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A Bit of Background

The following backgrounds help summarize the author's views on both the general topic: Federal and more specifically Build Back Better 2021 as it relates to that topic.

Brief Summary of Federal

This should be a fairly limited bills area for management the overall structures like highways, military, federal buildings, federal laws, and the like. However it has become the micro manager of all micro managers. They get involved in areas that no federal government should be involved in, and shift more power upward. This has led to each party trying to run over the other party in the eyes of the voters, all the while doing everything possible to maintain their power. They do this by holding onto all of the money, and claiming they know best how it should be spent. But they run debts so badly that no one should be looking to them as an example of anything other than the way to overspend and go further into debt.

Summary of Build Back Better 2021

Shortly after passing the House, Congress went on break and this bill appeared to die. Here is hoping it remains dead. Sadly it was brought back, renamed the Inflation Reduction Act, tweaked a little and passed. It did not reduce inflation - anyone with a brain knew it would not. And now the Congressional Budget Office has said it actually increased inflation. But wait because the spending under this bill is on-going.

Blog Summary

This portion of the bill spends over $79 BILLION, and that only accounts for the money they actually spell out. It doesn't equate to lost income based upon all of the tax give aways that everyone is always talking about. There are tax deductions for all kinds of "green" energy. Now remember a tax deductive or tax credit only goes against the actual taxes you are paying. So you are qualified to receive 30% of the value of the solar install. If the install costs $45,000, then you are qualified for $13,500 in tax credits. Now if your entire tax bill is just $5,000 and you have no other credits, then you get $5,000 in tax credits. (This assumes all qualifications are met.) But if you earn over $250,000 a year and owe $15,000, then you get the entire $13,500. In 2020, 61% of tax payers paid $0 in taxes, but even in 2019 44% of tax payers paid $0 in taxes. So none of those individuals qualifies for the tax credit. So any of those individuals installing solar or other "green" energy will be doing so on their own dime.

I'm all for people paying their own way, so I've got no problem with this. However, anytime there is a tax credit it is viewed as in incentive to do something and leads to the sellers building that known discount into their costs. So rather than the price of solar dropping more and more over time (this incentive has been around for quite some time), it has been able to maintain a higher price point while claiming savings. We've looking into it with multiple different installers, and each time, it comes down to the only way you are saving anything is if you are able to get the entire tax credit. Otherwise it costs you more monthly to have solar.

If they really wanted more solar, and to truly lower costs at the same time, they would encourage people to install more solar than they need and allow them to push to the system. As it stands, they are only permitted to install slightly over the 100% current average usage amounts. (I think perhaps 110%.) But if those eligible for tax credits were able to install more, then they could push their extra production back to the grid. That extra production could be used to power houses that did not qualify for the tax credits. And the costs of the power should drop overall, and require less non-"green" energy production. But this is capped to permitting only a slight amount overage. Which if you later get more electric powered items, like vehicles, may not even be sufficient for your current needs.

Overall, there are a ton of credits and tax deductions for companies and for high-earning/higher tax payer individuals. All the while the government will claim they are offering this or that tax credit to all tax payers. But don't be fooled, the less you pay the less the credit applies to you. It's just like capping the property tax deduction on federal taxes to $10,000 per year and claiming that is hurting the little guy. Really I seriously doubt that the little guy needs a federal tax deduction for property taxes exceeding $10,000. The median property tax bill in California according to tax rates is $2,839; Texas $2,275; New York $3,755; Illinois $3,507; Floria $1,773; New Hampshire $4,636; New Jersey $6,579; Connecticut $4,738. So allowing a deduction beyond the $10,000 for property taxes is beneficial to those owning above the median price even in states like Connecticut, New York, and New Jersey. They just want you to believe the cap was unfair to the middle income families.

Inflation Reduction Act - Tax Portion

Published: 2022-11-02

Build Back Better renamed the Inflation Reduction Act

now 273 page - was 2,468 pages long.

Spending more money then we have available so we can virtue signal and bad mouth those who don't agree. And bonus we can claim to reduce inflation all the while knowing this bill will do no such thing.

