FACT SHEET: How the Inflation Reduction Act Will Help Small Businesses
By signing the Inflation Reduction Act, President Biden is delivering on his promise to build an economy that works for working families and small businesses. The Inflation Reduction Act makes urgent investments to lower prescription drug costs, health care costs, and energy costs to create opportunities for America’s 33 million small businesses and innovative startups. It is the most aggressive action we have taken to confront the climate crisis. It will help the Fed tackle inflation by reducing the deficit. The super wealthy and large corporations are asked to pay their fair share, and no small business or family making under $400,000 per year will pay a penny more in taxes.
President Biden and Congressional Democrats beat back the special interests to pass this historic legislation to deliver for American families and small businesses and grow the economy from the bottom up and middle out.
Lowering Costs for Small Businesses
The Inflation Reduction Act will reduce costs for small businesses by maintaining lower health care costs, supporting energy-saving investments, and bolstering supply chain resiliency.
Preserving Critical Support for Small Business Health Care Costs. The Inflation Reduction Act would preserve the American Rescue Plan’s premium tax credit supports for Affordable Care Act (ACA) plans by extending them through 2025. According to a recent analysis of 2021 tax data issued by the Department of Health and Human Services, the ACA Marketplace serves as an important source of coverage for 2.6 million small business owners and self-employed adults. Moreover, small business owners and self-employed people make up 25 percent of Marketplace enrollment among working-age adults. Since the implementation of the ACA, the uninsured rate for the self-employed has fallen dramatically from 30% in 2013 to 20.5% in 2019, resulting in 1.3 million less uninsured self-employed adults. Overall, about 13 million Americans will save an average of about $800 annually on their health insurance premiums compared to what they would pay without the Inflation Reduction Act. This investment will continue to spur new business starts and job creation, as entrepreneurs may take the leap of starting a business without the risk of going uninsured.
Cutting Energy Costs for Small Businesses. The Inflation Reduction Act includes a number of provisions that will save small business owners money on energy costs:
- Small businesses can receive a tax credit that covers 30% of the cost of switching over to low-cost solar power – lowering operating costs and protecting against the volatile energy prices that are currently squeezing small businesses.
- Small business building owners can receive a tax credit up to $5 per square foot to support energy efficiency improvements that deliver lower utility bills.
- Small businesses that use large vehicles like trucks and vans will benefit from tax credits covering 30% of purchase costs for clean commercial vehicles, like electric and fuel cell models.
As small businesses save on energy costs, they will also help combat the climate crisis. The greater frequency and scale of natural disasters has put more small businesses and communities at risk of devastation and disruption. The Inflation Reduction Act’s historic action on climate change will provide economic stability and growth for Main Streets across the country.
Lowering the Deficit to Fight Inflation. The Inflation Reduction Act is more than fully paid for and will drive deficit reduction over the course of the coming decade. This will build upon the significant debt reduction that has taken place under the Biden-Harris Administration. The Administration is projected to achieve more than $1.5 trillion in deficit reduction this year, after reducing the deficit by more than $350 billion last year. This will be the largest ever one-year decline in our country’s history, and will leave the deficit lower than the Congressional Budget Office projected it would be before the passage of the American Rescue Plan. And numerous leading economists and commentators have argued that, by building on the deficit reduction we have achieved to date under President Biden with hundreds of billions in additional deficit reduction, the Inflation Reduction Act will help ease inflationary pressure. When small businesses operate with more price stability, on costs from gas to wages, it will be easier for entrepreneurs to plan and grow their businesses.
Lower Prescription Drug Costs for Seniors. Many small businesses are owned by seniors. Americans pay 2-3 times more for their prescription drugs than people in other wealthy countries. High prices contribute to racial and ethnic health inequities. The Inflation Reduction Act will help close the gap in access to medication by improving prescription drug coverage and lowering drug prices in Medicare. The law:
- Caps the amount that seniors will have to pay for prescription drugs they buy at the pharmacy at $2,000 a year.
- Caps the amount that seniors will have to pay for insulin at $35 for a month’s supply.
- Provides access to a number of additional free vaccines, including the shingles vaccine, for Medicare beneficiaries.
- Will further lower prescription drug costs for seniors by allowing Medicare to negotiate the price of high-cost drugs and requiring drug manufacturers to pay Medicare a rebate when they raise prices faster than inflation.
Expanding Economic Opportunities for Small Businesses
The Inflation Reduction Act will help small businesses grow and create good-paying jobs in communities across America.
Doubling the Research and Development (R&D) Tax Credit for Small Businesses. Pre-revenue startups create jobs and support economic growth through research, discovery, and innovation. However, they have not been able to take advantage of the R&D tax credit to the same extent as large businesses. This bill levels the playing field and will help spur their high-impact R&D, by increasing the refundable research and development tax credit for small businesses from $250,000 to $500,000. Small businesses, starting in 2023, may use the credit to further reduce payroll taxes and several other business expenses by up to $500,000 annually so they can do what they do best: innovate and commercialize to solve global problems and create jobs to propel our economy forward.
Boosting American Manufacturing and Competitiveness. The Act opens opportunities up for small businesses and invests in American workers and industry by spurring U.S. supply chains across technologies like solar, wind, carbon capture, and clean hydrogen, at a time when countries around the world are racing to lead the clean energy economy. The legislation includes targeted tax incentives aimed at manufacturing U.S.-sourced materials like batteries, solar, and wind parts, and technologies like carbon capture systems and electrolyzers to make hydrogen. The legislation also includes key requirements around domestic sourcing—for example, for use of domestic steel in wind projects—and around prevailing wage and apprenticeships to ensure we create good-paying jobs.
Supporting Local Clean Energy Economies: The Act creates a new Clean Energy and Sustainability Accelerator, which will seed state and local clean energy financing institutions, supporting the deployment of distributed zero-emission technologies like heat-pumps, community solar, and EV charging. This Accelerator will expand opportunities for clean energy entrepreneurship while prioritizing over 50% of its investments in disadvantaged communities.
Expanding Rural Opportunities. The Act significantly expands the Rural Energy for America Program, which supports rural small businesses and agricultural producers with clean energy and energy efficiency upgrades. The U.S. Department of Agriculture estimates that this expansion will reach more than 41,500 small businesses and farms. The Act also provides more than $9 billion to assist rural electric cooperatives, which serve more than 21 million businesses, homes, and farms, in boosting resilience, reliability, and affordability, including through clean energy projects.
Leveling the Playing Field by Reforming the Tax Code
President Trump and Congressional Republicans’ 2017 tax law only made an unfair tax system worse. The Inflation Reduction Act of 2022 is a critical step forward in making our tax code fairer. It will raise revenue by:
- Ensuring that the ultra-wealthy and large corporations pay the taxes they already owe.
- Cracking down on large, profitable corporations with more than $1 billion in annual profits that currently get away with paying little to no federal income tax.
- Imposing a 1% surcharge on corporate stock buybacks that will encourage businesses to invest.
Small businesses and working families will have better access to the benefits they are entitled to under the tax code and be able to get their questions answered quickly and efficiently, thanks to the Act’s transformational investments in the Internal Revenue Service. Treasury Secretary Janet Yellen has directed the Internal Revenue Service to not use any of the additional funding provided by the bill to increase the share of small business or households below the $400,000 threshold that are audited relative to historical levels. This will help ensure that no family or small business making less than $400,000 per year will see their taxes go up by a single cent.