What will the Inflation Reduction Act mean for small businesses?
Over the weekend, the Senate passed one of the most important pieces of legislation we’ve seen in many years – the “Inflation Reduction Act.” Though the bill must still pass in the House of Representatives and be signed by President Joe Biden, it is likely to become law in pretty much the shape it is in now. So I took a deep dive into the legislation to see what it means for small businesses.
The bill bears the name “Inflation Reduction” because it takes aim at reducing the deficit through taxes on the largest corporations and lowering health-care costs on prescription drugs. At the same time, it is far-reaching legislation to combat climate change. As long as no future legislature or president comes along to overturn these provisions, the U.S. should dramatically reduce its greenhouse gas emissions by the end of the decade.
Although the bill was opposed by every Senate Republican – passing on a strict party line vote with Vice President Kamala Harris casting the tiebreaker – the response has been overwhelmingly positive. That’s because the legislation was crafted to be “all carrots and no sticks,” by Senate Majority Leader Chuck Schumer, D-N.Y., Everyone wins – even oil and gas companies – well, except for big pharmaceutical companies and a handful of huge corporations.
Let’s look at what the Inflation Reduction Act might mean for you and your small business:
Inflation and taxes
- 15% minimum tax on corporations with over $1 billion in revenue
- 1% excise tax on corporate share buybacks
- $80 billion more in IRS enforcement
Impact on small businesses: While these provisions will have no direct effect on small businesses, the 15% minimum tax on huge corporations helps level the playing field. It applies to about 150 corporations, but should bring in more than $300 billion in tax revenue.
Let’s face it: Your competitors haven’t been paying their fair share. For example, in 2021, Amazon had $35.1 billion in profits and paid only 6.1%. Most small businesses paid a higher percent of their profits – I certainly did, and I bet you did, too. There were also at least two years Amazon paid no federal income tax.
More funds for IRS enforcement will also help reduce the deficit. Now, don’t get nervous if you’re thinking the IRS will come after you because you wrote off some office supplies you gave to your kids. Quite the opposite. Because of limited resources, the IRS has been disproportionately targeting lower-income Americans rather than the big tax cheaters. These new funds make it possible for the IRS to go after the big guys.
“The Inflation Reduction Act will put downward pressure on inflation – strengthening balance sheets for small businesses and their consumers,” SBA Administrator Isabella Guzman said in a statement to USA TODAY.
- Extend Affordable Care Act subsidies through 2025
- Allow Medicare to negotiate drug prices, starting with 10 drugs in 2026
- Caps Medicare recipients’ drug expenditures at $2,000 per year
Impact on small businesses: Before the Affordable Care Act was passed, many small businesses couldn’t afford health insurance, and it wasn’t unusual for a sole proprietor to pay over $1,000 a month for a fairly skimpy policy. I know I did.
Under the American Rescue Plan, subsidies made health care more affordable for those buying insurance on ACA exchanges, but those subsidies were due to expire at the end of this year. This bill extends those subsidies through 2025. According to the SBA, the ACA exchanges are disproportionately used by small businesses, their employees and the self-employed.
Not negotiating drug prices for Medicare is just nuts. Americans typically pay much more than others, often two to times more, for the same drugs that those in other industrialized countries pay. This provision starts us on a more sane and less-expensive path.
The savings would have been even bigger had Republicans had not defeated a provision from Sen. Raphael Warnock, D-Ga., that would have capped the cost of insulin at $35 per month for those with private insurance. Since more than 37 million Americans suffer from diabetes, many of whom are small-business owners, this was a lost 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 and heat pumps
- Tax credits up to $7500 for buying a new or used electric vehicles, extended until December 2032; sets new limits on price of vehicle, household income and North American assembly; those limits are not all applicable to business vehicles
- Tax credits on electric commercial vehicles up to $40,000 for vehicles over 14,000 pounds
Automakers group: Most electric vehicles won't quality for tax credit in Senate bill
Impact on small businesses: I’m also listing this as “business opportunities” along with climate change because many small businesses will see demand for their services and products increase as a result of 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 work. Additionally, small manufacturers and suppliers should see increased demand for their products and services as many provisions for other incentives require products to be assembled in America.
Inflation Reduction Act: What does it mean for fighting climate change?
“Investments in reducing health-care costs and energy costs not only help provide better access and cost-savings for small businesses and their employees,” Guzman said, “but also help create small business contracting opportunities and therefore more job creation.”
Small businesses are already rapidly turning to electric vehicles for savings (as well as being better for the environment). This legislation will help subsidize that transition. Ford can hardly keep up with orders for the F150 Lightning truck. And the benefits for “commercial” vehicles are more lenient and potentially larger than those for consumer vehicles.
How do heat pumps work? What to know about installation, extreme cold
In a larger sense, everything we do to reduce the effects of climate change disproportionately benefits small businesses. Climate-related disasters have been increasing in frequency and disproportionately hurt small businesses, according to the SBA official I spoke with. While a Walmart might be able to recover from a hurricane or fire, a small store probably doesn’t have the reserves or the insurance to bounce back.
Overall, the Inflation Reduction Act is a good-size win for most small businesses, and a huge win for some.