Inflation has been consuming $6,800 annually in purchasing power, according to families with two employees. The Inflation Reduction Act would have every American family subject to price controls, manipulation federal subsidies, and tax increases.
The bill would worsen the recession, continue to depress household incomes, increase prices, and continue to deepen it.
The bill’s publication would mark a significant reversal for its key backer. Sen. Joe Manchin, D-W.Va., who in 2010 said, “I don’t think during a time of recession you mess with any of the taxes, or increase any taxes.” Yet this proposal, negotiated chiefly by Manchin and Senate Majority Leader Chuck Schumer, D–N.Y., is intended to raise taxes by roughly $570 billion over the next decade – $4,500 per household.
Additionally, the bill would increase spending for crony corporatist subsidies as well as wealth redistribution to approximately $510 billion over the next ten years. The true cost of the bill is unknown. would be nearly $200 billion higher after accounting for budget gimmicks.
The vast majority of new subsidies are designed for a greater impact than the price tag. These subsidies could result in billions of dollars being diverted from conventional energy sources to green energy pipe dream investments.
This shift will result in a smaller, more dynamic, and less innovative economy that will trap millions of people in poverty. On-paper spending cuts of $250 billion are also included in the bill, which simply reflect the cost of drug-price controls.
These price controls won’t help consumers. Instead, they will make it less likely that lifesaving drugs will be produced. This will also reduce vital research budgets.
To make matters worse the spending will come front-loaded while the revenues will be backloaded. Although the bill’s supporters claim it will reduce deficits over a decade, it will likely increase them in the first few year, which will fuel inflationary pressures in near future.
In a few years, the spending will expire and some members of Congress will try to do it again. They will claim to be able to pay for three years’ worth of spending with 10 years’ worth of taxes.
The legislation comes also immediately after the passage of a $280 million corporate welfare law spending spree.
Inflation is the process by which the government prints money in order to cover budget deficits. It’s good that Senate Democrats want to reduce the deficit, but front-loading new deficits and raising taxes are counterproductive. Raising taxes on companies increases their costs, which falls on households through higher price, lower production, less investment, lower productivity, lower wages, and lower prices.
The best way to reduce the deficit is to stop spending subsidies and tax increases that are distorting.
In reality, the only way to reduce inflation and pull the economy out from a recession is to reduce the government’s size, scope, influence, and coercive interventions.
This bill does nothing to change that fact. Instead, it doubles down on the disastrous policies that got us into this “stagflationary” mess.
Here’s what’s in the bill:
Green New Deal Policies
Americans are suffering from high inflation. The grocery store and gas pump are two places where this pain is most acute. Regular retail gas prices have risen to twice the level they were before President Joe Biden was elected. Food price inflation has reached levels not seen for more than 40 years.
The left and the Biden administration may play all the word games they like, but the Inflation Reduction Act could be their biggest misinformation campaign to date. Instead of addressing the root causes, causingInflation, especially when it is related to food and energy, will only exacerbate the problem.
There’s no end to the Biden war on energy in this legislative monstrosity. The bill is actually a signal to the sector that this war on energy is about to escalate to a new level. The government-imposed shift away form conventional fuels that provide abundant and affordable energy is set to continue.
Why would you invest in an oil company or refiner? Even more so when this bill is telling them Washington politicians want to end their industry. We have already seen the damage inflicted by efforts to block affordable and abundant energy and centrally plan a far-left vision for a “clean energy” future.
It means Americans are suffering. The Biden administration, as well as the left, seem perfectly happy to inflict this pain on Americans. Rising energy prices are not an unintended consequence of their policies. They are the expected outcomes. This is something the left hasn’t been shy about acknowledging:
- Biden stated: “[When] it comes to the gas prices, we’re going through an incredible transition that is taking place that, God willing, when it’s over, we’ll be stronger, and the world will be stronger and less reliant on fossil fuels when this is over.”
- Barack Obama was the then-President said: “Under my plan … electricity rates would necessarily skyrocket.”
- Pete Buttigieg, Transportation Secretary reportedly “argued that more Americans should purchase electric vehicles so that they ‘never have to worry about gas prices again.’”