Committee on Finance

Subtitle A - Deficit Reduction

Corporate Tax Reform

Tentative minimum tax - 15% of adjusted financial statement income over corporate AMT (foreign tax credit not applicable) - corporation tentative minimum tax shall be zero
Applicable corporation: any corporation (other than S corporation, regulated investment company, or real estate investment trust)
Average annual adjusted financial statement income test for 1 or more taxable years [prior year and ending after 12/31/21]
- Test is average annual adjusted financial statement income for 3 taxable years exceeds $1 Billion and
- - if the $1 Billion is met in that tax year and the 3 year adjusted financial statement income exceeds $100 Million
  - Exception if the corporation changed ownership orhas a specified number of consecutive taxable year that does not meet the $1 Billion test, and the Secretary determines it would not be appropriate to treat the corporation as "applicable"
- Special rule for foreign-parented multinational groups - the adjusted financial statement income shall be that of all members of the group combined. Multinational if one at least one domestic and one foreign entity are combined on the same financial statement. If a foreign corporation is doing business in US, then it is treated as domestic that is wholly owned by foreign corporation.
Items not to be included in adjusted financial statement income:
- Funds stated in connected with any covered benefit plan;
- Wireless communications carriers get additional deductions based upon amortization expenses;
- Net operating carryover losses reduce income
Excise Tax on Repurchase of Corporate Stock
- 1% tax on repurchased stocks
- This does not apply if the repurchase is due to reorganization;
- if it is contributed to employee stock ownership or retirement plan or similar repurchase does not exceed $1,000,000 (1 Million);
- if repurchase is made by a dealer in securities during ordinary business;
- repurchase by regulated investment company; repurchase is treated as dividend

Funding of IRS and improving Taxpayer compliance

Appropriations - Total $72,218,936,803, yes that is over $72 BILLION

$3,181,500,000 - taxpayer services
$45,637,400,000 - enforcement, to remain available until 9/30/31
$25,326,400,000 - operations, to remain available until 9/30/31
$4,750,700,000 - systems modernization, to remain available until 9/30/31
$15,000,000 ($15 Million) - to remain available until 9/30/23 - Task force to determine the cost of a free efile system that includes multilingual, mobile-friendly, and safeguards for data
$403,000 - purchase and hire of passengar motor vehicles, to remain available through 9/30/31
$104,533,803 - expenses of office of Tax Policy to make regulations, to remain available through 9/30/21
$153,000,000 ($153 Million) - expenses of Tax Court, to remain available through 9/30/31
$50,000,000 ($50 Million) - Department of Treasury for oversight, to remain available through 9/30/31

Subtitle B - Prescription Drug Pricing Reform - this is for Medicare

Lower prices for certain high-priced single source drugs

Begins in 2026
They want 10 drugs on the list in 2026; 15 in 2027; 15 in 2028; 20 in 2029 and subsequent years
They are looking at those drugs where the most $ are spent by Medicare Part B
Exceptions for small biotech drugs
Does not include 'orphaned drugs' or those designated as a drug for only one rare disease or condition

Prescription Drug Inflation Rebates

Drugs increasing faster than inflation- the government is entitled to a rebate under Medicare part B for over payment. This can be waived if the drug is in short supply due to inclusion on a shortage list, or due to severe supply chain disruption that is caused by a natural disaster or other unique or unexpected event.

Part D Improvements and Maximum Out-of-Pocket Cap for Medicare Beneficiaries

Beginning in 2025 and for costs above the annual deductible specified - believe it to be $2,000. The price agreed and set to is for the beneficiaries under Medicare only. This pricing is not available to everyone. I suspect that the pricing may be kept artificially low so as to attempt to convince people that "medicare for all" is a good thing. All I see is that prices will be locked down by government and that will discourage new research, or research will only occur where billions of tax dollars are given. Eventually this becomes an issue such that more and more taxes are needed to sustain the cycle. So you either pay directly for the drug or you pay via higher taxes. FYI - those with the most can easily move funds so they are no longer taxable in the US. And the pricing will only be for some drugs not all drugs.

After January 1, 2023 deductibles will not apply for adult vaccines recommended by the Advisory Committee on Immunization Practices. This is also going to be true for Medicaid and Chips.

After January 1, 2023 covered insulin will have reasonable deductible under Medicare. This gets to be the lesser of $35 or 25% of the maximum fair price.

Subtitle C - Affordable Care Act Subsidies

Extension of credit to taxpayers whose household income exceeds 400 percent of poverty.

# people in household	100% poverty level for annual income	400% poverty level for annual income
1	$13,590	$54,360
2	$18,310	$73,240
3	$23,030	$92,120
4	$27,750	$111,000
5	$32,470	$129,880
6	$37,190	$148,760
7	$41,910	$167,640
8	$46,630	$186,520
over 8	add $4,720 per person	add $4,720 per person

Subtitle D - Energy Security

Part 1 - Clean Electricity and Reducing Carbon Emissions

Striking Jan 1, 2022 and inserting Jan 1, 2025 for renewable resources credit. The credit amount is reduced from 1.5 cents to .3 cents. This is for facilities that have a maximum net output less than 1 megawatt, or construction begins within 60 days after guidance requirements, or that the workers are paid prevailing construction rates. Elimination of hydropower credit rate reduction. Energy storage technology, qualified biogas property and microgrid controllers are added. I wonder if the microgrid controllers are what the electricity providers use to control SMART thermostats.

