The Inflation Reduction Act (“IRA”) was signed into law on Tuesday, August 16, 2022. A sweeping $750 Billion legislation, the Act, despite its name, primarily addresses not Inflation, but climate, funding incentives, processes and projects intended to reduce and mitigate the effects of climate change in myriad ways. The Act also made changes to health care and tax law. Like most federal legislation, this Act is dense (755 pages), so this is more of a report on the highlights, rather than an in-depth analysis.
The IRA directs ~$400 billion to USDA for several ag-related programs, providing funding and support for farmers, ranchers and forestland owners. According to FarmDocDaily/Illinois, the ag funding is broken down into categories of conservation (45%), rural development (30%), farm loans (14%) and forestry (11%).
Funding Impacting Ag
Climate-Smart Ag
According to USDA, the IRA will provide over $19 Billion toward Climate-Smart Agriculture Programs. These funds are designated for ag conservation practices, projects and easements that directly improve soil carbon, reduce nitrogen losses or reduce, capture, avoid or sequester carbon dioxide, methane or nitrous oxide emissions associated with ag production. These efforts will be incorporated into Natural Resources Conservation Services plans for nutrient management.
Methane Reduction
The IRA addresses Methane Reduction in two industries, agriculture and petroleum. For ag, appropriation funds are set aside for the Secretary of Ag to prioritize diet & feed management programs to reduce ruminant methane emissions. The Oil & Gas industry faces both an incentive and a deterrent. The Methane Emissions & Waste Reduction Incentive Program sets aside funding for grants, rebates, contracts and loans for methane mitigation and monitoring. However, the Act also imposes a charge on excess methane emissions from owners or operators of oil or gas facilities with reporting requirements for greenhouse gas emissions. This fee starts at $900/ton in 2024, rises to $1,200/ton in 2025, and plateaus at $1,500/ton in 2026 and years thereafter. According to the Congressional Research Service, this is the first time the federal government has imposed a charge, fee, or tax on greenhouse gas emissions.
Drought
The Act provides funding for Drought Response and Preparedness in drought-devastated areas. Appropriations include $550 million for Bureau of Reclamation Domestic Water Supply Projects, $25 million for Canal Improvement Projects, and $4 billion for Drought Mitigation in Reclamation States (including California). The Act specifically calls out prioritizing the Colorado River Basin and “other basins experiencing comparable levels of long-term drought,” so potentially beneficial to not just Imperial Valley growers, but Sacramento Valley, San Joaquin Valley and the Klamath. Funds include compensation for voluntary reduction in use, funding for projects that result in reduction in use, and ecosystem and habitat restoration to mitigate effects of drought.
Forest Management
Forest Management and Restoration is designated $5 billion. The appropriations fund projects for both federal and non-federal forestland owners. Included is funding for hazardous fuels reduction, vegetation management, environmental reviews and the protection of old growth forests, as well as competitive grants for non-federal forestland owners.
Appropriations are set aside to address National Forest System Restoration. Funding is included for projects for hazardous fuels reduction, vegetation management, environmental reviews, and protection of old growth.
The Act sets aside funding for Competitive Grants for Non-Federal Forestland Owners. The purpose is to provide cost sharing to carry out climate mitigation and forest resilience practices.
Rural Development
The Act’s Rural Development and Agriculture Credit appropriates $1 billion in funding for electric loans for renewable energy. These loans will be up to 50% forgivable under certain terms and conditions. Additional funding is also set aside for the existing Rural Energy for America Program to be used as grants and loans on eligible projects, with an emphasis on underutilized renewable technologies.
Biofuel
Some $500 million is dedicated for Biofuel Infrastructure to expand the commodity-based fuels market. Grants will be provided to increase the sale and use of biofuels through infrastructure improvements for blending, storing, supplying or distribution. Existing tax credits for biodiesel, alternative fuel and second-generation biofuel are extended through December 31, 2024.
Electricity
Almost $10 billion has been set aside for the USDA to assist rural electric coops. Financial assistance in the form of loans is targeted to achieve long-term resiliency, reliability and affordability of rural electric systems through the purchase of renewable energy, renewable energy systems, zero-emission systems and carbon capture and storage systems.
Loan Relief
Distressed Borrowers who have loans administered by the Farm Service Agency may apply for Immediate Loan Relief. Targeted Borrowers are those whose ag operations are at financial risk.