If Congress and the Administration were serious about high food and energy prices, they would reduce spending and not increase it. They would reduce regulatory barriers across supply chains and not increase them. And they wouldn’t be presuming that Washington politicians should dictate how energy is generated and consumed in this nation.
The reportedThe overall spending on climate and clean-energy provision is $369 billion. Here are just some of the bill’s lowlights:
It spends $9B to promote electric appliances, and energy-efficient retrofits.
Do you like your natural-gas stove or fireplace? This bill is part of a larger effort to make these appliances obsolete. It’s not hard to believe that there are already left-leaning states and cities that have banned new hookups for natural gaz appliances.
It creates tax credits to have homes run on “clean energy” and for the purchase of “clean vehicles.”
If American consumers demand those types of products and features, that’s one thing. The creation of this tax credit is a recognition that Americans don’t desire the products and, therefore, Washington politicians must induce Americans to “do the right thing.”
An important point to bear in mind: All of this new spending will come on top of the federal government’s voluminous regulations. Americans will suffer the worst of both. The Biden regulatory avalanche was already in place. Now, the proposed bill would force taxpayers into spending their hard-earned cash to subsidize wasteful spending.
Washington politicians spend money to incentivize people to buy the appliances they want you to buy. currentlyNew conservation proposals regulatory standardsThe Department of Energy commercial water heating equipment, consumer furnaces, walk-in coolers and freezers, commercial refrigerators, freezers, and refrigerator-freezers, packaged terminal air conditioners and packaged terminal heat pumps, dehumidifiers, dedicated-purpose pool pump motors, general service fluorescent lamps, clothes dryers, distribution transformers.
It invests in unreliable electricity resources (and goods) while signaling its disapproval for other electricity sources.
The legislation includes production tax credits to manufacture solar panels and wind turbines, and a $10 billion tax credit to build “clean technology manufacturing facilities” that make electric vehicles, as well as those wind turbines and solar panels.
It also includes grants to retool auto manufacturing plants to manufacture clean vehicles and up to $20 billion in loans to build “clean vehicle” manufacturing facilities. There are also “roughly $30 billion in targeted grant and loan programs” to get states and utilities to shift toward “clean electricity,” and tax credits and grants for clean fuels and clean commercial vehicles.
It penalizes conventional fuel sources that provide reliable and affordable energy.
The legislation would raise the cost of oil and gas drilling by increasing the royalties that companies have to pay for offshore drilling (from 12.5% to 16.66% and as high at 18.75%) and onshore oil drilling (12.5% to 16.66%). It also contains a methane emissions fee that petroleum and natural gas companies must pay.
It finances efforts to dictate agricultural practices.
The bill would provide more than $20 billion to support “climate-smart agricultural practices.” The climate efforts within the bill should be considered in a broader light. The left has a great disdain for American agriculture practices. “incalculable damages.” This bill just helps to support that disdain.
But there is another problem. Congress would be blessing the Biden administration’s egregious abuses at the U.S. Department of Agriculture in which, without proper authority, it used the Commodity Credit Corporation as a climate change slush fund to create out of whole cloth funding for “climate-smart agricultural practices.”
Transforming Economy, not Reducing Costs
This legislation, which changes energy production in such dramatic ways, is also a pretext to make even greater changes in our country.
Energy has a profound impact on every aspect of our daily lives and every sector within the economy. This bill would regulate how we produce and consume energy and limit our freedoms.
It’s a pretext for control. And there is little to no regard for the high prices incurred by Americans and the costs that will arise for trying to achieve the left’s radicalClimate agenda. And what’s even worse, this is all pain for no gain.
As explained in a Heritage Foundation new article report:
Global temperatures would be less than 0.2 degrees Celsius if all U.S. emission were eliminated by 2100. Even if all other Organization for Economic Cooperation and Development economies eliminated greenhouse gas emissions as well, the world average temperature increase would be mitigated by no more than 0.5 of a degree Celsius by 100.