There is an increase in credits for solar and wind if it is placed in service for a low-income community. An extension of credit for carbon oxide sequestration is added. Nuclear power plant production credit for zero-emissions. It seems that all of these have a wage payment component. So if we say the average wage is X and you are not paying at least X, then you are not eligible. Problem here becomes are wages set upon average needed for California or New York, or Kentucky. I mean if they are set for California, then most of the remainder of the country will either not be eligible or will be paying substantially over the going wage in their state and this will drive up the cost of power. If they are set for Kentucky, then at least California could pay more and states would not be overpaying wages and driving up utility costs. Of course, they could set wages based upon the individual locations but they rarely do this. It's similar to the Federal minimum wage which they want to set higher because of states like California where the cost of living is higher.

Part 2 - Clean Fuels

Extensions of incentives for biodiesel, renewable diesel and alternative fuels.

Sustainable aviation fuel credit.

Clean hydrogen. Limits the amount of CO2 per kilogram of hydrogen.

Part 3 - Clean Energy and Efficiency Incentives for Individuals.

These are extended to December 31, 2032. Credit against tax imposed - an amount equal to 30% of the sum of the amount paid or incurred for qualified energy efficiency improvements installed and the amount of the residential energy property expenditures paid or incurred by the taxpayer. This is an offset against taxes due and owing. The amount of the credit cannot exceed $1,200 for any tax year, or $600 for an energy property. For windows, the credit shall not exceed $600. For doors, the credit shall not exceed $250 for exterior door and $500 for all exterior doors. Heat pump, heat pump heaters, biomass stoves and boilers the credit shall not exceed $2,000. [FYI: Biomass stoves burn biomass fuel to heat a home or heat water. Biomass fuel includes agricultural crops and trees, wood and wood waste and residues (including wood pellets), plants (including aquatic plants), grasses, residues, and fibers.]

Qualified energy property includes installation of electric or natural gas heat pump; central air conditioner; natural gas, propane, or oil water heater; natural gas, propane, or oil furnace or hot water boiler. Oil furnaces have to use blended oil that has at least 20% of an eligible fuel included. Improvements or replacements of panel-boards or sub-panelboards with at least 200 amps; is installed with any qualified energy efficiency improvements or any qualified energy property receives credits. There is up to a $150 credit for a home energy audit. This credit is only available if the report is provided and it is done by someone that meets certification requirements. [My guess here is they hope to get a bunch of audits to find new ways to push for more changes to be made by offering yet more taxpayer funded credits. So those who pay a lot of taxes will be eligible and those that don't won't. And the changes will make minimal differences if any at all. Not to mention the waste involved with all of the items being removed.] Apparently all of these credits are only available if the qualified product identification number for the item is provided with the tax return. [That way that product will be attached to you should it in the future end up somewhere they don't think it should.]

Residential clean energy credit. These were set to expire December 31, 2023 and are extended to December 31, 2034. There is a phase out plan that goes from 30% to 22% based upon when it is placed in service. There is a credit for using batteries as long as it holds at least 3 kwh. Energy efficient commercial building deduction. This deduction is only allowed if there is an assurance that the laborers installing them is paid at the prevailing rates. Tax-exempt entities such as the federal government, a state or political subdivision, or an Indian tribal government shall be treated as a tax payer for purposes of this credit. [I'm not sure how this works because credits are only available to individuals to offset the taxes you are paying, and are not available beyond the taxes you owe. It would seem they are saying that these entities will be eligible to received the credit without having to pay any tax.] [If you are not thinking about it, this is a means by which a business can get a substantial tax credit, thereby pay less taxes. Unlike individuals that own homes but may not pay enough in taxes to get a tax credit, a business that owns a building or is building one is highly likely to qualify for a tax credit because they would owe enough taxes. It's one of the ways I'm sure that some feel businesses are cheating by not paying 'enough' in taxes, and yet this just passed in 2022. Honestly I think it's fair if you are offering this insanity as a tax credit at all.]

