On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (the ‘‘Act’’), which aims to mitigate climate change, lower health care costs, and reduce the national deficit. The Act’s spending measures are funded by imposing additional taxes on corporations, including a 1% excise tax on certain share repurchases (the ‘‘Excise Tax’’). The Excise Tax was originally included in President Biden’s ‘‘Build Back Better’’ legislative package as both an entirely new source of revenue and as a means to encourage corporations to reinvest in their business and employees rather than repurchase shares. Proponents of the Excise Tax also sought to address perceived tax avoidance at the shareholder level effected by the use of a corporation’s earnings to reacquire its shares rather than make dividend distributions. Originally projected to generate $124 billion over 10 years, in the weeks preceding enactment, the Joint Committee on Taxation revised its prior projection, estimating that the Excise Tax will generate $74 billion over 10 years.

Originally published in Tax Management Memorandum - September 12, 2022.