If investors thought they were finding their footing in a volatile stock market, a new tax, climate and healthcare spending bill from Capitol Hill might have them trying again to regain their stability. The Inflation Reduction Act contains a 1% tax on stock buybacks, and a 15% minimum tax for large companies that pay little or nothing in income taxes. That could hit big names like Amazon
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The legislation passed the House of Representatives on Friday in a 220-207 vote after passing the Senate last weekend. Now the bill awaits President Joe Biden’s signature, and he’s indicated his support. The bill’s energy- and climate-focused
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incentives feature rebates and tax credits that will directly impact households. They address heat pumps, appliance efficiency, solar panels, electric vehicles and more. The Inflation Reduction Act will invest $300 billion in deficit reduction and $369 billion in energy-security and climate-change programs over the next 10 years, and is forecast to reduce carbon emissions by approximately 40% by 2030. If the bill becomes law, investors may quickly spot some related impacts. For example, look at the pop in solar-power stocks, electric-vehicle makers and fuel-cell companies on Monday, a day after Senate Democrats ushered the bill through that chamber on a 51-50 vote, requiring a tie-breaking vote from Vice President Kamala Harris. Other results may be tougher to see, like the potential bottom-line drag from a new minimum 15% corporate tax rate. The corporate-tax floor and the 1% stock-buyback tax would have a “minimal impact” on earnings expectations, a Citi
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note forecast Monday. More Federal Reserve interest-rate hikes, inflation’s toll and potential economic slowdowns are still the bigger story, Citi analysts noted. Still, it’s worth knowing the implications of the bill — whose labeling as the Inflation Reduction Act by Democrats has been decried among Republicans as unlikely to prove accurate — as it awaits Biden’s signature.The Inflation Reduction Act’s 1% tax on stock buybacks Along with increases in equity value, companies reward shareholders through stock buybacks and by paying dividends. The tax code treats those approaches differently. The investor who gets qualified or ordinary dividends has to pay taxes on the income. On qualified dividends, it would be a 15% tax that year for many …