Underserved Persons
$125 million has been set aside to provide outreach, mediation, financial training, capacity building training, cooperative development, agricultural credit training and support, and other technical Assistance and Support for Underserved Farmers, Ranchers and Foresters. Targeted recipients include beginning farmers and ranchers as well as military veterans and those living in high-poverty areas. Funding is included to support and supplement ag research, education, extension, scholarships and programs that provide internships and pathways to the ag sector and/or Federal employment, including Alaska Native, Native Hawaiian and Hispanic serving institutions.
Non-Ag Impacts
There are several other IRA impacts not directly tied to agriculture. Medicare has now been granted the ability to negotiate pricing with pharmaceutical companies for certain drugs; this is huge and should bring down prescription costs. In addition, out-of-pocket spending on Medicare Part D has been capped at $2,000 annually, and out-of-pocket insulin has been capped at $35 a month for those on Medicare.
Regarding taxes, Congress has added a 15% Corporate Alternative Minimum Tax on Companies Reporting >$1 billion in income and a 1% Stock Buyback Fee (stock contributions to retirement accounts, pensions and ESOPS are excluded.) Appropriations are set aside for the IRS specifically for Taxpayer Systems, IT Upgrades and Additional Auditors. On a positive note, the Act increases the Research & Development Tax Credit Against Payroll Tax for Small Businesses.
Almost 300 pages of the Act concentrate on Clean Energy and Climate. This involves incentives, tax credits and tax deductions for construction, investment, remodeling and manufacturing to reduce carbon emissions and create energy efficiency. Tax credits are offered for clean fuel and clean vehicles, both personal and commercial. Investment is dedicated to coastal communities, NOAA, National Marine Sanctuaries and National Parks and Public Lands.
Overall, the Inflation Reduction Act is expected to cut net taxes by about $2 billion per year as energy and tax credits approximately balance out the new tax increases. According to Penn Wharton, University of Pennsylvania Budget Model, “Most, but not all, of the tax increases fall on higher-income households.”
The Act is expected to increase Gross Domestic Product and reduce the deficit by ~$300 billion, according to the Congressional Budget Office. Despite its name, the Act is projected to have no significant impact on actually reducing inflation in the near-term, and only modestly reduce inflation over time. Honestly, the Act is much more about climate than it is about inflation.
For further information or clarification, please contact your Tax Attorney, CPA or nearest USDA office.
Rebecca Scott is a licensed attorney in CA, Bar #222233, TX, Bar #24070581, & WA, Bar #30793, a licensed Realtor with London Properties in the San Joaquin Valley, Lic #01973822, and majority partner in JWAGronomics, LLC, an agronomy consulting firm.
References
Baillie, K.U., Berger, M.W., de Groot, K., Patel D., “Understanding the Inflation Reduction Act.” August 17, 2022, Penn Today.
“Climate Smart Solutions from America’s Farms, Ranches, & Forests.” August 17, 2022. Solutions From the Land.
Coppess, J., Swanson, K., Paulson, N., Zulauf, C., Schnitkey, G., “Reviewing the Inflation Reduction Act of 2022; Part 2.” farmdocdaily(12):120, August 12, 2022. Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign.
Durante, A., Kallen, C., Li, H., McBride, W., Watson, G. “Details and Analysis of the Inflation Reduction Act Tax Provisions.” August 12, 2022. Tax Foundation.
Fannon, B., “Inflation Reduction Act Increases Agriculture Conservation Funds.” August 19, 2022. Texas A & M Agrilife.
Huntley, J., Rico, J., Arnon, A., “Senate Passed Inflation Reduction Act: Estimates of Budgetary and Macroeconomic Effect.” August 12, 2022. Penn Wharton, University of Pennsylvania Budget Model.
“The IRA Funding That’s Boosting Carbon Removal.” August 12, 2022. Carbon180.
“IRA Will Help Fight Fed Inflation.” August 1, 2022. Committee for a Responsible Federal Budget.
Ramseur, J., “Inflation Reduction Act Methane Emissions Charges: In Brief.” August 19, 2022. Congressional Research Service, R47206.
Thomson, B., Brasher, P., Wicks, N., Davies, S., “Daybreak August 15: Ag groups quiet, but biofuel sector welcomes IRA.” August 15, 2022. AgriPulse.
“USDA Announces New Opportunities to Improve Nutrient Management.” Press Release No. 0178.22. USDA.
H.R.5376 – Inflation Reduction Act of 2022, 117th Congress (2021-2022) https://www.congress.gov/bill/117th-congress/house-bill/5376/text
