By Dr. James M. Dahle, WCI Founder
On August 16, 2022, President Biden signed the Inflation Reduction Act into law. In today's post, I'll tell you what's in it and how it might affect your financial life. But first, I'm going to rant a little. If you don't like rants, just skip on down to the next section.
Inflation Reduction Act Is the Best Display of What I Hate About Congress
I really hate the way Congress does its work. I'm not singling out the Democrats here either. This is a bipartisan criticism.
#1 I Hate Partisan Bills
The Inflation Reduction Act was passed 50-50 in the Senate, with Vice President Kamala Harris casting the deciding vote. The only way this could even pass the Senate at all was to avoid the filibuster by passing it under the Budget Reconciliation process I've discussed on the blog before. In the House, it passed 220-207. Not a single Republican voted for the bill in either the House or the Senate. The funniest part is that the bill is described as a “compromise” by our leaders. A compromise between who? Between Democrats. It was the bill that all of the Democrats were willing to vote for. I wouldn't pat yourself on the back too hard about your ability to compromise there.
#2 I Hate Big Bills
Why do we have to put everything into one big bill and then turn it into some kind of weird team sport where one team must win and one team must lose? Why can't we bring every single provision up for a vote? The good ones pass; the bad ones don't. If you like one but not another, you can go trade votes with someone else. You can lobby each other for bills you feel really passionate about. That way, the arguments remain about the issues. The bills with bipartisan support pass, and the ones without that support fail. But with these monstrosities? You're forced to side with your team, or you have to go back and face the voters and get voted out of office—even if you supported or didn't support a third of the provisions in the bill!
#3 I Hate Misnamed Bills
What is this, 1984? We call a bill that has almost nothing to do with inflation (and may even increase it) the Inflation Reduction Act? It's mostly a climate bill for crying out loud. Do your job and stop playing politics for the cable news stations.
What's in the Inflation Reduction Act?
OK, rant over. The Inflation Reduction Act is the scaled-down version of the Build Back Better bill that did not pass months ago due to Senators Joe Manchin (D-West Virginia) and Kyrsten Sinema (D-Arizona) (along with all the Republicans in the Senate) opposing it. It's actually mostly a climate bill. In fact, it is the largest clean energy bill ever passed by Congress.
More information here:
Does ESG Investing Really Work?
Climate Provisions in the Inflation Reduction Act
Here are the numbers: $369 billion will go toward energy and climate reform, and $60 billion will go toward renewable energy projects like solar and wind. There are also some tax credits for making your home more energy efficient and, in the part that you would think would be most likely to affect white coat investors, credits for electric vehicles. Unfortunately, that credit has such limitations that few electric vehicles and even fewer white coat investors will qualify for it. The vehicles must be assembled in America and the manufacturer must not yet have met its sales cap. See this chart from Electrek to see which ones will qualify for the credit.
Note that no Teslas qualify. Sorry white coat investors. The favorite of doctors and content directors the world over is not eligible. You can get a Leaf, though. By the way, the car cannot cost more than $55,000 ($80,000 for an SUV or truck). And you can't have a Modified Adjusted Gross Income (MAGI) of more than $150,000 ($300,000 married). Basically, residents can go buy a Leaf.
If doctors aren't going to get squat for their Teslas, what will they get? How about a 30% tax credit on solar panels for your house? No income phaseout on that one.
There are a dozen or more other climate-related provisions of varying sizes, such as the postal service going to electric vehicles. There are a few provisions that climate activists aren't super happy about, too—more drilling in the Gulf of Mexico and Cook Inlet and some credits for coal sequestration that will prolong the life of coal plants.
More information here:
Drive a Beater . . . Get Rich.
Prescription Drug Reform
The bill also has some prescription drug reforms. But it's awfully limited. It doesn't start allowing Medicare to negotiate down drug costs for four more years (2026) and even then only covers 10 drugs (but 10 more in 2029!) That's awfully weak and hardly a provision to be proud of. However, it also puts a cap of $2,000 on the annual cost of prescription drugs for Medicare D patients starting in 2025. I'm more impressed with that one. I'm not sure who eats the rest of the cost, though. I don't think it's Big Pharma or the pharmacy. I think it's the taxpayer.
The Affordable Care Act was also expanded somewhat.
Tax Reform
OK, here's the part you've been waiting for, although there isn't all that much to talk about. There's a new tax on big corporations. It is 15% of income above and beyond $1 billion for a corporation. The net effect on you will be lower returns on your US stocks than you would have otherwise had. Corporations aren't people, so it's best to think of this as a tax on your 401(k) rather than a tax on “someone else.” If you own stocks, this is a new tax for you to pay, albeit indirectly. There is also a 1% excise tax on stock buybacks. I suspect this will just reduce how much corporations spend on stock buybacks. Presumably, that money will go to dividends instead—at least after the rush of buybacks that will be occurring between now and the end of the year.
