Folks, there is a stimulus package that is coming and it's likely to pass. It will have an impact on the stock market, the economy, and of course the average everyday citizen like you and I. The bill involves three quarters of a trillion dollars. It also claims a name to reduce inflation.

It's called the Inflation Reduction Act. The bill in its current form is 725 pages and quite frankly, the folks writing and attempting to pass this know that you aren't going to take time to read it and understand what's really in it. They know that all you will see on this are a few headlines and the name of course, which promises to be inflation reducing. But the truth is that whether you are on the left or the right or you don't subscribe to either of those mantras, Well, nonetheless, there's still a lot more to a bill than a few sound bites and a name, and I believe that you owe it to yourself to be informed on what is going on so that you can prepare in this video.

I'm going to make the bill incredibly easy to digest, and you're going to walk away with a very comprehensive understanding of at least one aspect of each of the major parts, because the more that you know what's going on, the more power you have. We are going to be going through my breakdown on this bill in three different parts: Number One: How is this being paid for and by whom who will be impacted by this? Number Two: What are they paying for? What are the spending measures being allocated towards, and number three, Will this reduce inflation and what are the long-term implications? My intention is simply to inform and present the data so that you can think for yourself. Okay, so let's go ahead and start with the synopsis. So this bill proposes changes to corporate tax policy and overall Irs enforcement in hopes to raise more tax revenue.

It proposes new intervention to force lower prices in the health care sector, and it uses the funding raised to increase spending on clean energy projects and hopefully reduce deficits over the next 10 years. So let's go ahead and get into the nitty-gritty here. So who is actually paying for this? Well, Number one and the biggest revenue generator in this bill is a new 15 corporate minimum tax that will provide more than 40 percent plus of new revenue to fund the spending and deficit reducing measures that were laid out in this bill. Now, the corporate tax rate in the United States is what? Well, it's currently 21 Now Of course, in the U.s corporations don't pay taxes on book income, how much they're bringing in, They pay taxes after all of their write-offs right? and all the expenses are taken into consideration.

You pay taxes on what is left if you're a company, and you bring in, say, 50 billion dollars in revenue and your expenses were 50 billion dollars. Well, technically you would have zero dollars in taxable income, right? And so likewise, the more that you spend on your business, and the more you invest in growing your business and hopefully growing the overall economy. As a result, the less you have to pay out to Uncle Sam, which encourages companies to invest as much as possible back into their business right and spend as much on business expenditures. But it also encourages them to invest in massive capital expenditures like new buildings, new warehouses, new machinery, and so on and so forth.

stuff that can be written off and depreciated for years to come. The ability for companies that have massive warehouses, for example, to depreciate the warehouses has allowed for companies to actually have a massive profit but not pay any taxes on it because they are depreciating their owned warehouses, right? Same thing goes with any other sort of massive capital expenditures, right? Which means from the Irs perspective, it's an expense and you don't have to pay taxes on it. But from any other perspective, obviously that's still money that you get to keep. But the goal of this new proposal is to say hey, you can't just avoid paying taxes by spending all of the money you make year over year over year.

We want to make sure that you're paying at least a 15 minimum tax rate if you bring in over a billion dollars in sales. And obviously for some companies who have very, very high margin that bring in a lot of sales. Well, this isn't that big of a problem. They can still survive, but other companies that have very, very small margins and all of their sales really go to paying for creating those sales.

Obviously, this is very, very punishing towards them. This would specifically soak industries which are very capital expenditure heavy, such as manufacturing technology and pharma industries, manufacturing being the main one by far. Republicans argue that this is a tax on domestic manufacturing, which would make our manufacturing industries here in the U.s even less competitive globally. Combined with all of the other things that make us less competitive as compared to say, companies in China or companies in Mexico, or companies in literally any other country that is not Western, The more you soak manufacturing here with taxes and regulatory burden, the less incentive companies have to manufacture here, right? by forcing companies in many cases that don't even have margins of 15 to pay a 15 minimum tax.

