President Biden signed the Inflation Reduction Act on August 17, a wide-ranging, $740 billion package that includes tax increases, significant investments in energy and climate change, reform to prescription drug pricing and broadens subsidies to expand the Affordable Care Act.
While short of the original Build Back Better proposal, the legislative package invests $340 billion in clean energy and climate change. The bill uses a combination of individual and corporate tax credits and rebates, direct spending and loans to expand investments in renewable energy and reduce greenhouse gas emissions. The sweeping bill also provides $30 billion to assist states in the transition to clean electricity, $20 billion for climate smart agriculture and additional spending for climate resilience and adaptation.
Some key provisions of particular interest for Zurich North America include:
- Modification and expansion of the 45Q tax credit to foster development of carbon capture utilization and sequestration (CCUS).
- $8 billion (over 10 years) in tax credits to develop hydrogen technology.
- Extends and/or creates tax credits for solar, wind, geothermal and nuclear energy production and expands applicability to battery storage and biogas.
- Incentives for expanding the integration of electric vehicles (EVs).
- Incentives to construct energy efficient homes and commercial buildings.
To pay for these proposals, the legislation includes some changes to prescription drug pricing, enhanced IRS enforcement activity and other business tax changes. Over the course of deliberations surrounding Build Back Better, there were a variety of corporate tax proposals that could have made changes to tax rates, international taxation rules and other administrative areas. The final Inflation Reduction Act included a less ambitious tax policy agenda. The main feature is a corporate minimum tax rate of 15%, which is not a material change for Zurich as our tax rate is well north of that figure.