Here's the one most likely to affect you: Congress has allocated more money for the IRS to use to enforce tax laws. Honestly, the IRS has been starved for funds for years. If you've tried to call them, you know what I mean. This money is mostly supposed to go toward doing more audits, though, which will presumably raise more money than the audits cost.
I have mixed feelings about this. I hate tax cheats, and this will catch more of them. But it will also drag people through more audits. At any rate, this is how the law pays for a lot of this new spending, by making more people pay the taxes they owe. There's a lot of arguing and political posturing about what kinds of people are going to be audited more. I think the answer is that all people are more likely to be audited—rich, poor, and in between. I think you should pay all the taxes you owe, whether you owe a lot or a little. If the price of cutting down on tax cheats is for me to go through one more audit during my life than I otherwise would, I'm willing.
More information here:
7 Ways the Rich Pay Less in Taxes (and You Can Too)
Deficit Reduction
The bill is supposed to decrease spending overall (mostly because it brings in more money through all those audits, but also by paying less for those drugs.) I guess we'll see. Remember, this does not reduce the federal debt. It just reduces how much the federal debt goes up by each year. There's still a deficit. We run a deficit of more than $2 trillion each year. This reduces the deficit by about $300 billion over a decade. Not exactly a big reduction, even if it works.
Will the Inflation Reduction Act Work?
Yeah, I'm not sure how it is supposed to reduce inflation either (for what it's worth, by October 2022, two months after the bill passed, inflation remained at 8.2% though it did drop to 7.1% in November)). I guess new drilling in Cook Inlet and the Gulf of Mexico will eventually have a downward effect on the cost of gasoline. And I guess Medicare is going to be negotiating down the price of those drugs a few years from now. Seriously, though, that's all I could come up with. It's really a terrible name. I'm amazed that there are Americans who don't see right through that one, but I guess there are enough that don't that it's politically worth it to use a name like that.
There's a lot of controversy and arguments here, but even great proponents of the bill aren't arguing that this bill will have any sort of large effect on inflation. The Committee for a Responsible Federal Budget is supposedly non-partisan, but in reality, it probably leans slightly left. This is its analysis, which seems the most comprehensive of any I've seen:
At any rate, the point of this bill clearly wasn't to reduce inflation. The point was to do as much as Democrats could do on their environmental, health care, and tax priorities. It wasn't as much as they wanted, but it was certainly something.
Should You Do Anything with Your Financial Life Because of the Inflation Reduction Act?
No. I can't think of a single personal finance or investing decision that should be altered by this bill for a typical white coat investor. Except maybe be a little more likely to put in a solar system to charge that Tesla.
What do you think? Did I miss anything important in the bill? How will this bill affect your finances? Comment below!
The tax hike part of your article (perhaps this was still part of your rant!) is not evidence-based. Here’s one piece explaining why:
https://www.nasdaq.com/articles/the-impact-of-tax-hikes-on-stocks-2021-04-23
As with many economic concepts, reality is counterintuitive.
I agree our political process for getting anything done is completely screwed up. What’s clear to me, after the past 2 yrs compared to the preceding 4 though, is that these days one party is a whole lot better than the other at actually getting substantive, if incremental, things done (except creating more loopholes for the wealthy).
I will not be surprised if you delete the preceding paragraph, but I believe it’s also evidence-based.
Best, and thanks for your provocative blogs.
One man’s deduction is another man’s loophole. For example, one might also call EV subsidies a loophole for environmentalists.
Fair semantic point.
But please do check out the link I posted on the effects of tax increases on stock prices. I think you’ll be surprised.
I think I know what you’re referring to and have seen the data. I still think increased taxes means decreased profits, it’s just hard to see that relationship in all the noise given how rarely tax rates change.
I’ve always thought of the corporate tax increases as just a pass through to consumers, but had not considered that any amount that cannot be passed through effectively acts as a tax on our 401Ks. “Net Worth Reduction Act” would have been harder to spin.
Well, net worth reduction would generally be deflationary, so it checks out.
XYZPDQ … your politics are showing a bit
For the rant on the electric car rebates, a two minute check would have shown you that the per manufacturer cap is removed starting Jan 1st, 2023.
Assuming you don’t want our rebates going to cars made in China?
And for your rant on prescription drugs, isn’t doing “something” better than “nothing”. Thats the essence of politics.
“Doing something” is the problem with modern day politics. I would prefer my govt to involve itself as little as possible with private market affairs. When it comes to our inefficient drug markets, this is a bandaid placed on broken leg.
Want cheaper drug prices? Get those dirty ideological and political fingers out of the pot and allow markets to work.