This legislation is many things (e.g., cronyism, wasteful, costly, controlling, and arrogant), but it certainly isn’t about improving our lives, which affordable and abundant energy does. And regardless of the bill’s name—which is an insult to the intelligence of every American—it has nothing to do with addressing inflation.
Expanding Government-Run Health Plans
The latest development in the single-payer, government run health plan playbook is the health care provisions. The plan would extend Obamacare COVID-19’s current end date, mandate government price controls on Medicare drugs, and claim Medicare savings as a way to offset the total cost of the package.
The American Rescue Plan was created as a temporary solution to COVID. It made Obamacare subsidies more generous to those who were already receiving them and made subsidies available for individuals who were previously not eligible (those who earn above 400% of the poverty rate, which is $106,000 for a family with four).
This COVID-related provision will expire at year’s end. The Schumer-Manchin proposal would allow Obamacare to be extended for an additional three years.
The Congressional Budget Office noted that allowing the expansion to stop (as originally planned) would save taxpayers. $64 billionIt is important to not reduce the number people who have individual insurance coverage.
Edmund Haislmaier, a senior fellow at Heritage Foundation, explained that the expiration of the subsidies would not cause premiums or increase, and that many people with higher incomes who lose the subsidies have other coverage options.
As Heritage senior fellow Doug Badger points out, the real thing is not what you see on the surface. winners of the extension are the big insurance plansThe government subsidies are available to those who qualify. Of course, those aiming for a government-run health care are also winners as they most certainly are eyeing to make this next “temporary” expansion permanent in the future.
(The Heritage Foundation’s news outlet is The Daily Signal.
Medicare Drug Price ‘Negotiations’
The proposal’s Medicare price “negotiation” is another win for single-payer, government-run advocates. Heritage senior fellow Bob Moffit explains that the so-called Medicare prescription-drug “negotiation” plan has nothing to do with negotiation and everything to do with government price setting.
Based on previous versions, the secretary for Health and Human Services would extend an offer to purchase the manufacturer’s product. The manufacturers could counteroffer but the secretary has final authority to set the price and could, in certain instances, impose penalties on the manufacturer who refuses to agree to it.
Government price controls are a key piece in single-payer advocates’ plans for the health care sector, and pharmaceuticals are just the beginning.
For an example of how this works in practice, seniors can only look to the Department of Veterans Affairs. Seniors should expect to have less access to essential drugs and treatments than they do today. Everyone will be affected by the lack of newer cures and drugs in the future.
Independent analysts, regardless of their origins Congressional Budget OfficeOr academiaThe estimates of the number or new medications that will not produce and distribute new drugs might be different for each country. It is clear that the proposal will discourage investment into research and development of breakthrough medications.
Equally as damaging, it appears the savings generated from rationing prescription drugs for seniors will go to offset the Obamacare expansion and the new climate change agenda, rather than shoring up and protecting Medicare’s solvency.
There are many better ways to tackle the problem. high cost of health care, prescription drugs, Medicare’s fiscal condition. This plan is too vague.
Yet another minimum tax
The Manchin-Schumer bill would have imposed a 15% corporate minimum tax. Unlike the regular U.S. corporate income tax, which is applied to taxable income, the new minimum tax would start from a taxpayer’s financial statement income under U.S. financial accounting principles and would then apply a complex series of adjustments to ultimately tax companies’ “adjusted financial statement income.”
Although the idea of a minimum business tax may not seem controversial to some, the devil is in details.
One important point to remember is that several provisions in the tax code act implicitly or explicitly as minimum taxes. Businesses must not only calculate their corporate income taxes in the usual manner, but they also have to calculate their tax liability using the Base Erosion anti-Abuse Tax system. They also have to calculate a minimum income tax on “global intangible low-taxed” income. Individual minimum-tax rules apply to income earned by businesses.
No matter what happens to the current Senate bill’s corporate minimum tax, there could be another minimum tax soon. Since the Manchin-Schumer tax doesn’t comport with the Organization for Economic Cooperation and Development’s global minimum tax scheme, there will be continued pressure from the left to add still another minimum tax on businesses.
