year. This bill extends these grants through 2025. According to the SBA, ACA grants are disproportionately used by small businesses, their employees, and the self-employed.
Not negotiating drug prices for Medicare is just crazy. Americans generally pay much more than others, often 2-3 times more, for the same drugs as those in other industrialized countries. This provision launches us on a healthier and less costly path.
The savings would have been even greater had Republicans not defeated a provision by Sen. Raphael Warnock (D-GA) that would have capped the cost of insulin at $35 a month for those with private insurance. Given that over 37 million Americans have diabetes, many of whom are small business owners, this was a missed opportunity.
Climate change and business opportunities
- $369 billion in incentives for renewable energy, including electric vehicles
- Homeowners clean energy tax credits for those who install solar panels or purchase energy efficient products like water heaters, HVAC systems, heat pumps
- Tax credits of up to $7,500 for the purchase of a new or used electric vehicle, extended to December 2032; sets new limits on vehicle price, household income and North American assembly; these limits are not all applicable to professional vehicles
- Electric utility vehicle tax credits of up to $40,000 for vehicles over 14,000 pounds
Automobile Manufacturers Group: Most electric vehicles won’t get tax credit in Senate bill
Impact on small businesses: I also list this as “business opportunities” with climate change, as many small businesses will see demand for their services and products increase due to this legislation. Homeowners who convert to energy-efficient home energy products — like new HVAC systems or heat pumps — almost always use a small business for the job. Additionally, smaller manufacturers and suppliers are expected to see increased demand for their products and services, as many other incentive provisions require products to be assembled in America.
Inflation Reduction Act: What does this mean for fighting climate change?
“Investments in reducing health care costs and energy costs not only help provide greater access and cost savings to small businesses and their employees,” Guzman said, “but also create opportunities for sub- contracting for small businesses and therefore more job creation”.
Small businesses are already rapidly turning to electric vehicles for their ongoing cost savings (while being better for the environment). This legislation will help subsidize that transition. Ford can barely keep up with the controls of the F150 Lightning truck. And the benefits for “utility” vehicles are more forgiving and potentially greater than those for consumer vehicles.
How do heat pumps work? What you need to know about the installation, extreme cold
In a broader sense, everything we do to reduce the effects of climate change disproportionately benefits small businesses. Climate-related disasters are becoming more frequent and disproportionately hurt small businesses, according to the SBA official I spoke with. While a Walmart may be able to recover from a hurricane or fire, a small store probably doesn’t have the reserves or insurance to bounce back.
Overall, the Cut Inflation Act is a big win for most small businesses and a huge win for some.