Deregulate the insurance sector, reform employee sponsored insurance, end state and fed insurance mandates, allow more competition in pharm, get rid of PBMs, reform the FDA approval process. To name a few.
Why the heck do you think drugs cost a fraction of the USA cost in EVERY SINGLE other developed economy? It’s because their governments intervene and negotiate.
Market based pricing results in things like an Epipen price going up by 400% because “they can” . Or an AIDS drug that NIH discovered, but a private company makes and they charge $25K a year because “they can”.
When the gov’t pays for something, they have the right to negotiate. When people say the gov’t is paying for it but should not negotiate what they really want is a gov’t handout to private businesses.
Yup. It’s amazing to me that people still believe in this mythology. It goes to show you the power of consistent propaganda, err messaging, over the past 40 years.
We essentially subsidize the the world first off. Increasing our prices will ultimately lead to price increases in other geopolitical areas. Give the economic privileges we afford in the states that should be at least considered.
We(US people) pay the most because of a massively government subsidized public insurance medical system on the back of an overburdened market. HHS is a monopoly payer that drive up prices and drives down resource utilization efficiency. Similar effects are seen in US higher education. What’s the price of a govt monopoly deciding what a private company sells its fruits of innovation for? Is it mythology to be concerned about less new drugs to market, less innovation, less risk taking by the companies that provide us with life saving medications?
However more specific reasons were given before…..
Overburdened and/or over-bloated FDA approval process.
Organization around Pharmacy Benefit Managers.
Political capture and over-regulation in the pharmaceutical sector leading to poor competition.
Generic drug policy reforms.
To name a few….
My politics? You mean that I hate political extremism? Hard to hide that one.
I guess something is better than nothing, but it seems pretty bizarre to me to have a huge celebration over such a tiny achievement. I mean 10 drugs, and not for years, and only for Medicare patients? That sounds like a win for pharma, not the patient to me. Yet it’s being spun as the opposite.
“Political extremism”? Yikes. You might want to start examining some current and historical examples of actual political extremism before calling modern day U.S. Democrats “extreme.”
And not that I’m seeing “huge celebrations” you claim either. I do see some people a bit happy that there has been, you know, an actual achievement. You seem to think little of that, but 1 of the 2 US parties has a -stated- goal of stopping any and all achievements of the other, no matter how broadly popular they are with the US public. That sort of political stonewalling makes it so nothing gets done and 50/50 is often the best you’re going to get in that situation.
This post reads like a very thinly veiled “democrats bad!” post despite your contention that it isn’t political. You got information incorrect as multiple commenters have pointed out. It also doesn’t contain any really useful financial information, which is the point of this site.
I think a lot of us would like it if you stayed about 20 miles away from anything political in your posts. It detracts from your primary objective here at WCI which is what brought a lot of us here in the first place. It also is a huge turn-off for many young medical students and residents when I direct them here and the first post they see is something like this.
# 1 My comments about extremism are hardly limited to one party. Not sure why you’re taking away the message of “Democrats Bad!” from the article as that’s pretty clearly not its message. It was summarized on the forum as:
That seems like a fair summary to me.
# 2 I was asked by readers to write something about this bill when it passed as they were concerned about how it could affect their finances. So I did. Hard to write about economics without ever saying anything about politics.
I think you’re being a bit disingenuous. You can absolutely criticize a group without using the name of the group if you include enough context. If you read all the comments here, I’m far from the only one that read the subtext of your post very clearly. This has been clear in some of your other posts as well with similar responses from readers in the comments.
If you’re not being disingenuous and you really truly were trying to be completely neutral, then I think you should take a step back and reexamine why you keep getting this response to political-esque posts every time you write them.
If you don’t like what I write, don’t read it. I’m sure you can find a physician financial blogger who writes about all the topics you want to learn more about but will somehow avoid ever offending you. Just keep looking. They must be out there somewhere. Right? No? Then I guess you’ll have to tolerate “my politics showing through” from time to time. Or maybe you can send in a “politically neutral” guest post about the Inflation Reduction Act and we’ll replace this one with it. Here’s the directions:
https://www.whitecoatinvestor.com/contact/guest-post-policy/
Funny how nobody ever takes me up on that offer. Maybe because they don’t like hearing a bunch of public criticism either.
Maybe instead you should just take what you find useful and leave the rest rather than complaining about the rest being there for those who do find it useful. 30,000+ people read this post. A handful of them complained about some vague political slant in the comments. That’s called winning on the internet. You can never make everyone happy. I doubt I would ever make you happy no matter how many times I wrote and rewrote this post. So I’m not going to try. I really don’t care about “the subtext” you are reading into the post. Maybe it’s there. Maybe it’s all in your head. I have no idea. The post is written about what I thought was important about the new law and how I think it will affect the lives of my readers. I think it accomplished those goals very well.
