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Scott Overstates Tax Reduction in Inflation Reduction Act

The Inflation Reduction Act proposes to raise over $700 billion in new revenues over 10 years to be spent on energy, climate change initiatives, health care and deficit reduction. But not all of those revenues come via higher taxes. More than half comes from health care savings and from beefed up IRS tax enforcement. The post Scott Overstates Tax Increases in Inflation Reduction Act appeared first on FactCheck.org.

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Over the course of 10 years, the Inflation Reduction Act seeks to generate more than $700 billion in new revenues for use in funding energy, climate change initiatives, healthcare, and reducing the federal deficit. However, not all of those funds come from increased taxation. More than half comes from increased tax enforcement and cost savings related to health care.

But on CBS’s “Face the Nation” on August 7th, Senate Republican Leader Rick Scott falsely claimed the bill would increase taxes by $700 billion twice.

Scott, 8/07/2015: Plus, they plan to increase taxes by more than $700 billion. Remember also that corporations do not ultimately foot the bill for taxes. A company’s shareholders are responsible for its tax obligations. Taxes were paid from what was a lower percentage of workers’ income. Fewer investments mean fewer tax dollars. Scott, on August 7: Raising taxes by $700 billion, cutting Medicare by $280 billion, increasing gas taxes, and adding 87,000 more IRS agents will help Republicans.

Contrary to what he claims, the bill does not “raise taxes by $700 billion” or “cut Medicare.”

The Inflation Reduction Act would impose an additional 15% corporate minimum tax on businesses with three-year average profits of more than $1 billion, according to an initial analysis by the nonpartisan Joint Committee on Taxation.

A significant portion of the remaining revenue-raisers come from cost savings in health care, which are estimated by the Committee for a Responsible Federal Budget to be around $322 billion over 10 years, and from investing $80 billion in IRS tax enforcement, which is expected to result in a net of $124 billion in new revenues over 10 years.

About 369 billion dollars would be spent on energy and climate change incentives under the Inflation Reduction Act. These incentives include tax credits for the manufacturing of solar and wind energy equipment and the purchase of electric vehicles. (Therefore, in addition to tax hikes, tax rebates are available.) Additionally, the bill includes health care spending of around $100 billion, primarily for an extension of subsidies for health insurance policies purchased via the Affordable Care Act exchanges.

The JCT’s final score on the Senate-approved amendment is still pending, so “we’re still waiting on final numbers.” By email, we heard from Committee for a Responsible Federal Budget senior vice president and senior policy director Marc Goldwein. But I estimate about $250 billion in gross spending cuts, $300 billion to $3.5 trillion in gross tax increases, and $200 billion in revenue from increased tax compliance. However, the tax increases will largely be used to pay for tax reductions in the form of energy credits, so the net tax cut will be minimal.

In an email, Scott’s communications director McKinley Lewis clarified that the $700 billion figure does not come entirely from tax revenue. Instead, it also includes the $280 billion in funding being diverted away from Medicare, which is projected to run dry by 2028. We anticipate your elucidation of this point.

Lewis directed our attention to a tweet posted by Scott on August 8: Senate Democrats just voted to cut $280 billion from Medicare, endangering future benefits for our seniors. Medicare is projected to run out of money within the next few years. The bill “will strip $300 billion from Medicare, money seniors rely on for medicine, treatments, and cures,” according to an advertisement from a group called American Prosperity Alliance.

On the other hand, that’s not entirely accurate. The cost of prescription medications is a priority for the bill’s authors, so they included language empowering Medicare to negotiate prices for some medications. The rule proposed by the Trump administration to end negotiated rebates in Medicare Part D between pharmaceutical manufacturers and pharmacy benefit managers or health plan sponsors has been repealed by the legislation, as explained by the Kaiser Family Foundation. The rule was never implemented because of the delay.

An earlier version of the bill included Medicare provisions that the Congressional Budget Office estimated would save $288 billion over ten years by preventing spending increases.

“While these policies do reduce the cost of Medicare, they do so by lowering prescription drug costs, not by cutting benefits,” explains the Committee for a Responsible Federal Budget. Our analysis suggests that the policies as a whole would enhance benefits while reducing premiums and out-of-pocket expenses by an average of $2,000 per year.

To add insult to injury, Scott’s claim that Medicare is “on the brink of going broke in a few years” is not true. The Hospital Insurance Trust Fund, which helps pay for inpatient hospital care under Medicare Part A, is projected to be depleted in a few years, as we have explained; however, “continuing total program income will be sufficient to pay 91 percent of total scheduled benefits,” as stated by the Medicare Board of Trustees in its 2021 annual report. This is due to the payroll tax’s current 1.45% employer and 1.45% employee contributions, for a total of 2.9% on earnings up to $200,000 (and an additional 0.9% tax on employees for earnings over $200,000).

The bill’s proposed savings for Medicare, if realized, would actually increase the program’s financial viability.

According to Lewis, when Scott said the Democrats were “raising taxes $700 billion,” he was accounting for money from stricter IRS enforcement of current tax laws. In particular, the bill would add $80 billion to the IRS’s budget over a decade. Stricter enforcement is expected to bring in $204 billion, with an additional net revenue of $124 billion.

According to Lewis, the reason the IRS is raking in more cash is because more taxes are being collected from working families and commercial enterprises across the United States.

However, it’s a bit of a stretch to say that would constitute a tax increase. Instead, it’s about collecting the taxes that people already owe.

By “tax gap,” CRFB means the difference between what is owed and what is paid in taxes. “Every past president from Ronald Reagan to Donald Trump has supported reducing the tax gap with stronger IRS funding,” CRFB said. Better tax compliance could bring in an extra $60–$90 billion for Trump’s “last two budgets,” according to CRFB.

The Inflation Reduction Act underwent some last-minute amendments in the Senate that were not taken into account by JCT. To give just one example, the Senate bill no longer contains a provision to eliminate the “carried interest” tax benefit that allows managers of investment funds to pay a lower capital gains tax rate, rather than income tax rates. The JCT estimated that provision would have brought in $13 billion over a decade. Instead, the Democrats in the Senate included a 1% excise tax on stock buybacks as part of the final bill.

“The bill changes over the weekend are roughly offsetting in terms of revenue, so the tax revenue raised is about the same,” William McBride, vice president of federal tax and economic policy at the Tax Foundation, told us via email. So, according to the Congressional Budget Office’s estimate from Friday, there will be slightly more than $300 billion in tax increases from now until 2031.

The Senate vote came down strictly on partisan lines, and Vice President Kamala Harris broke the 50-50 tie to advance the bill to the House. House Speaker Nancy Pelosi has stated that passage is anticipated on August 12.

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Inflation Reduction Act: Scott Exaggerates Tax Hikes appeared first on FactCheck.org.