The Anti-Inflation Act of 2022 was signed into law by President Biden on August 16, 2022, becoming the 169th public law of the 117th Congress. Previous articles reviewed the funding and provisions of the draft law relevant to the Agriculture Act and the Agriculture Committees (farmdoc daily, Aug 11, 2022; August 12, 2022).
This article provides an overview of what is included in the entire bill as reported so far by the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT). A compiled total score from multiple sources is summarized below as part of the introduction and overview of the discussion.
Background: reconciliation test
The Inflation Reduction Act (IRA) of 2022 is not ordinary legislation, nor is it legislation made under the ordinary course of business or the regular order of Congress. It is a reconciliation law subject to certain legal powers and specific procedural rules. Federal budget law provides for the inclusion of voting mandates in a competing budget decision.
The reconciliation consists of directives written by the Congressional Budget Committees and agreed by both the House and Senate in the Budget Act, but not signed into law by the President. Congress directs committees to take budget-related actions, which are consolidated into a single legislative instrument dealt with under special rules.
The IRA 2022 began as a contemporaneous Senate Resolution 14, which set budgetary levels for fiscal years (FY) 2023 through 2031. Title II contained instructions on reconciliation that included the agricultural committees.
The specific instructions to the Senate Committee on Agriculture, Food and Forestry (Senate ANF) were to “report changes in legislation within its jurisdiction that will increase the deficit by no more than ‘$135 billion’ for the period of fiscal years 2022 through 2031.” .
On August 11, 2022, the Congressional Budget Office (CBO) released its first score for the Inflation Reduction Act. The CBO Score reported a total of $114.8 billion net increase in the deficit from the Committee’s bill titles for fiscal years 2022-2031. Figure 1 illustrates the CBO score. The specifications of the Senate Committee for Agriculture, Nutrition and Forestry account for just over 30% of this total number of points.
The CBO score did not include estimates for the finance committee that wrote the bill’s tax provisions. The Joint Committee on Taxation (JCT) estimated the budgetary implications of the revenue provisions in the bill when it passed the Senate.
The JCT score can be divided into two categories: (1) tax changes to increase revenue that help reduce the deficit; and (2) tax credits (or tax code expenses) for certain activities. Figure 2 illustrates the deficit-reducing tax changes, which are a new alternative corporate minimum tax and an excise tax on corporate share buybacks.
Overall, JCT estimates the deficit reduction for the years 2022 to 2031 at 296 billion US dollars.
In the second category, the Inflation Reduction Act expands, modifies and creates a number of tax credits for renewable energy, energy efficiency and fuel.
These include tax credits for: solar, wind and other renewable energy sources; Biodiesel, renewable diesel, sustainable aviation and clean hydrogen fuels; Energy efficiency in homes, commercial buildings and other properties; clean vehicles, new, used and commercial, and fueling property; advanced energy and manufacturing; and clean power generation, investment and qualified facilities.
It also includes tax credits for zero-emission nuclear power generation and carbon capture. In total, JCT estimates these tax credits at $271 billion in fiscal years 2022 through 2031.
Figure 3 shows the JCT ratings by category, which are generally consistent with parts 1-5 and part 7 of the subtitle of the bill.
Figures 4a to 4d break down the JCT score by individual tax credit within the categories in Figure 3.
Not included in the figures above, but also assessed by JCT, are some provisions that increase funding by expanding existing provisions. The bill permanently extended the tax that funds the Black Lung Disability Trust Fund, raising $1.1 billion (FY 2022-2031), and reinstated the Environmental Cleanup Superfund, raising $11.7 billion (FY 2022-2031) were applied.
The bill also extended the limit on excessive business losses for non-corporate taxpayers by two years, raising $52.8 billion. Finally, the Inflation Reduction Act increased the research credit against the small business payroll tax by $168 million (FY2022-2031).
To round out the review of the entire Anti-Inflation Act, there are two categories of provisions written by the Finance Committee but not evaluated by the JCT. The first category related to health care and prescription drugs. Congress authorized Medicare to negotiate prescription drug prices to reduce costs.
Initial estimates suggest this provision will save the federal government between $229 billion and $265 billion over ten years (FY2022-2031). Congress also extended subsidies under the Affordable Care Act, originally estimated at about $64 billion to $69 billion. These provisions are contained in subtitles B and C (respectively) of Title I.
The second has attracted much political and partisan attention. In Part 3 of Subtitle A of Title I — the deficit reduction subtitle — the Treasury Committee allocated billions to the Internal Revenue Service (IRS) to improve services and improve tax compliance.
Congress approved $3.2 billion for improving taxpayer services and $4.75 billion for modernization. Congress also approved $25.3 billion for operational support, but the provision that received the most political attention was the $45.6 billion allocated to improving tax law enforcement. Figure 5 summarizes these provisions.
Included in the IRS’s funding is an additional $725 million for administrative expenses such as the inspector general, the office that writes the regulations, and the US tax court. Overall, the Inflation Reduction Act provides for a nearly $80 billion investment in the IRS that is expected to improve compliance and increase revenue and reduce the federal deficit. One estimate put this in for $147 billion over the FY2022-2031 period.
Others have estimated that it would raise $204 billion to contribute a net $124 billion in deficit reduction over 10 years (FY2022-2031) and help close the reported $600 billion annual gap between legally owed and actually paid taxes.
According to a synopsis document prepared by Senate Democrats, the Inflation Reduction Act of 2022 will raise $737 billion and $437 billion for climate and energy investments, and another $64 billion to extend subsidies from the Affordable Care Act and 4 Spend billions of dollars on western drought resilience.
The law is therefore expected to contribute nearly $300 billion in deficit reduction over the next 10 years. Senate Democrats’ estimates were compiled from valuation estimates prepared by the Joint Committee on Taxation and the Congressional Budget Office, but the valuation has not been completed at all and the final amounts are subject to change.
The unique and arguably historic legislation was reviewed in three parts, with the first two focusing on funding provided by the Senate Committee on Agriculture, Food and Forestry; This third installment reviewed all legislation as it is currently being assessed.
These initial reviews will be updated and supplemented with new information as it becomes available and additional analysis or perspective.
Jonathan Coppess, Krista Swanson, Nick Paulson, Gary Schnitkey and Carl Zulauf