Inflation Reduction Act. Don’t be afraid.

Inflation Reduction Act. Don’t be afraid.

Blog by Frank Knapp Jr, President and CEO of the South Carolina Small Business Chamber of Commerce

August 12, 2022

No, the cost of gas is not going to increase by 16.4 cents a gallon.

No, the IRS isn’t going to hire 87,000 new agents who will be auditing your tax returns.

These things are not going to happen with the passage of the Inflation Reduction Act (IRA) and President Biden signing it into law.

But opponents of the IRA are trying to scare the public with these claims.

So, let’s look at the reality.

The IRA does put a 16.4 cent tax on a barrel of oil to help raise some new money to reduce the national deficit and fund some very popular and needed programs.

Now, I was not a math major but follow along.

A barrel of crude oil is about 42 gallons and is used to produce about 19 US gallons of gasoline, 10 gallons of diesel, 4 gallons of jet fuel and another 9 gallons of other oil products.

If we assume that the 16.4 cent tax on a barrel of oil will be equally distributed to all the products of that oil, a gallon of gas could increase in cost by less than ½ of one penny (0.39 cents per gallon).

With the price of gas dropping by $1 a gallon since June, I don’t think consumers need to worry about the IRA driving up inflation.

But how about that $80 billion the IRA will give to the Internal Revenue Service over the next decade so that it can, as projected, collect about $124 billion in additional tax revenue.

Shouldn’t every American and small business owner be shaking in their boots with the prospect of being audited?

As my friend and 30+ year CPA Anne Zimmerman tells me, the IRS won’t spend $1000 on an audit to pick up $200 dollars in more taxes. They need more bang for their buck to make the $124 billion goal. Plus, much of that money will be used to update its 1970’s technology.

And if that logic doesn’t convince you that the average American and small business owner has nothing to worry about, this should.

Treasury Secretary Janet Yellen has directed the IRS to use the new funding to “focus on high-end noncompliance” and not use the additional funding “to increase the share of small business or households below the $400,000 threshold that are audited relative to historical levels.”

OK, so we don’t have to worry about the cost of gas going up or having an IRS agent knocking on our door because of the IRA.

Instead, Americans and small business owners should be pleased with what the IRA will do.In fact, small business owners are supportive of the IRA and what it will do.

According to a national survey by the Small Business for America’s Future 74% of small business owners support the Inflation Reduction Act:

  • 79% support creating a minimum 15% tax rate for large corporations
  • 85% support capping out-of-pocket drug costs for seniors at $2,000
  • 87% support Congress giving Medicare the ability to negotiate drug prices
  • 73% agree the Act will help ease inflationary pressure by paying down the deficit and reducing costs of healthcare and prescription drugs, which limit small businesses’ ability to grow and compete in the labor market

The IRA will also importantly invest $370 billion in clean energy. As it should be clear to even the skeptics of climate change, transitioning to clean energy it critical for the survival of all of us on Earth.

But let me go back to what the IRA will do regarding the healthcare.

I can tell you that the cost of health insurance has been a top concern of small business owners for over 20 years. It was in 2000 when I co-founded the SC Small Business Chamber of Commerce and poll after poll confirms it.

Without the IRA, about one million entrepreneurs would probably not be able to afford the quality heath insurance policies they have had access to because of the increased premium assistance made available to them via the American Rescue Plan Act passed last year.

In addition, the IRA will allow Medicare for the first time to negotiate the cost of a number of prescription drugs. Private insurance companies will want the same pricing deals Medicare gets. This is the first step to controlling the cost of prescription drugs, a main driver of rising health insurance costs.

Enacting the IRA is a big deal for small business.

So, don’t let the fear-mongers scare you.