Holy hell you recently handle criticism poorly. Really with the “If you don’t like it, don’t read it” (hard to know if you’ll like something until after you’ve read it, right?) and “then you do it better” responses? You have an open blog, you accept comments on posts, sometimes those comments will provide criticism – we all deal with this daily in our various roles/jobs. You may think it’s valid criticism or not, but recently you tend to lash out in these comments rather than thinking if your commenters may have some valid points. And honestly, it seems to be getting worse over the last few years, and I don’t know why, maybe it’s just fatiguing (I mean, I’m sure it is).
I very much enjoy your overall WCI message, I have bought your books, read your blog, participate on the forums, listen to the podcast. I tell others about WCI. I gift my residents your books. This is why I comment – I really think what you’re doing is important. And when I comment here in a way I think could improve the content, I get verbally slapped down and told I’m wrong (as do other commenters). Those type of things make it harder and harder to reconcile the overall good/benefit of WCI’s educational message with the you specifically – which is a feeling I’ve seen increasingly expressed by others on social media in regard to WCI.
Ignore or dismiss this if you will, that’s obviously your choice. But I honestly think there is some improvement to be made here for the benefit of WCI, but only if you accept that sometimes you, just like me and everyone else, makes a wrong step.
I”m not sure what your daily job is, but I’m skeptical that it exposes you to dozens of pieces of daily, anonymous, but very public criticism. Let me give you some examples of feedback we’ve gotten in the recent past:
All from doctors. And that’s not even including Twitter, the cesspool of the internet. Starts getting old after a while. Who needs that sort of negativity in their life? Hard to stay very excited about helping people when that’s the response you get. Imagine you were working after FI and every other patient you saw told you what a loser you were. How long would you keep working? I might have thicker skin than most, but it’s not 10 inches thick. No wonder lots of bloggers just turn their comments off. It’s amazing that the praise usually comes privately and the criticism usually publicly. I can count the number of hate-filled emails I’ve received over the years on one hand.
I absolutely get what you’re saying, and no one, no matter how public facing you are, should have to deal with that nonsense. There is a difference between that completely inappropriate total garbage and people giving legitimate, professional criticism. A difference I would hope our fellow physicians would be able to navigate, but apparently not.
I will give public praise – you and WCI and its tenets turned my financial life around. We’re close to paying off $385k in debt soon after residency while in primary care with good retirement savings. Had I not come across your website/work I likely would have been stuck in thinking I needed to be in debt/financial difficulties for decades. Instead we’re doing excellent financially. WCI provides a great structure which I teach to our residents and receive universally positive feedback for its contents (with due credit given). The work you do is important.
That’s why I comment, because I care about WCI because it helped me so much and I absolutely want it to help others as well.
You’ve got to expect some politics in a post talking about a law that was just passed on party line votes. Whose politics? Those of the writer. Where do my politics line up? Typically just right of center on tax issues, just left of center on environmental issues, and all over the map on social issues. If yours are different, then you aren’t going to like my opinions. You can still look past those opinions and get the facts out of a post like this.
I thought it was a good well reasoned post. I’m to the right of WCI politically and I thought he could have come down harder on the Dems for this bill but I understand that not everything he writes is going to perfectly match my political views. Surely educated people understand this and can accept it.
I, too, thought is was a well reasoned post…with a ‘subtext’ towards the Left. I admit that I am a bit left center of the WCI spectrum, so how you interpret the text really depends on where you stand.
I love Jim and an avid follower of his posts and podcast. I think Erik feels the same. I am a bit surprised at his ‘if you don’t like it don’t read it’. Maybe he is human after all.
I agree with K82 that ALL educated people have different views and accept it.
Wasn’t there a podcast a few months ago where you described your politics? Can just refer people there so they don’t have to guess.
I’ve talked about it many times. It shouldn’t be a big surprise to anyone who’s been following for very long.
Well stated!
*sigh* People with chronic butthurt are so very tiresome.
The information about electric vehicle tax credit is wrong. From 2023, manufacturer cap limit doesn’t apply. So Teslas are eligible for tax credit from next year. But income limits apply from next year. So as long as vehicles are assembled in North America , it is eligible for tax credit from next year if you meet income limits. From 2024, there are certain battery restrictions that goes into effect.
I don’t think that’s right. Can you cite chapter and verse?
https://www.kiplinger.com/taxes/605081/ev-tax-credit-inflation-reduction-act-2022-changes
“Speaking of limits, before the Inflation Reduction Act, manufacturers that produced more than 200,000 electric vehicles couldn’t qualify for the EV tax credit because it phased out once the manufacturer reached the 200,000-car cap. The Inflation Reduction Act removes that cap, which means that some cars made by manufacturers who exceeded the 200,000 limit (e.g., General Motors, Toyota, and Tesla) will now be eligible to claim the credit.”
https://www.freep.com/story/money/cars/2022/08/17/inflation-reduction-act-clean-vehicle-rebate/10349470002/
“Manufacturers that have reached the 200,000 electric vehicle credits cap will not qualify until Jan. 1, 2023.”
