New Taxes on Producers Starting July 1 Could Not Come at a Worse Time

Just as inflation is the worst it's been in 40 years, a whole slew of products —including consumer goods, fertilizer, and construction materials —are set to see even more price hikes as new taxes go into effect on July 1.

This is all thanks to last year's Infrastructure Investment and Jobs Act (IIJA). Lawmakers grasped at various ways of paying for the $550 billion bill with several gimmicks, and also new Superfund excise taxes.

Last week, the Internal Revenue Service (IRS) published a list of taxes on 121 chemicals that will be impacted by the IIJA. The rates range from $1.49 per ton on ammonium nitrate, an important component for fertilizer, up to $23.65 per ton on methyl isobutyl ketone, a solvent used for the production of resins, paints, and varnishes.

The American Chemistry Council lists some of the products and goods that the targeted chemicals are used to produce, including: bread bags, diapers, trash bags, toys, detergent bottles, pipe, siding, flooring, shower curtains, fibers, films, antifreeze, paint, coatings, insulation, glass, adhesives, tires, auto parts, consumer electronics, furniture, apparel, cosmetics, lube oil additives, rain coats, baseball helmets, and medical equipment. Expect prices on all of these products to go up.

The Superfund excise taxes previously expired way back at the end of 1995. The IIJA restores them at double the previous tax rate. The Congressional Budget Office estimated that the reinstated taxes will increase revenues to the Treasury by $14.5 billion over the next decade, an average annual hit of $1.45 billion to producers. Accountants have also warned that the new expanded tax regime will present significant compliance issues for businesses. Adding to potential confusion, the IRS noted that the number of taxable chemicals is likely to change “as substances are added to or removed from the list.”

The problems caused by this tax could have been even worse. An earlier version of the IIJA would have excluded imported chemicals. In a letter last July, NTU's Thomas Aiello wrote that this would run "contradictory and counterproductive to efforts aimed at increasing our domestic critical mineral supply chain," a goal championed by the Biden administration and many in Congress who supported the IIJA.

However, there is another pending concern to consider. When the excise taxes were previously in place, the Environmental Protection Agency's Superfund program was frequently flagged by the Government Accountability Office for poor management and misspent funds.

Higher taxes on producers are generally not a good idea, but the timing of these new taxes could not be worse as consumers and businesses are already struggling with inflation on fuel, food, and many other products. On top of this, recent quarterly estimates of GDP have been revised downward suggesting that our economic problems could be getting even worse.

To prevent the damage to the economy that will be inflicted by these taxes, Sen. Ted Cruz (R-TX) and five other Senators introduced the Chemical Tax Repeal Act to strike this section of the IIJA. Repealing these taxes would help protect jobs and spare consumers from unnecessary, additional financial pain.