President Joe Biden has signed into law a massive bill that aims to increase taxes on large corporations, bolster IRS enforcement, invigorate investment in the renewable energy sector, reduce the deficit and lower some healthcare costs.

Biden put his signature to the Inflation Reduction Act on Aug. 16 following a partisan passage through Congress in which Democrats leveraged their thin majorities to approve the bill amid staunch Republican opposition.

With the act becoming law, the question has reared: How might it affect the promotional products market?

Industry leaders that ASI Media spoke with generally said there’s so much in the bill, with potential for indirect effects, that it’s difficult to say definitively. Still, executives also see possible opportunities and challenges stemming from the legislation. Here is a sampling.

‘Green’ Opportunities Could Grow

Biden has tried to make combatting climate change a cornerstone of his presidency. To that end, the act includes a $369 billion investment in climate and energy policies. Indeed, there are billions in subsidies earmarked for investing in renewable-energy projects and generating power from renewable sources.

There are also tax credits to help everyday folks improve their homes with energy-efficient products, as well credits for factories that set up operations to build electric vehicles and other products that leave less of a carbon footprint than traditional products. The act also extends (with new limits) a $7,500 tax credit for Americans who buy an electric vehicle.

All the cash and credits stand to fuel the growth of the so-called “green” economy.

President Biden’s Inflation Reduction Act will reduce greenhouse gas emissions by about one billion tons in 2030. This is ten times larger than any climate legislation ever enacted.

— The White House (@WhiteHouse) August 16, 2022

From a promo perspective, that could mean enhanced sales opportunities with a wide variety of companies in the space – everything from solar-panel manufacturers/installers to automakers/dealerships with electric vehicles to consultants and software providers that help companies operate more sustainably.

The promo sales potential could also grow as new companies enter the green market, and as firms across all industries look to run their businesses in a more earth-friendly way – and want to promote that.

“The law contains some very positive provisions,” says Terry McGuire, senior vice president at HALO Branded Solutions (asi/356000), the largest distributor in the promo industry. “HALO’s substantial investments in sustainability will be a natural draw for those clients incented by the bill to address climate change.”

Speaking of investments in sustainability: The law could further compel a trend already underway, which is that a growing number of promo clients – especially big brands and enterprise-level companies – want their vendors to make strides to operate in a more eco-friendly manner. That could drive more distributors, suppliers and decorators to accelerate their eco-focused efforts. While that would obviously take work and investment, it would also result in the industry operating more sustainably as a whole – something many would argue is a net positive.

“Overture is making significant investments in sustainability and reducing our carbon footprint, so we are encouraged by the climate portion of the bill,” says Jo Gilley, CEO of Top 40 distributor Overture Promotions (asi/288473) and a member of Counselor’s Power 50 list of promo’s most influential people. Gilley added: “Hopefully, the tax credit for electric vehicles will incentivize carmakers to produce the cars in the U.S., and we’ll have to speed up our timing on adding charging stations in the parking lot.”

Could New Taxes Hurt Promo Spend?

Meanwhile, the Inflation Reduction Act establishes a new 15% corporate minimum tax that will be applied to companies that report financial-statement profits averaging at least $1 billion over three years. To be implemented in 2023, the tax would generate about $313 billion over the next decade and directly affect only about 150 companies, the congressional Joint Committee on Taxation determined in a study. 

An important goal of the tax is to ensure these mega-corporations pay their fair share in taxes, but some in promo see possible unintended negative consequences for the industry.

For instance, executives note that if the bottom lines of these large firms are hurt by the new tax, then they could potentially reduce spending on promotional products.

“The minimum tax will definitely make an impact to Fortune 100 companies that currently spend a lot of money on promotional products,” says Dilip Bhavnani, chief operating officer at Top 40 supplier Sunscope (asi/90075) and a Power 50 member. “Will they look to cut spending in other areas to make up for these additional tax payments? If so, will they cut promo spend? My belief is that we will see a mixed bag, with some firms not making any changes and some making reductions.”

$313 billion
The amount the 15% corporate minimum tax is expected to raise over the next 10 years.

As Bhavnani alludes to, the tax could influence corporations to scale back spending in other areas beyond promo. The vendors/smaller companies that have seen a reduction in spend from the corporations directly affected by the tax could then look to reduce what they might consider to be discretionary spending, executives worry.

While the 15% minimum tax will apply directly to a select group of corporations, another new tax has the potential to affect a larger pool of businesses.

The newly approved act requires that publicly traded companies that buyback their shares pay a tax of 1% on the fair market value of the shares they have repurchased. The federal government is applying the tax specifically to total shares repurchased offset by the number of shares issued in a year. Buybacks that total less than $1 million annually won’t be taxed. The tax applies starting Jan. 1, 2023.

As with the corporate minimum tax, some promo executives are concerned that the buyback tax could hurt the bottom lines of end-clients and result in them spending less on branded merchandise.

Even if the tax isn’t a big burden on public companies currently, it may become so with time, according to some financial experts. “The bigger issue is that the horse has left the barn and taxes on buybacks will surely increase over time until it becomes too costly for companies, taking away what has been a major tailwind for the market,” wrote Jared Dillian, an investment strategist at Mauldin Economics, for The Washington Post.

How Will Ramped-Up IRS Enforcement Affect Business?

In another tax-related issue, the act establishes $80 billion to be spent over the next decade to expand the workforce and technology capabilities of the Internal Revenue Service (IRS). The move is expected to generate $124 billion in additional federal revenue over the next 10 years thanks to increased IRS enforcement.

Special interest lobbyists pushed to defund the IRS so it would be easier for big corporations to evade taxes. Corporate cheating is so extreme that for every $1 we invest in enforcement, we get $5 back in taxes that are owed—but are not currently being paid—under the law. pic.twitter.com/xe0VFlOpxR

— Rep. Katie Porter (@RepKatiePorter) August 15, 2022

While proponents say the stepped-up enforcement will be aimed at wealthy individuals and bigger companies that exploit loopholes to shirk or significantly lessen their tax burden, some business owners and politicians are concerned an IRS that’s flush with more cash and workers will increase scrutiny across the board, resulting in more bureaucracy and potentially steeper tax liabilities for even small companies that were playing fair on tax payments.

“I think it’s terrible for them to want to weaponize the Internal Revenue Service, to supersize it in an effort to go after, you know, families and farmers and small businesses and try to raise more money,” says Sen. John Barrasso, a Republican from Wyoming. “It’s basically a shakedown operation.”

For sure, not all business pros see it that way. Says Gilley: “I think it’s a good thing that we’re rebuilding the IRS after years of slashing jobs there.”

Many Democrats in congress agree, saying a strengthened IRS will help ensure the wealthy and big businesses meet their tax obligations under the law. But as with the new corporate minimum and stock buyback taxes, will the heavier tax onus resulting from stricter enforcement stifle what would have been private industry investment in other things, such as promo products? Says Bhavnani: “Only time will tell.”