How the 2024 Election Could Reshape U.S. Tax Policy and the Future of the IRA

Published October 9, 2024 – As the 2024 election approaches, a new president and Congress are set to take office in January, which means legislative action could reinvent the U.S. tax landscape. The presidential election races are underway; however, for the House and Senate, the race is increasingly important as it determines the direction of tax legislation.

What is the Inflation Reduction Act and How will the Election Affect This Law?

In 2022, President Biden signed the Inflation Reduction Act (IRA) into law. One year after the IRA was passed, the clean energy and climate provisions created more than 170,000 renewable energy jobs, companies announced over $110 billion in renewable energy manufacturing investments, and we are hitting our goals to reduce greenhouse gas emissions by 1 billion tons in 2030. This is beneficial for developers as it encourages them to focus on sustainability and clean energy projects in a cost-effective way. Now, for tax equity investors, this industry growth and the bonus’ from the IRA is a great increase in tax equity investment opportunities for them across the country.

How will the new election affect the IRA? The United States will go to the polls in November to decide who will become the next president, and this election year can significantly impact the IRA in a few ways:

Funding and Implementation: Depending on the election’s outcomes, the next president’s administration may seek to modify, expand or even scale back certain aspects of the IRA. Decisions can be made to fully implement and expand the IRA or repeal and alter provisions.

Implementation and Expansion of the IRA: Depending on the winning party, this can lead to two different outcomes:

- The first outcome can be full implementation, which prioritizes fully implementing the IRA and enhancing its provisions. There may be efforts to potentially expand the IRA’s scope, which increases funding for clean energy initiatives, reinforcing its goals.

- The second outcome can be the administration seeking revisions or repealing certain aspects of the IRA, which can lead to reduced investments in clean energy. Priorities may shift away from climate change initiatives; this can lead to undermining the IRA’s goals.

Legislative Actions: If Congress’ structure changes, new legislation may be proposed to amend or replace parts of the IRA.

Long-term Goals: The election’s outcome can shape the direction of climate policy and healthcare reform, potentially affecting the IRA’s goals related to clean energy.

The IRA deploys tax credits of a great size for major economic sectors such as energy, transportation and buildings, so with the majority of the economy deploying clean energy technologies, undergoing a structural change may significantly affect developers and investors.

How will the Election Outcome Impact the Future of Tax Policies?

The outcome of an election, depending on the winning party, can influence tax policies based on their platform and priorities. Influencing how taxes are structured and the trajectory of tax equity policies by:

Tax Policy Changes: Depending on the winning party, this can lead to two different outcomes:

- The first outcome can be increased taxes on corporations and high-income earners and expansion of tax credits aimed at low- and middle-income families to promote equity and climate initiatives.

- The second outcome can be prioritizing tax cuts, which can reduce government revenue and limit the funding for programs within the IRA.

Tax Incentives and Subsidies: Depending on the winning party, the outcome can shift priorities for tax incentives in two different ways:

- One side might focus more on green energy incentives to continue the transformation of a cleaner future.

- The other side might emphasize tax breaks for businesses and developers. With the focus on the U.S. National Budget, it not only outlines the federal government spending and revenue for the fiscal year, but it covers various sectors such as healthcare, infrastructure and more. Negotiations for the 2025 federal budget is ongoing and there are several key discussions underway such as:

Tax policy: There is continuous debate about tax cuts vs increases. Developers rely on tax incentives and discussions around federal funding to local governments can influence development projects.

Climate and Infrastructure Investments: Funding climate initiatives and infrastructure projects is a high priority and the debate around this topic stems on how much to allocate and which projects to prioritize.

Bipartisanship: Achieving an agreement remains a challenge as the bipartisan tax bill is still sitting in the senate. There is a significant divide between spending priorities and fiscal responsibility.

The election outcome will shape the future of the IRA and tax policies, influencing everything from the implementation of existing policies to the introduction of new policies. The negotiations around the National Budget for 2025 will impact various sectors and the overall economy. The outcome will play a crucial role in shaping the investment landscape for both investors and developers in the coming years.

How are Recent Initiatives from the IRS and Treasury Likely to Impact Corporations?

Recent initiatives from the Internal Revenue Service (IRS) and Treasury ramped up efforts to enhance tax compliance among corporations. There have been discussions around the corporate tax rate for larger corporations and how it can influence corporate tax liabilities and strategic financial planning. The IRS is implementing tax incentives for those who invest in clean energy and sustainability. These initiatives aim to enhance compliance and encourage sustainable practices, leading corporations to adjust their strategies and operations accordingly. These changes will be crucial for businesses navigating the evolving tax landscape.

Overall, the election outcome shapes not only tax policies but also sets the tone for future direction of economic policy. Determining whether the focus will be on expansion and progressive reform or deregulation will depend on which party is going to win. Foss & Company is proud to be a leading authority in tax equity investments and our team of experts can help our partners navigate these potential outcomes by identifying opportunities aligned with both current and potential policy outcomes, as well as implementing safeguards that ensure compliance. We understand the election year comes with many changes regarding the implications of the potential policy and legislative actions. We can provide our investor and developer partners with critical insights into structuring the investments to navigate through the changes.

To learn more about how we can help navigate the uncertainties of the 2024 election year, contact our team today: https://bit.ly/3cOAM6G