While some Republicans are arguing that strongly weakens the global standpoint of our manufacturing industry, there's also the argument that we shouldn't raise taxes during a period of time when we are already in a recession, and specifically, manufacturing is already in a recession. And then you have Democrats arguing that this closes a major loophole and is a more fair way to ensure that major companies who pay little or no taxes pay their fair share. Now it is worth mentioning and this may give you a different perspective on this issue that Microsoft, Apple, Google, Facebook, Intel, Amazon, and Verizon paid less than 15 of their income in corporate income taxes in 2020.. The reason again is because they have extreme expenses.

You think about something like an Amazon with all those warehouses, you think about Verizon with all those towers extreme extreme expenses, and they are encouraged to continue to expand their business instead of report a higher taxable income because of this tax policy, right? But it also makes it so they're paying a lot less into the system. Amazon's effective federal tax rate the last four years was only 5.1 percent. So in totality, I mean at the end of the day nothing's black and white and you have to figure out, hey, where is that balance between how much you can tax these companies without destroying our industry or making us less competitive on a global scale. I think one of the biggest problems here in the United States that we don't recognize is just the fact that it's so easy for companies to move and we have no policies that even really protect our companies at home from being out competed with companies around the globe.

You either compete on a global scale or you don't. You can't have this one foot in one foot out measure because if you do that, it just makes our own companies really really uncompetitive and just causes all of our citizens to buy from companies that aren't in the United States. or companies to just use manufacturers that aren't in the United States. You see what I mean.

You have to have it one way or the other. You can't just have one foot in one foot out. But that's what we have now in totality, Obviously, raising taxes would make effective rates that corporations pay at least on revenue more equal, but keep in mind that would disfavor those who make capital investments to grow their businesses and thus likely again disadvantage building in the U.s Next form of revenue is increased tax collections from the Irs. This is everybody's favorite agency.

The bill allocates almost 80 billion dollars in plans to hire 87 000 new Irs agents. This amount is equal to six times the normal annual Irs budget. The goal, well, substantially more audits and enforcement action to bring in more capital. The Congressional Budget Office says the estimated revenue brought in from this is uncertain, but could yield approximately 200 billion dollars spending 80 billion dollars in order to get 200 billion dollars, which is a profit of 120 billion dollars.

Luckily, the Irs doesn't have to pay taxes on their profits now. according to the Irs's own data, Individual filers reporting less than fifty thousand dollars a year in income accounted for 62 percent of underreported taxes. So given how many new agents are being hired and this stat seems like there will be substantially more audits, not just on the top taxpayers which make up a very, very small number of the American population, but also on everyday people and small businesses who perhaps didn't have the resources to get a proper accounting done and proper tax return. It's also worth mentioning that obviously, while proper tax enforcement is incredibly important, you can't have a country if you don't have proper tax enforcement.

While at the same time, just allocating tons of money to an agency doesn't necessarily mean that agency is going to be able to use it correctly. You also need specific guidelines in place, but the spending allocation actually gives a lot a lot of discretion, so it's yet to be told how effective this measure will be. There's the Carried Interest tax Reform. This lengthens the holding period required for managers of certain investment funds to receive preferential tax treatment for a portion of their compensation known as carried interest.

Certain companies that provide payment packages that allow you to carry forward your gains in order to get a taxable benefit a lower tax rate. Well, that holding period is going to be lengthened then in terms of deficit reduction from what the government has to pay via Medicare, it pushes savings by placing an inflation cap on drug prices and allows them to have more power in negotiating with them. Now you might be wondering: how does the government have the authority to force drug companies to change their prices? Those are independent companies. How can the U.s go out and say you have to charge this amount of that amount? Well, by forcing compliance via tax penalties.

