The U.S. House and Senate voted along party lines to pass the latest tax and spend bill, “The Inflation Reduction Act of 2022,” (IRA) sending it to President Biden’s desk. Yesterday, with Biden’s signature, the bill became law.
Democrats trumpeted the bill as a way to tax the rich, reduce the deficit, and clean up the environment.
Unfortunately, however, the only “win” is political. The Democrats can now say they passed elements of Biden’s agenda just in time for the midterm elections. But the bill is a lose-lose for the American people, for many reasons, including the following:
The bill will not reduce inflation, and instead will likely increase it
The IRA would do nothing to reduce inflation. Analysis from Penn-Wharton revealed this bill would actually create larger budget deficits in the first few years. The impact on inflation will be “statistically indistinguishable from zero.”
As I wrote previously, the bill uses gimmicky math to show a deficit reduction and claims inflation alleviation, but the reality is that the spending ramps up right away, while much of the revenues to reduce the deficit are backloaded. Democrats will undoubtedly want to extend all of their green spending initiatives and Obamacare subsidies beyond the timeline in the bill, driving up the actual total cost even more.
By raising taxes on corporations and reducing the productivity of capital, the bill could actually shrink the economy, also adding to inflation. The poorest households are disproportionately harmed by inflation. Coupled with the increased tax burden this bill brings, the poor will suffer disproportionately.
It will not help the environment
Rep. Deborah Ross (D-NC) said the act “represents the most significant investment to combat climate change in U.S. history.” She is right that this is the highest climate spending ever. Unfortunately, the wasteful spending does nothing to impact global warming.
In fact, using the United Nations’ model, one expert found the bill, “would cause the world’s temperature in 2100 to be 0.028 degrees Fahrenheit cooler; at worst, only 0.0009 degrees Fahrenheit cooler” according to an article published by the Hoover Institution.
The Democrat’s stated goal regarding IRA’s climate provisions is to “reduce carbon emissions by roughly 40 percent by 2030.” Our current trajectory is already projected to reach a 24 to 35 percent emissions reduction in that time. Climate experts consider the bill to be merely “symbolic.”
And the government’s attempt to prop up electric vehicles and other green technology in opposition to consumer preferences (EVs still make up just 2% of car sales) is a handout to the wealthy. Even with significant subsidies, EVs will remain out of reach for most low-and middle-income households, and the subsidies will enable EV sellers to raise prices further.
Unfortunately, the climate provisions in this bill amount to little more than growing political control.
It will increase tax burdens and slow growth
President Biden repeatedly promised to not raise taxes on those making $400,000 or less. In quintessential Washington fashion, this fails a fact check.
First, the reckless, government-induced inflation has already resulted in reduced buying power for those making less than $400,000. The average person’s real income has declined $3,000 per year due to inflation according to economist Stephen Moore.
Under the IRA, major tax changes will be passed down to workers, with the poorest households seeing the biggest increase in their tax burdens. The nonpartisan Joint Committee on Taxation shows that taxpayers in each income category will face the burden of a tax increase. Those making less than $10,000 would see a 3.1% increased tax burden in the first year, while those making over $1 million would see a 1.9% increased burden. In future years, the tax burdens are estimated to also fall hardest on the poorest households.
Democrats want to raise taxes on businesses as the nation weathers a recession and record inflation. Even President Obama warned in 2009 that “The last thing you want to do is to raise taxes in the middle of a recession.”
The bill implements an egregious, corporate alternate minimum tax, often called the “book” tax, requiring companies to calculate their tax liability twice, once with the standard tax code and once using the new book tax. Companies must pay the larger amount.
Firms need to invest to remain competitive. Generally, a firm would deduct their investment costs in the same year. Under the book tax, however, they lose this advantage as they have to deduct an investment over time.
This is devastating to the country’s already impaired private investment, which is critical to economic growth. In the latest quarter, GDP fell 0.9% according to the advance estimate from the Bureau of Economic Analysis. This was driven by a weakened investment. Domestic private investment decreased 13.5% in the second quarter.
The Biden Administration is engineering further economic chaos.
It will reduce innovation in life saving drugs
The bill also claims to anticipate raising $288 billion in drug pricing reform. The IRA will have the government intervene and set Medicare prices for the top ten most expensive drugs, with that list growing in the future.
Price controls (read “government coercion”) inhibit innovation and reduce supply. Without research and development, we will have fewer drug approvals and greater loss of life.
A University of Chicago issue brief found the IRA “will reduce revenues by 12.0 percent through 2039 and therefore that the evidence base predicts that R&D spending will fall about 18.5 percent, amounting to $663 billion.”
It will supersize the IRS to agress the middle class
The bill claims to create $124 billion in new revenue by expanding the IRS. Interestingly, the bill will spend $3.2 billion to “provide taxpayer services, including pre-filing assistance and education” but spend $45.6 billion “to conduct criminal investigations (including investigative technology), to provide digital asset monitoring and compliance activities.”
The argument: “if you don’t commit tax fraud, you don’t have to worry” is a false dichotomy. History shows us that the IRS, like all government agencies, is prone to corruption and scandal. Moreover, IRS audits, no matter the verdict, are time consuming, expensive, and altogether demoralizing.
Senator Mike Crapo (R-ID) attempted to add an amendment to shield taxpayers making under $400,000 from increased IRS probing. Democrats shot it down. Why? They want to squeeze the middle class for even more revenue to fund their spending problem.
In 1788 Jefferson explained what is very true today: “The natural progress of things is for liberty to yield, and government to gain ground.”
Americans will not be hoodwinked by the promises from the Big Government left. Already, inflation has taught everyone that spending has consequences. Working families know they are seeing less income because of the left’s disastrous policies.
The Inflation Reduction Act only fuels the federal government’s insatiable appetite for more revenue. Big Government will never be the answer.