New energy efficient home credit. This credit is extended from December 31, 2021 to December 31, 2032. These are homes that qualifiy under the Energy Star Residential New Construction Program or the Energy Star Manufactured New Homes Program. They must meet the 0 energy ready home requirements. It seems this is mostly ensuring that it meets or exceeds energy efficient items, including doors and windows and has a programmable thermostat. It does not require the home to be all electric.

Part 4 - Clean Vehicles.

The vehicle must meet minerals requirements for a credit of $3,750; meet battery components requirements for a credit of $3,750; and be final assembly in North America. To be clean it must be a qualified plug-in electric drive motor. The critical minerals contained in the battery must be extracted or processed in the United States or in a country that has a free trade agreement with the United States or is recycled in North America. The percentage requirement begins at 40% prior to January 1, 2024; goes to 50% after calendar ear 2024; then to 60% after 2025; then to 70% after 2026; and post to 80%. This credit is only available once per vehicle, so purchasers of used vehicles are not eligible. The VIN must be provided to be eligible. The AGI shall not exceed $300,000 if filing jointly; $225,000 in head of household; or $150,000 otherwise. The credit is also not available if the vehicle is priced outside the suggested retail price set. For vans it cannot exceed $80,000; for sport utility vehicles it cannot exceed $80,000; for trucks it cannot exceed $80,000; for other vehicles it cannot exceed $55,000. For previously owned clean vehicles the credit is the lesser of $4,000 or 30% of the sale price of the vehicle. The credit is not allowed if AGI for taxpayer exceeds limit. Limits for joint returns are $150,000; for head of household are $112,500; and for other is $75,000. It must be the first transfer after the original qualified buyer and the sale must not exceed $25,000 and it must be a sale through a dealer. The VIN number must be provided to get the credit.

Qualified commercial clean vehicles. The credit is the lesser of 15% of the basis of the vehicle, 30% for vehicles not powered by gasoline or diesel internal combustion engines, or the incremental cost of the vehicle. The incremental cost is the price increase over a comparable vehicle.

The credit is capped at $7,500 for vehicles under 14,000 pounds and $40,000 for other vehicles. All such vehicles must be at least partially powered by an electric motor vehicle a battery that has at least 15 kwh, or 7 kwh for vehicles over 14,000 pounds. The VIN must be provided to qualify and the entity making the claim can not be tax exempt. This credit is set to expire December 31, 2032. (So watch for an extension to be passed before that time.)

Alternative Fuel Refueling Property Credit. This credit was set to expire December 31, 2021 and was extended to December 31, 2032. The old cap of $40,00 was changed to $100,000; and while it use to apply to all it now applies to a single item only. Any fuel which is at least 85% ethanol, natural gas, compressed natural gas, liquified natural gas, liquefied petroleum gas, or hydrogen is considered clean. Any fuel which as 2 or more biodiesel or kerosene; and at least 20% of the volume is biodiesel.

Qualified alternative fuel vehicle refueling project. To qualify the prevailing rate for construction, alteration and wages must be paid. The property must be in an eligible census tract and thereby may not be urban.

Part 5 - Investment in clean energy manufacturing and energy security.

This extends the credit and sets limits. The total amount of credits which may be allocated shall not exceed $10,000,000,000 (yep $10 BILLION), where $6 Billion is reserved for investments outside of census tracts. (Not sure but it seems that refueling must be within census tracts, and thereby not urban to qualify. Yet they are saying that 60% of manufacturing must be outside a census tract. So does that mean that 60% of the manufacturing must be urban?) And again prevailing wages must be paid. There are expansion to terms including: manufacturing facility for production to include recycling; water is added after sun; the energy storage system for use with electric or hybrid-electric motor vehicle is struck and energy storage systems and components are added (I'm guessing there will be a continued claim of this being purely electric or hybrid but it will begin to include other storage systems); grids to support transmission of intermittent sources of renewable energy is struck and grid modernization equipment or components is inserted; sequester carbon dioxide emissions is removed and remove, use or sequester carbon dioxide emissions is inserted. Other new items are added as well but just to give you an idea of the changes being made to existing laws.

An advanced manufacturing production credit. The following credits are available:

photovoltaic cell - $.04 multiplied by the capacity of the cell;
photovoltaic wafer - $12 per square meter;
solar grade polysilicon - $3 per kilogram;
polymeric backsheet - $.40 per square meter;
solar module - $.07 multiplied by the capacity of the module
wind energy component - if offshore wind than 10% of sales price, otherwise the total rated capacity multiplied by blades - $.02, nacelle $.05, tower $.03
torque tube - $.87 per kilogram;
structural fastener - $2.28 per kilogram;
inverter - capacity of the inverter multiplied by central $.25, utility $.015, commercial $.02, residential $.065, and microinverter or distributed wind inverter $.11;
electrode active materials - 10% of the cost incurred by the taxpayer;
battery cell - $35 multiplied by the capacity of the battery cell;
battery module - $10 (or $45 if it doesn't use battery cells) multiplied by the capacity of the battery module;

There is a phase out of these such that items sold in 2030 are only eligible for 75%, during 2031 only 50%, during 2032 only 25%, and after December 31, 2021 0%.