It’s right in the Electrek article article that you cited for the table of qualifying vehicles:
“The list does include vehicles that are assembled in North America but for which the manufacturers are currently over the 200K unit cap on the previous credit. That cap is lifted on January 1, 2023, so cars tagged as “manufacturer sales cap met” will not qualify for the electric car tax credit until next year.”
If you order a Tesla today, you may not actually get it until 2023 anyway given the massive order backlog they have.
I’m still confused so I’m not surprised others are as well. My understanding is that the cap has been hit this year already for Teslas. The article says it won’t qualify next year either. Which of those is wrong?
We’ll reasoned post. Im sure partisans will be mad if they feel their favored party is being criticized but I guess one small downside of controlling the White House and both houses of congress is a little extra criticism. I can see positives and negatives but the name of the bill though lol. Very hard to take that seriously .
I’d like to second this post. Thanks for doing an article like this. It really is appreciated. Sorry for all the trolls.
Garbage post. Sad to see your politics blind you from seeing the sensible changes being made. Is this bill revolutionary? No. Does it take small steps to combat climate change and prescription drug gouging? Absolutely. Corporate tax is not a 401k tax as hard as you try to spin it. Low fruit Jim, very low fruit.
I think the environmental steps are substantial. It’s primarily an environmental bill. The prescription drug bit is laughable though, at least the part about Medicare being able to negotiate.
I’m going to challenge you on your corporate tax point though. Who do you think is ultimately paying the additional tax on large, profitable corporations if it isn’t investors (including those owning those shares in 401(k)s)? When my company gets an extra tax placed on it, I pay it as the owner of the company. It’s the same for a big company.
By this logic, corporations should pay $Zero in taxes since it still comes out of shares individually owned.
So people should pay all the taxes, not companies.
But then, legally, companies are people.
So we’ve gone full circle.
I agree with your logic. I think corporate taxes are silly. I mean, the majority of companies in the country are already pass through entities. Maybe the way to do it is eliminate corporates taxes AND the qualified dividend rates. So taxes are only paid once on profits, but at ordinary income rates.
Yup. Corporate taxes shouldn’t exist.
My understanding is that the basic reason corporate taxes exist (on C-corps, not pass-thrus like S-corps) is so the corporations don’t get unlimited tax deferral on profits, akin to a giant 401k. Without a corporate tax, the corporation could “reinvest” its profits in VTI or similar and the shareholders would have unlimited tax-deferred space. This could be abused by individuals looking to tax-protect their entire portfolio, as I believe there is no law against one-owner C-corps. At the other end of the spectrum, if S-corps were fully taxed on their profits each year (like S-corps), whether those profits were distributed to shareholders or not, shareholders would get a tax bill each year without necessarily having the funds to pay it. This is more tolerable for S-corps because the there’s a smaller number of large-percentage shareholders who are probably in control of when those profits are distributed. The government could solve the problem by forcing C-corps to distribute profits annually to shareholders, but this seems like excessive government control of private business (FWIW I tend to be on the left politically). The current system, dividing the tax between the entity and individual, seems like a compromise between these competing factors. Also note that because qualified dividends are taxed at a reduced rate, the net tax rate on dividends after double-taxation is similar to ordinary income : (1 – 15%) x (1 – 15%) = (1 – 27.75%)
If this is wrong or there’s something I’m missing, please let me know.
That’s a good argument against removing it completely.
This bill will do nothing to combat the climate warming models. It will simply distort markets and make resources more expensive.
Subsidizing non-economic technologies is typically fruitless and ironically wasteful on the environment’s resources.
Additionally, we’re subsidizing tech that ultimately requires rare earth minerals. Such as what’s needed for solar panels and battery production. These resources require ocean dredging and deep sea drilling. We’ll destroy the primary ecosystem for planetary oxygen production doing that it on scale. Also, the diesel fuel required to operate deep sea dredging and drilling equipment would net out whatever emissions are theoretically saved.
The best thing for the humans, which is the whole point, is too utilize denser and denser energy sources. Specifically natural gas and fission. One day, clean sustainable fusion if we allow and incentivize people to innovate without regulatory obstacles and incoherent ideological battles.
I don’t agree with him on this, either. But it’s his blog – and commenting on new, major legislation seems reasonable.
To your point, think of how huge our 401ks would be if we had no taxes at all!
