Inflation Bill Contains Oodles Of Tax Savings, NJ Accountants Say

ESSEX COUNTY, NJ — The average U.S. resident will see lower costs for prescription drugs, health care and energy – in addition to oodles of potential tax savings – because of the recently passed Inflation Reduction Act, a group of New Jersey accountants says.

The legislation, a scaled-down version of what President Joe Biden's administration originally proposed in the Build Back Better Act, calls for $433 billion in new spending, which Democrats say is more than offset by $739 billion in revenue.

The Inflation Reduction Act was named after its goal of achieving hundreds of billions in federal deficit reduction to help fight inflation.

Every Democratic Congress member in New Jersey voted for the bill, which Biden signed into law on Tuesday. Read More: Here Are 5 Ways The Inflation Reduction Act Will Impact NJ

According to the New Jersey Society of Certified Public Accountants (NJCPA), which includes more than 13,000 members, the Inflation Reduction Act will mean bigger tax payments for millionaires and big corporations – but will boost most people making $400,000 per year or less.

The NJCPA stated:

“For the average taxpayer, the bill … lowers costs for prescription drugs, health care and energy. It is designed for higher-income earners to bear the brunt of the changes, as opposed to those taxpayers with income under $400,000 or small businesses. Secretary of the Treasury Janet Yellen sent a letter to congressional leaders on the tax provisions earlier this month, noting that the bill would either ‘reduce or have no effect on the taxes due or paid by any family with income less than $400,000 per year.’ According to the Tax Policy Center, the lower 80 percent of households, ranked by income, will see far less than a 0.1-percent increase in their taxes. The biggest increase, by far, will be paid by the top 0.1 percent of income earners — those earning $4.4 million or more a year.”

The Inflation Reduction Act included a 15-percent corporate minimum tax on those U.S.-owned corporations with more than $1 billion in profit reported on their financial statements (book income) and foreign-owned multinationals that report more than $100 million in income. It also has a nondeductible 1-percent excise tax on corporate stock buybacks.

Another key tax component of the Inflation Reduction Act was to improve taxpayer compliance by providing about $80 billion in funding to the IRS over 10 years, the NJCPA said.

According to the group:

“The funding would be used by the IRS to increase staffing, improve IT systems and better serve taxpayers. In response to discussions about whether the funding would lead to increased audits, IRS Commissioner Charles Rettig said it will not be using the funds for increasing the number of audits, particularly for those earning less than $400,000.”

Meanwhile, provisions for individual taxpayers included the extension and expansion of renewable energy credits; up to $7,500 in tax credits for new electric vehicles ($4,000 for used electric vehicles); direct consumer rebates for families to purchase heat pumps or other efficient home appliances and a 30-percent tax credit for solar installation in homes.

“Taxpayers have faced many challenges recovering from the COVID-19 pandemic,” NJCPA Executive Director Ralph Albert Thomas said. “It’s important that the average taxpayer takes advantage of all the ways they may qualify for tax savings under the new bill.”

CHOPPING DRUG COSTS FOR AMERICANS

Other groups have said the Inflation Reduction Act will create big savings on prescription drug costs for the average New Jersey resident, especially the provision that allows Medicare to negotiate prices.

According to the AARP's New Jersey chapter, the new law also:

• Caps annual out-of-pocket prescription drug costs in Medicare Part D ($2,000 in 2025)
• Holds drug companies accountable when they increase drug prices faster than the rate of inflation
• Caps co-pays for insulin to no more than $35 per month in Medicare Part D

“Seniors should never have to choose between paying for needed medicine or other necessities like food or rent,” AARP Chief Executive Officer Jo Ann Jenkins said.

Now, tens of millions of adults in Medicare drug plans will soon have “peace of mind” knowing their out-of-pocket expenses are limited every year, Jenkins said.

• See related article: Fed Bill Would Cut Prescription Drug Costs For NJ Seniors, AARP Says

While some of the teeth of the proposed reforms were pulled in the late stages of the negotiations, the Inflation Reduction Act still makes “important steps forward” for taxpayers and patients, according to Stephen Crystal, a distinguished research professor at Rutgers’ Institute for Health and School of Social Work.

Crystal said there is good news and not-so-good news on prescription drugs for consumers and taxpayers in the bill, which he is calling the “Deficit Reduction Act.”

“The bad news is that price negotiation will start with just 10 drugs — in 2026 — expand by just 15 or 20 drugs a year thereafter and never apply to new drugs,” Crystal said.

Regardless of that caveat, the law still brings the U.S. more in line with the international norm of public health care payers negotiating prices on behalf of consumers and taxpayers. It also discourages real price increases on existing drugs and reduces the maximum that a Medicare patient will have to pay per year for prescription drugs from $3,100 to $2,000, he added.

U.S. Rep. Donald Payne Jr. (NJ-10) – who is a diabetic and insulin user – also expressed mixed emotions about the final version of the bill that made its way to Biden’s desk.

The congressman said he is “extremely disappointed” that the majority of Senate Republicans rejected a provision that would allow American diabetics with private insurance to benefit from a $35 cap on insulin payments. Read More: NJ Families Bash 'Unethical' Insulin Prices, Plead For $35 Cap

“As a diabetic and insulin user, I understand that diabetics need this medication to stay alive,” Payne said. “Compared to Canada and European countries, American companies have been overcharging for insulin and profiting off the backs of diabetics for years. It forces too many diabetics to choose between food or medicine. No American should have to make that choice.”

But the provision that limits out-of-pocket costs for insulin to $35 to help Medicare beneficiaries is a winner, he added.

“I am proud to vote for the Inflation Reduction Act because it will clean the environment, create new jobs in energy technology, make sure corporations pay their fair share in taxes, and significantly reduce the prices of life-saving medications for millions of Americans,” Payne said.

• See related article: Rep. Sherrill, Payne Vote For Inflation Bill Alongside NJ Democrats

Send local news tips and correction requests to eric.kiefer@patch.com. Learn more about posting announcements or events to your local Patch site.