Highlights of the Agricultural Provisions of the Inflation Reduction Act

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In late August, President Biden signed into law the “Inflation Reduction Act of 2022” (IRA). The IRA was previously passed by the US Senate by a narrow margin and later approved by the US House of Representatives. In both houses of Congress, the IRA bill passed along party lines with support from Democratic members of Congress and opposition from Republican members of Congress. Much of the opposition was due to the rather high cost of the legislation and whether the legislation could achieve all of the goals and objectives stated in the bill’s promotion.

The IRA legislation is a $740 billion tax, climate and health reconciliation package, including more than $370 billion for climate-smart projects and renewable energy spending over the next ten years ( 2022-2031). Early analyzes suggest nearly $44 billion in IRA legislation to fund agricultural conservation, rural development and forestry programs. The IRA legislation calls for ‘greenhouse gas’ emissions to be reduced to 44% below 2005 levels by 2030, which has been improved from a 35% reduction under the of previous federal policy.

The IRA legislation includes several provisions aimed at improving production and promoting the use of electric vehicles (EVs), including the use of EV tax credits. There were also several agricultural-related rural energy and biofuel provisions in the IRA legislation, including the following:

  • Allocates approximately $3 billion to the U.S. Department of Agriculture’s “Rural Energy Program for America” ​​(REAP) to fund programs that improve technology and efficiency in production, storage, and delivery electrical energy resources in rural areas.
  • Provides $9.7 billion specifically to rural cooperatives for assistance to rural electricity systems to purchase renewable energy, upgrade renewable and zero-emissions energy systems, improve storage and improve carbon capture, as well as other initiatives.
  • $500 million in new funding to add mixer pumps and other biofuels infrastructure.
  • Extends the $1.00 per gallon tax credit for biomass-based diesel fuel blenders to 2024 and then would replace this tax credit with a new tax credit based on the carbon rating of the biofuel .
  • Creates a temporary tax credit of $1.25 per gallon for the production of sustainable aviation fuel (SAF) to act as a bridge until the new clean fuel tax credit is in place in 2025, which will constitute an incentive for the production of SAF until 2027.
  • The IRA legislation also included $10 million for new grants to support advanced biofuels and $5 million for the Environmental Protection Agency (EPA) to complete the collection of emissions data. greenhouse gases through the renewable fuels standards program.

About $19.7 billion, or about 45% of total ERI funding allocated to agricultural and rural development programs, is for existing conservation programs on working farmland. All of these conservation programs are currently included in the Conservation Title (Title II) of the Farm Bill. The current Farm Bill is due to expire in 2023, so it’s unclear how this new conservation funding will fit in with existing conservation funding when the next Farm Bill is drafted. It should be noted that the IRA legislation did not provide any additional funding related to the popular conservation reserve scheme.

Custody Funding and Provisions of IRA Legislation

  • $8.45 billion over ten years for the Environmental Quality Incentive Program (EQIP).
    • EQIP provides farmers and ranchers with incentive payments to bolster conservation efforts.
  • $3.25 billion for the Conservation Stewardship Program (CSP).
    • The CSP provides farmers with incentive payments over 5 years to implement new conservation practices.
  • $4.95 billion for the Regional Conservation Partnership Program (RCCP).
    • The RCCP involves the NRCS partnering with landowners and private entities on larger conservation projects.
  • $1.4 billion for the Agricultural Conservation Easements Program (ACEP).
    • ACEP involves working with NRCS on specific long-term conservation efforts on working farmland.

IRA legislation extends through federal fiscal year 2031; however, most spending for conservation-related initiatives is expected to take place from 2023 to 2026. Thus, any additional funding for these conservation programs beyond 2026 may need to come from the Farm Bill or other legislation. .

Other Provisions of the IRA Bill That May Impact Residents of Rural America

  • $5 billion for wildfire prevention and climate resilience projects on public and private lands.
  • $5.3 billion in farm debt relief to “struggling” borrowers who hold direct or guaranteed loans from the Farm Service Agency (FSA), including $2.2 billion for farmers who have been victims of discrimination when applying for or administering USDA agricultural loan programs. These payments would be capped at $500,000 per producer. Some of these program provisions have already been adopted as part of the US bailout in 2021, which has been blocked by legal proceedings.
  • IRA allows Medicare to negotiate costs of some prescription drugs with manufacturers and would cap out-of-pocket drug costs for some Medicare-enrolled seniors

There is considerable disagreement over whether the IRA legislation will actually achieve the goal of reducing the federal deficit and controlling inflation; however, analysts predict that the IRA will generate approximately $700 billion in new revenue over the next ten years (2022-2031). Raising revenue will come through a minimum corporate tax of 15% for large corporations, an excise tax of 1% on the value of share buybacks and increased enforcement efforts by the Internal Revenue Service (IRS). The 15% minimum tax would be on the income that large corporations (over $1 billion in profits) declare to their shareholders. It is estimated that this change will only affect about 150 companies in the United States. The IRS will receive $80 million through the IRA legislation to strengthen tax audit capacity by adding up to 87,000 IRS employees, which is expected to generate more than $200 billion in revenue. additional income taxes. which are legally due.

The Inflation Reduction Act (IRA) has been quite controversial and politically controversial, due to some of the provisions contained in the legislation and the rather high price tag of the legislation. We are in the very early stages of the process of implementing the IRA legislation; however, it appears there will be funding for climate-related energy and conservation projects and programs, as well as health care initiatives, that could impact farmers and rural residents. It may take some time for the USDA and other federal agencies to roll out full implementation of these programs, some of which will be an extension of existing programs and some of which may be new programs. At first glance, it does not appear that there will be a large tax impact on most rural residents; however, it is unclear what effect increased IRS audits and potential future taxes might have on farmers and other small businesses in rural areas.

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