Drug companies at the end of the day can still choose to charge what they want, but if it's more than the government deems as necessary, then the government can then go and put on excise tax penalties up to nineteen hundred percent, Which of course, effectively destroys the manufacturer's ability to sell the drug for whatever price they want because it's going to add a massive tax on it, which makes it no longer profitable or makes it so that the market no longer can afford it at all. Now to be real, there's certainly a serious amount of price gauging that goes on in a lot of areas in the form of space. I'm just saying that this is what the government is trying to put into place to be able to better negotiate for the entire industry that interacts with it. With these kinds of tax penalties, it's going to force every drug company to its knees to beg the government to negotiate at whatever price the government wants to get things out, which will drive down prices not just the government pays, but also likely the private market as well.

Of course, an argument against this would, be: well, how do these companies get the incentive and the capital to do more research and development and come out with some new drugs? Well again, you go back to that question of where's the balance right? And I don't have the answer to that question, but this is just what the bill is saying. Okay, great, but how is all this money being spent? The biggest line item is in what they call the Energy Security and Climate Change Funding part of the bill. This is 369 billion dollars. It includes tax rebates and credits to lower energy costs for households, tax credits, research, loans, and grants to increase domestic manufacturing capacity for clean energy, tax credits to reduce carbon emissions, and programs to reduce the environmental impact of agriculture.

The second line item here is the Affordable Care Act extension. This will push the temporary expansion of premium tax credits through 2025, which are set to expire at the end of this year. These are credits that help households up to above 400 percent of the poverty line. Okay, so how does all this come together, Charlie, Well, keep in mind this takes place over 10 years, the spending will be front loaded and the revenue generating and inflation-reducing effects will be back loaded.

Aka, you spend first and you hope that you get the results later. Mark Zandi, a chief economist of Moody's Analytics and a lifelong democrat, concludes that the Tax, Energy and Health Care proposal from Senator Chuck Schumer and Joe Manchin would lower the Consumer Price Index by 0.33 percent by 2031.. obviously a bill named the Inflation Reduction Act that lowers inflation by a third of a point in the next nine years? Well, that's not exactly mind-blowing, and Jessie Lee, who is a senior member of the White House's Economic Council, said that this is actually the overwhelming consensus, which means the White House recognizes that this is the long-term implication in terms of the result the bill is going to have on inflation. When asked what the point of a huge reduction act is, if the best-case scenario isn't even that great, Well, he goes on to suggest the bill is more about lowering inflation in regards to Pharma prices and also fighting to make America as he says, more energy independent via clean energy so that we can fight climate change.

He also says that a big point of it is removing tax loopholes and so obviously there seems to be a pretty big consensus that this bill isn't really about inflation. it's more about these other line items. right? Look at what Wharton found: quote: The act would very slightly increase inflation until 2024 and decrease inflation thereafter. These point estimates are statistically indistinguishable from zero, thereby indicating low confidence that the legislation will have any impact on inflation.

Other implications? Well, based on what I've read from a lot of different analysts, it will probably be effective at reducing the deficit in a small way over the next 10 years due to the expansive corporate minimum tax which is going to bring in a lot more revenue and other modifications assuming that spending doesn't increase even larger after this bill. Well, that would be a deficit decreasing measure. Taxes are also going to go up for most people, but marginally. this isn't what the bill says.

But according to the Joint Committee on Taxation, which is supposed to be bipartisan, at least half of all new tax revenue raised next year would come from those earning under four hundred thousand dollars. This does contradict the bill's promise and the President's promise to not put on any new taxes to families making 400 000 or less. So in totality. I think regardless of what the name of this bill is, you should judge this bill, not on its ability to reduce inflation because it already failed at that.

It's not trying to reduce inflation, but instead you should judge it on the main line items here, which are funding green energy adoption, extending Aca credits, and of course, intervening to control prices in certain areas of healthcare. And these are line items that you have to decide based on how you view the world and your own political perspective, and also to some extent how much you trust the government to implement these policies. Anyways, Have a good day, folks! Make sure to hit that ravishing like button and subscribe if you want to get up to 10 free stocks. with our lovely Moomoo partnership down below.

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