This situation is a bit like a king imposing a tax on the people of his kingdom based on the “size” of their crop yield. The king then measures each farmer’s yields by weight, volume, price, and area. For each farmer, he collects the tax on the most favorable measure.
In the case of the Manchin-Schumer bill, the new measure of income used—adjusted financial-statement income—is problematic. This way of measuring income from taxpayers is problematic and will complicate the tax system. It also favors those who invest capital to grow their businesses.
Businesses can deduct capital goods like machinery and equipment when determining their regular taxes liability under the current corporate tax system. However, under the new minimum tax calculations, things like newly purchased farm or factory equipment wouldn’t be fully deductible for many years. Inflation would reduce the value that legitimate business deduction.
The corporate minimum tax would penalize businesses for investing. This is the wrong prescription for American workers. Good jobs are difficult to find when businesses stop growing.
And contrary to the stated aim of the bill—reducing inflation—smothering business investment will reduce production and, if anything, drive up prices.
‘Carried Interest’ Tax Hike
Current law dictates that capital gains and wages should be treated differently. Wages are deductible as a business expense for the employer and are taxable to recipients as ordinary income. Capital assets are subject to income tax. Capital gains are generally subjected to the same tax as income generated from capital assets. However, the rate is lower if the assets are held for longer periods. In general, payments to purchase capital assets cannot be deducted.
Many investment managers receive a combination wage or salary income as well as an incentive-based compensation based upon the profits. The latter portion of the compensation, known as the “carried interest,” is usually taxed as a capital gain.
The bill treats all capital gains from certain partnerships and financial instruments as if they were wages income. However, it does not allow for a deduction for wage payments. It applies to “any interest in a partnership which, directly or indirectly, is transferred to (or is held by) the taxpayer in connection with the performance of substantial services by the taxpayer, or any other related person.”
It is, therefore, an asymmetric “heads the government wins, tails the taxpayer loses” treatment since the compensation is taxed as if it were wages, but the wages paid are not deductible. It can be expected that it will reduce the return of investments and have an adverse impact on productivity and wages over the long term.
IRS Slush Fund
The bill would authorize an initial appropriation of $78.9 million for the Internal Revenue Service. This would effectively create a slush fund that the IRS could use with little congressional direction until 2031.
According to the Biden administration’s proposalThis funding would be used for nearly 87,000 additional IRS agents. The bill gives the Treasury secretary or her designee flexibility to take any personnel actions necessary to administer the Internal Revenue Code.
The Congressional Budget Office projectsAdditional IRS enforcement spending could result in an additional $200 billion in higher revenues, which would translate into a net deficit reduction equivalent to about $120 billion. The CBO acknowledges that this estimate is uncertain and may differ from previous analyses.
We know for certain that the IRS bureaucracy would be. charged with finding about a quarter of the Inflation Reduction Act’s deficit reduction.
The IRS could use the new agents or new funding to increase scrutiny of small businesses and taxpayers in the middle class. The bill includes a disclaimer stating: “Nothing in this subsection is intended to increase taxes on any taxpayer with a taxable income of [less than] $400,000.”
However, it is unlikely that the enforcing and inspecting the payment of legally owed tax will be interpreted to increase taxes. Based on IRS data62% of the underreported taxes were attributed to individual filers who reported less than $50,000 in income.
The new funding equals six times the annual IRS budget which supports approximately 35,000 enforcement agents. It’s implausible that the scandal–ridden and union-dominated agency will be able to absorb so much extra funding, personnel, and power and avoid waste, fraud, and abuse.
Biden proposed that banks with less than $600 have to provide sensitive information to the IRS.
According to GallupThe IRS is one of the least liked federal agencies, with only 37% expressing a positive opinion. With the IRS’ politicized history, that’s not surprising.
Inflation Recession Act
The Biden administration, along with its liberal allies in Congress, have gone to great lengths to impose additional burdens on the government and to bloat it. The result was an inflationary crisis that has now turned into a recession.
Instead of listening to the economic warning signs, they have proposed this bill, which is identical in intent and philosophy to the current economic mess. If this bill is passed into law, it will only worsen the economic crisis and create a longer-lasting and more painful stagflation.
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