House GOP Tax-Writers Say IRA Benefits China over Individuals

April 19, 2023

The House Ways and Means Committee held a hearing on April 19th on how the energy tax incentives in the recently enacted Inflation Reduction Act (IRA) benefit China over ordinary Americans.

“Solar cells manufactured in China and assembled into panels in the U.S. will qualify for these special interest tax breaks – even if they are implicated in human rights abuses,” Committee Chairman Jason Smith (R-Mo.) stated.

The Inflation Reduction Act created tax credits for buying new and used electric vehicles and using energy efficient heat pumps and solar panels for construction projects, just to name a few of the energy incentives.

Smith contends that these tax incentives profit China because the country dominates in providing minerals to supply chains needed to make equipment like batteries, solar panels and wind turbines. Businesses in China are also teaming up with U.S.-based companies to garner these tax credits.

“The world’s largest solar manufacturer is a Chinese company that just had its solar shipments confiscated at the border last fall over forced labor concerns. They are now planning to partner with a business in Ohio to utilize these very credits to build a facility here in the United States. Are these the type of businesses we should be rewarding?” Smith asked.

Republicans on the Ways and Means Committee would like to curb the size of these tax credits and construct them in a way that China could not profit from them.

It is unlikely that Democrats will support such moves. 

Smith also said that the tax credits should be written in way that benefit individuals. The way these provisions are currently written benefit large corporations and banks.

“These special, political tax breaks flow to big companies and big banks, with congressional scorekeepers estimating that large corporations today receive over 90 percent of them. These are companies with sales in excess of $1 billion. Financial institutions receive three times more than any other industry,” Smith said.

How Republicans would modify these tax credits is unclear. No specifics were offered during the hearing.

Any changes to the Inflation Reduction Act in a stand-alone bill is highly unlikely to pass the Senate or be signed into law.

Cost Estimate Bust:

One development driving the GOP desire to modify the tax credits is a Goldman Sachs report. 

The report shows that the congressional cost estimate for the bill was woefully short. Congress projected that the bill would cost roughly $390 billion over ten years. Goldman projected that the legislation would cost $1.2 trillion over the next decade.

This cost discrepancy has prompted GOP House leaders to include the modification of these tax credits in “debt limit” talks.

The debt limit is the amount of loans that the federal government can issue. That limit needs to be lifted soon, and some Republicans want to link an increase in the debt limit with restricting (or repealing) the energy tax credits in the Inflation Reduction Act.

Negotiations on the debt limit are expected to hit warp speed in June or July. Despite efforts to modify IRA tax credits, the odds that they would be added to a debt limit bill is very low. Democrats in Congress and the White House oppose this effort.

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