Inflation Reduction Act Will Increase Middle-Class and Small Businesses Taxes: Tax Law Expert

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Preston Brashers, a senior tax policy analyst at the right-leaning Heritage Foundation, told the Epoch Times in an interview that despite Democrats’ insistent claims that the Inflation Reduction Act will not raise taxes on people making less than $400,000 a year, collateral effects from the bill will cause workers and small businesses alike to pay more.

The bill, hammered out as a compromise agreement between moderate Sen. Joe Manchin (D-W.Va.) and Senate Majority Leader Chuck Schumer (D-N.Y.), serves to fulfill a series of broad Democrat aspirations: increasing federal revenue by closing so-called tax “loopholes,” climate change policies, expansion of the Affordable Care Act, commonly known as “Obamacare,” and reducing prescription drug prices.

The act, according to its supporters, will also help to slow the growth of the ballooning U.S. national debt by decreasing the deficit.

Though it authorizes around $433 billion in new spending, Democrats’ internal estimates suggest that the bill will bring in around $725 billion in new revenue to the federal government, thus reducing the federal deficit and slowing the growth of national debt. Specifically, Democrats estimate that the bill will reduce the deficit by around $292 billion annually.

Importantly, Brashers noted, the bill will not directly increase taxes on individuals at any income level. The most substantial change in the bill will be a modification of corporate taxes, setting a mandatory minimum rate of 15 percent on corporations making more than $1 billion annually.

“There’s nothing in here specifically targeting income levels,” Brashers said. “They’re not targeting people making $400,000 or more.”

Neither, Brashers said, are they targeting businesses necessarily: “A brand can’t pay a tax. Technically, legally, the corporations are the ones paying taxes, but ultimately that has to be paid by people, one way or the other. It’s not like Jeff Bezos—if you tax Amazon—that this is coming out of Jeff Bezos’ pocket. It’s coming out of everyone’s pocket that’s involved in that operation, whether you’re a worker, if you buy the products, if you have any stock in the companies, if you have a 401k.”

He continued, “Basically what they’re doing, they’re applying these taxes and they’re not specifically hitting these lower-income people, but what they’re doing is they’re applying general taxes across the whole economy, and so everyone’s gonna be caught up in it.”

“These are gonna be taxes that are just kind of economy-wide.”

In addition, Brashers argued that through indirect effects, individuals below the $400,000 threshold will see an increase in how much they pay.

“There’s no way to take … [Democrats’] claim about $400,000 seriously,” Brashers began when asked about the truth of Democrats’ contention.

“You can quibble with details, but there’s simply no way you can say that these taxes are being exclusively paid by people making $400,000 [or more]. There’s no way you can say that because none of these taxes are being applied to people making $400,000. So you have to look at this as—some of these taxes are gonna hit labor, some portion of that might be shifted off to capital.”

But hardest hit will be laborers, Brashers esaid: whereas investors are able to leave U.S. markets to invest in foreign markets like China, where such rules are not in place, laborers “are kinda stuck where [they] are.”

Aside from the economy-wide effects of the new corporate minimum tax, Brashers noted, the bill also contains provisions related to the Internal Revenue Service (IRS).

“They’re expanding enforcement of [tax law by the IRS], they’re gonna expand audits on individuals and businesses,” Brashers said.

Here he is pointing to provisions in the bill that appropriate a total sum of $80 billion to bulking up the IRS.

Proponents of the bill suggest that, in addition to the new tax code changes, a bulkier IRS will bring in an additional $124 billion annually through the enforcement of the package’s tax code reforms.

Broken down, the roughly $80 billion appropriation to the IRS will go toward “necessary expenses for tax enforcement activities … to determine and collect owed taxes, to provide legal and litigation support, to conduct criminal investigations (including investigative technology), to provide digital asset monitoring and compliance activities, to enforce criminal statutes related to violations of internal revenue laws and other financial crimes … and to provide other services.”

Brashers argued that this expansion of the IRS will have a tangible effect on lower-income individuals and small businesses.

“If you look at the [dispersion] of audits right now, there’s a lot of audits that happen on the lower end,” Brashers explained. “Especially on the business side: if you’re a small business, a sole proprietor—if you’re running your own books—a lot of times the IRS looks at that as a prime target because you don’t have the accountants that are keeping everything buttoned down necessarily. If you’re a sole proprietor and you’re keeping your own books … it’s probably just gonna be harder for you to keep up with the convoluted tax code.

“So, if anything, more of that weight is probably gonna hit small businesses,” Brashers summarized.

Though the bill will indeed not raise individual income taxes, more IRS agents and more audits could mean that Americans across the board find themselves on the hook for paying more to the IRS.

After a marathon amendment voting session in the Senate, the upper chamber passed the bill in a party-line 51-50 vote on Aug. 7. Now, all that remains for its passage is consideration in the Democrat-held House, which is expected to approve the bill, and then to the desk of President Joe Biden, who has been outspoken in his support of the legislation.

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Joseph Lord is a congressional reporter for The Epoch Times.