The only part that is garbage is that he feels he has to include “bipartisan” when writing about all the nonsense the big government (yes Democrats) people continue to crap out that others, if there is any time left while the ship sinks, have had to bail out for their grift. He’s right about every aspect of this post, objectively, and the only part of the bill that might be reasonable given the paradigm of the current US gov’t and disgusting pharma is the drug part, and even that Dahle rightly called that what it was, which was not much compared to the BS otherwise. The IRS part and targeting citizens is a further detriment to free people and thinkers, possibly the worst part of the bill. The common man is only hurt and obviously taxes don’t really matter that much, because look at the 30 tril debt we have with 1 tril every year minimum from here on out (til collapse) that is baked in.
The climate change grift is so obvious and stupid, the only thing I can see even remotely similar is how even physicians were such lemmings that they still won’t allow themselves to admit that sarscov2 was a nothing burger, the jabs do nothing but hurt people, and the imposition of control was indeed 1984-esque. Wake up people.
Yikes.
Hey Jim is it eye-opening to you that people with views like this guy say “He’s right about every aspect of this post”? lol
I must be getting it right when I’ve got people upset with me on both sides of the aisle. Chewbacca is busy chewing me out on two other threads for not agreeing with his unique political and worldviews.
I didn’t chew you out at all. You asked me for various predictions, and I gave them. They are bold, indeed. Here you were right about many things but did the nonsense “bipartisan” or “somewhere in the middle” which is just emotional manipulation of people since it’s nonsense. The overton window has changed significantly for decades. A moderate at this point is a prominent “progressive.” That is reality.
There are some people who are so engrained in their beliefs that any deviation or congratulations is somehow an insult to them and everyone on the planet.
Chewbacca, it’s ok. Take a deep breath and move on. You will not change anyone’s mind and no one will change your mind. Feel free to go post in one of your safe space echo chamber forums where no one feels like they are getting slighted.
Nailed it. Although I have to say, the microchip Bill Gates implanted in me with the COVID-19 vaccine has really sped up my mental arithmetic. So, silver linings I guess.
No chip just yet Chris, but autoimmune disease, clots and cancer to come. Enjoy it.
I may not agree with you on everything… but your comments here are reasonable. Thanks for keeping your material current.
Any sign of backdoor roth IRA going away? What about increased tax on S-corps, LLP, LLC etc?
No. Not from that bill anyway.
I always felt like there should be a bipartisan committee to name bills rather than the legislators doing so.
These names are ridiculous. It seems like an insult to the intelligence of the general public.
But not too many people complain about it, maybe they’re onto something.
They should have called it The Clean Energy Bill or the Save The Planet Bill. Far more descriptive. Or maybe just The Big Summer 2022 Bill. But calling it the Inflation Reduction Bill is very 1984-esque. Misinformation. Not a criticism of Democrats either. The Republicans do the same thing.
“Repeat a lie enough and people will believe it.” — Goebels
Bald-faced lying is definitely one of my political pet peeves.
I LOVE Congressional gridlock. The fewer bills passed, the less frequently the tax laws and economic regulations change, the better.
By claiming it reduces inflation the Democrats have owned the inflation rate going forward. If it comes down, they will claim a victory, although the Act will have nothing to do with it. If inflation remains high or goes up further, the Dems may come to regret the lie in the name.
I have not read the Act but from reporting, it seems the name is a complete lie but it includes some features that may be useful.
I am opposed to all tax increases and any other changes that increase federal revenue. To the extent that the Act does this, I oppose it.
Negotiating drug prices is a good thing. No reason the US should subsidize the world for drug development.
On the other hand, by making drug companies less profitable and in particular making new drugs less profitable, the Act will reduce research and development. That will slow medical advances. One has to balance that loss against the savings on existing drugs. There is always a tradeoff and this bill shifts the equilibrium more towards lower prices and away from investment. Is that better than higher prices and more development? I have never seen an attempt at an economic analysis.
One important part of the bill which you omitted and likely would be VERY important for your readers, is the continuation of the ACA subsidies thru 2025, and a cap on premiums up to 8.5% of MAGI, as described in the link below. This is a significant positive that will affect me and all others who are retired but not yet 65 yo and eligible for Medicare.
https://www.caniretireyet.com/minimize-health-insurance-costs/
Good point. That can certainly affect early retirees, even docs. I guess I didn’t focus much on it because it isn’t a change, just a continuation. But I guess it would have expired without the bill.
That Electrek chart is for the prior $7500 tax rebate that ends when the new rebate starts in 2023 – both Tesla and GM met their quota for that rebate some time ago. So no Teslas are currently eligible today, but the ones under the caps will be eligible again in 2023.
I now believe that’s correct. But when combined with the income limitation and the car price limitation, few docs are going to get a rebate on their 2023 Tesla.
