The Economic Impact of the New Taxes on the Inflation Reduction Act

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By: Michael Anthony Incorvaia

The two central taxes that I will be talking about in this article include the new minimum 15% and the 1% tax on company buybacks. Both of these new taxes are part of the new inflation reduction act that was recently passed by congress. The goal of the inflation reduction act is to help stimulate areas of the economy with an emphasis on climate. The way of paying for this bill is through a new set of taxes. However, this bill presents a multitude of other problems that don’t pertain to taxes, so without getting into details of the other aspects of the inflation reduction act here are the problems with the new taxes.

The new 15% minimum corporate is actually adding pressure while increasing taxes on businesses in an economy that is experiencing slow growth. However, many would argue the tax raise would make these large corporations pay “their fair share” or will go along with questionable spending in a time of high inflation. In other words, raising taxes increases inflation and may cause an increase in layoffs. It is only going to exacerbate the current circumstances. In our current economic state, we are already seeing a multitude of large companies already laying off workers, most recently Best Buy and HBO. However, I’m not saying these particular companies are laying people off because of the bill or are one of the companies majorly affected by the bill. What I am saying is raising taxes to the minimum corporate tax or adding a tax on company buybacks doesn’t make any sense at a time when the economy is getting squeezed and struggling through the current economic circumstances already.

It is well known that raising taxes is known as a contractionary economic move that can be made using fiscal policy. When you are in a recession or a slowing economy your goal is to use expansionary policies like lowering taxes.

Now many of you may search up what is and see that on average companies pay around 21% corporate tax so this new minimum corporate tax will have trivial effect. But my point isn’t about most companies that pay corporate tax, this is because this tax is going to affect some of the largest companies in the US and companies that employ a large number of people. For example, Amazon is the second largest employer and pays a mere 7.1% median cash rate from 2019 to 2021 for taxes. Now with the new minimum, this would be more than double the current rate, and although there is a debate about whether or not it is right that Amazon can pay this amount. But what I am arguing is that in this current economic climate you shouldn’t put more pressure on the largest employers when you are trying to keep the unemployment rate low. For many companies, the easiest way to cut costs is by laying employees off, which is now even more of a possibility for these larger companies. To reiterate what I said earlier we see companies like Best Buy laying people off to increase revenue, and if under pressure companies like Fed Ex and Amazon that employ a lot of people and have a low tax rate won’t hesitate to lay people off.

Overall, new taxes that are part of this inflation reduction act aren’t going to help the slowing economy; rather, it will have the opposite impact on the USA’s current economic state.