Part 6 - Superfund.

Hazardous substance superfund financing. Inflation adjustments are being made from 9.7 cents to 16.4 cents, and thereafter there is added a cost-of-living adjustment.

Part 7 - Incentives for clean electricity and clean transportation.

Things like carbon recapture are included such that a facility can be considered clean by recapturing carbon rather than not producing it. There is a phase out period. And it appears to be only for facilities being built, not for repairing facilities to eliminate carbon emissions. It applies to storage facilities for energy as well, so batteries. Prevailing wage rates must be paid. (If this truly only applies to new builds beginning after this act was past and not to improvements to existing infrastructure, that is truly wasting resources. Older facilities that are merely shuttered take up space and are less well-maintained. Eventually the structures are demolished and the space is reclaimed for use, but in the interum that space is merely wasted as are all of the resources put into it. And all new resources are tapped to build new. Best case, a new power station is added and the old is continued to be used. This may happen as higher and higher demand is being made of the electric grid. And with any luck older facilities will be upgraded but if there continues to be monetary incentives provided by the federal government, in the form of your tax dollars, than I don't foresee that happening.)

Part 8. Credit monetization and appropriations. Allocated $500,000,000 ($500 Million)

A credit for alternative fuel vehicle refueling property; renewable electricity production; carbon oxide sequestration; zero-emission nuclear power production; production of clean hydrogen; advanced manufacturing production; clean electricity production; clean fuel production; energy credit; qualified advanced energy; and clean electricity investment. For the fiscal year 2022, they allocated $500,000,000 ($500 MILLION). (Now to be truly honest, to allocate only this amount for 2022 through 2031, there is no way they think this is sufficient. This is more of a number they could agree to put in the bill but I'm sure it will argued every year hereafter for the additional necessary amounts to fund these very credit. Yet sadly they will currently act as if this will only cost $500 million for the 10 year period. Hence the reason that even the government accounting office will substantially increase the necessary appropriations on bills like these.)

Part 9 - Other provisions.

Permanent extension of tax rate to fund black lung disability trust fund. (This is funded by an excise tax on coal mined and sold in the U.S. Oddly the number of those getting black lung disease seemed to be steadily decreasing until around 2000, then the numbers started to grow significantly. There is a claim this is due to silica being produced in higher amounts due to mechanization. However one article stated that this mechanization began in 1970s. Yet claims continued downward until 2000 based upon their own charts.) Reinstatement of limitation rules for deduction of state and local taxes; and extension of limitation on excess business losses of non-corporate taxpayers. The limits for deducting state and local taxes is modified to strike 2026 and insert 2025, and strike 2027 and insert 2026. For business losses that are not corporate, the limitation strikes 2027 and inserts 2029. (So it seems that local and state taxes will be deductible without limitation sooner but businesses will have their losses limited longer. Sure that makes sense, give a larger deduction to more democrat run state citizens on their federal return. But limit smaller business deductions but don't limit corporate deductions.)

Legislative Blog

J.B. Williams, J.D.

Inflation Reduction Act - Tax Portion

A Bit of Background

Brief Summary of Federal

Summary of Build Back Better 2021

Blog Summary

Inflation Reduction Act - Tax Portion

Committee on Finance

Subtitle A - Deficit Reduction

Corporate Tax Reform

Funding of IRS and improving Taxpayer compliance

Subtitle B - Prescription Drug Pricing Reform - this is for Medicare

Subtitle C - Affordable Care Act Subsidies

Subtitle D - Energy Security

Part 1 - Clean Electricity and Reducing Carbon Emissions

Part 2 - Clean Fuels

Part 3 - Clean Energy and Efficiency Incentives for Individuals.

Part 4 - Clean Vehicles.

Part 5 - Investment in clean energy manufacturing and energy security.

Part 6 - Superfund.

Part 7 - Incentives for clean electricity and clean transportation.

Part 8. Credit monetization and appropriations. Allocated $500,000,000 ($500 Million)

Part 9 - Other provisions.

J.B. Williams, J.D.