Think of all the money we could save for other worthy needs if we only had a flat tax for everyone.
Flat Tax limits the need for the IRS and savings could go to house people.
The main beef that most have with the flat tax is that it is not progressive at all and the truth is that higher earners generally have more capacity to pay taxes than lower earners.
I mean, you could go even more flat and have every tax payer pay the same amount (say $20,000 a year) whether they earned $10,000 or $1 million.
That sure will be popular.
Disagree. A flat tax would not change the staffing needs from the IRS. There are frequently proposals, usually from the right side of the aisle, to “simplify” the tax code, which sounds great; usually they mean reducing the number of brackets, down from the current 7. The flat tax is the logical extension of this idea, one bracket. The problem is, complexity in the tax code doesn’t come from the number of brackets. Whether there’s one, seven, or 1000, in almost all cases the calculation is done by a computer in a microsecond, or looked up in the tax rate tables which go up to $100k income I believe. The REAL complexity is elsewhere, in the different types of income (earned, unearned, investment, qualified, recapture, etc etc.), phase-outs of credits, rules determining what’s deductible, rules for all the different retirement accounts, etc etc. Call me cynical, but I don’t think it’s a coincidence a flat tax would dramatically reduce taxes on the ultra-wealthy GOP donors who are looking for a return on their investment. (Lest I be accused of being a partisan, I’m no fan of the DNC either, and they cater to their donors too, although not as badly. I’m hugely in favor of public financing of elections that would get rid of big-money donors on both sides, and make candidates accountable to their voters rather than their donors.)
I agree with Jim that a flat tax is less “fair” than a progressive tax, as it would put more of the tax burden on those with less ability to pay it.
Good article. It’s impossible to comment on something political without sounding a little political, but I don’t think your views are extreme in either direction. I also don’t dislike the discourse at the end because it provides an alternative view. We all should welcome these conversations and not feel annoyed if someone’s views are slightly different. We can all learn from each other and frankly, the problem with the world today is people are unwilling to hear others views without getting offended. Thanks again for a thought provoking post.
Caminante has got it right. Civil discourse is dead these days. Why can’t we hear alternate views without feeling personally attacked? These comments are hysterical.
Well said
I am here to read the comments.
Seems like biggest biases on the page are in the comments section. Everyone just relax. If it hurts your feelings, feel free to console yourself in the reassuring echo chambers of Mother Jones or Drudge Report…
I agree! Thank you Dr. Dahle for relevant content and allowing comments. I may not always agree 100% with your views, but always find them rational and reasonable, even if they are sometimes different from mine.
Fascinating political comments.
I like laws named “Bill #567482” that when passed and signed, become “Law # 567482”.
I don’t like smoke up my xxx. When you name a bill politically, it’s almost always disingenuous. I’ve seen both parties pander to their voters in this way. Historically, most laws that pass 51-50 turn out to be flawed.
I’ve been reading WCI for at least six or seven years and have been happy that the vast bulk of posts are apolitical. I used to write political comments on my Facebook page but have stopped because politics are tribal and disconnected from reality in the United States.
These days, political posts can be dangerous. They can affect your business, your practice, your employability, and your personal and family safety. Are they worth the risk given the “lack of convincing” that they suffer from? Most trolls have anosognosia. They literally suffer from the “inability to be convinced” that you see in dementia and some psychoses.
At present, one can convince almost no one of anything with political discourse. It’s sadly a waste of time. With the added personal peril, it becomes dangerous folly. The political environment in the US is toxic and tribal.
I was appalled (and angry) to read the comments WCI has been attacked with. They prove my point. The challenge has become writing a post or article that is apolitical and still has any meat on the bone. This forum has remained generally reasonable and mostly apolitical.
I appreciate your efforts. I also appreciate that you personally respond to comments. I like your incisive wit and the fidelity to your convictions. It’s brave.
I’d like to respond to some of the political comments…but seriously, it is a complete waste of time. Ask anyone who has been stalked, or worse, injured or assaulted if it was worth it. I suppose one could say that not responding to loonies is capitulating to bullies. My father used to say “Discretion is the better part of valor.”
Best regards to all who can read a post and not take it personally and to all who pass along useful corrections and commentary I can use. Thank you WCI for your contributions to my understanding of finance and new tax laws.
Everyone has a perspective and a place from which they start and develop a view. Unfortunately today, the prevailing winds are my personal view and perspective are yours and unless you adopt mine, you are “political.” This attitude is pervasive in society, and it has become “my way or the highway.” This is why I am not and have never been and never will be a member of a political party. It has even come down to feuds in professional societies over where to hold national meetings with threats of boycott. This behavior has led me to drop my membership in one organization and consider leaving another.
We all learn by listening and contemplating the views of those that differ, thoughtfully analyzing their views to see where there is merit and where there is not. WCI does this well and with balance. Thank you.
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Now I will express an opinion on taxation and spending. It is for the most part congruent with WCI’s position expressed above. The difference is in tax policy. I do support a “flat tax.” With the flat tax rate set at whatever it needs to be, and applied equally to all income. That would probably not sit well with the WCI crowd as I’m guessing we’d all pay more taxes in the long run. Offset the income by a threshold income to reduce the tax on those with lower “tax paying capacity,” but everyone benefits from at least some of what the national governance provides. Every one should pay something. In the early days of HMO’s we had and to some extent still have “frequent flyers” in the clinics because of the zero copay programs. Add a copay, and appreciation of and utilization of clinical resources begins to normalize. This is human nature. “Free” resources tend to be used more than “costly” resources. This would eliminate probably 1/4 of the law library’s books as the tax code will shrink to perhaps a 100 page manual, but then would neglect the cost of producing income. That alone may be an incentive to develop the most cost effective infrastructure, though.
What do I think is best? Get the federal government out of the taxing business all together. How? Return the taxing authority to the states. Let the House Ways and Means Committee determine how much the federal government gets to spend, what it can raise through federal means other than income tax, and bill the several states in direct proportion to their populations for the balance. This would require the repeal of the 16th Amendment and remove from Congress the authority to lay and collect taxes on incomes without apportionment to the states.
This would do two things. First it would remove the temptation to freely spend as the US Congress would have to convince the states to agree to the federal assessment. This means negotiation and likely compromise and arriving at a mutual conclusion among the federal government and the states that the spending plan is sound, and the taxing plan is also sound. Undoubtedly, a large amount of featherbedding would vanish as it would be incumbent on the states to tax the people that vote in that state to pay the bill.
Second, it would then be incumbent on the states to determine how to tax and collect their respective bill for running the federal government. States like California, NY, Minnesota, Illinois could tax the snot out of the upper earners as they do now, and states like Wyoming, South Dakota, Tennesee, Indiana and Michigan could continue with their flat rate or zero income tax schemes and collect their federal dues in other ways.
Would be easy or even possible? I doubt it. But with rare exceptions, it seems, every time we’ve amended the constitution, we seem to have created a bigger mess than the amendments solved.
I’m actually a big fan of higher state taxes and lower federal taxes. This “send money to the feds who then send it back to the states to spend” things is silly to me.
Thanks for the great article! Curious your thoughts on if the flood of IRS funding will cause a limelight to be put on tax loss harvesting or if you think the IRS will continue to mostly not care.
Also, curious how do you justify VTI and ITOT as not substantially similar given they are both total stock market funds. I know they track slightly different indices. Curious your thoughts.
Thanks!
No, I don’t think that’s where the IRS is going to spend their time.
They follow different indexes and hold different stocks. Frankly, if it has a different CUSIP, the IRS doesn’t care. I have yet to hear about anybody ever getting a TLH audited so I don’t spend much time worrying about it.
“(MAGI) of more than $150,000 ($300,000 married). Basically, residents can go buy a Leaf.”
Med-peds physician here from Alaska. We have a large family that has never been remotely close to a MAGI of 300k. We are also saving up for an EV. I have learned from your posts and appreciate your work. Please be cognizant that many of us in primary care fields are in a different financial situation than anesthesiologists such as yourself. No regrets. No complaints. I enjoy my work and fixing my >20 y/o truck. The Silverado EV coming up in 2023 might be nice though, and I’d take the rebate!
I’m not an anesthesiologist.
You’re right that a single income physician household can still easily come in under that $300K mark, so I appreciate that point.
But I’m still not an anesthesiologist.
https://www.whitecoatinvestor.com/about/
Very interesting article about the Inflation Reduction Act.
Regarding the funding for the IRS, this is where they are today: https://www.washingtonpost.com/opinions/interactive/2022/irs-pipeline-tax-return-delays/
The increased funding for the organization will help everyone (presumably faster returns processing, more targeted audits of actual cheats, etc). Thought it would add a different perspective aside from just the audit perspective.
Yea, they definitely needed more funding for lots of reasons. Who wants to be on hold with the IRS?
You are wrong about the cap limit on EV sales. The limit you posted was under the old rules, there is no cap limit now for Telsa or any other EV maker. All Teslas you see on American streets are made in the USA so Tesla will qualify there too. Tesla just recently reduced Model Y to under $55,000 so it will qualify with sedan pricing even though it is technically an SUV.
The main thing though is the battery materials component of the IRA bill. The IRS is giving a 3 month grace period through March for all EVs that otherwise qualify for the credit. Once the IRS issues guidance on the battery materials portion of the bill it is expected that many EVs won’t qualify for the credit until battery materials supply chain diversifies away from China.
Thanks for the update!