Senate Majority Leader Chuck Schumer is rushing to push through the Inflation Reduction Act of 2022.
I don’t blame him. The more scrutiny the mini-Build Back Better proposal gets, the worse it looks.
Let’s start with the obvious: despite its Ministry of Disinformation title, the legislation will not reduce inflation. Analysis from the Penn Wharton Budget Model concludes "the impact on inflation is statistically indistinguishable from zero."
This is the same PWBM that Schumer touted when opposing the GOP tax bill a while back and that Sen. Mark Warner, D-Va., describes as "well respected by both sides of the aisle."
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In addition, promises that the bill will reduce our fiscal deficit rely on optimistic assumptions about what a beefed-up the IRS will sniff out in the way of tax fraud and $313 billion in proceeds from a tax on corporations that is so injurious to our manufacturers that even Democrats will likely decide to pare it back.
As to making what President Joe Biden calls an historic investment in combatting climate change, it seems unlikely that expanding tax credits for buying even more EVs and subsidizing more renewables will solve the gritty problems of raw materials shortages and other issues sure to be complicated by the "made in America" provisions of the bill.
So, chances are that while it checks a number of satisfying boxes for Democrats running scared ahead of the midterms, this bill will not reduce inflation, will not bring down our deficit and will not have much impact on the climate.
Moreover, it will raise taxes on Americans making less than $400,000, belying a critical promise made by President Joe Biden and repeated just recently by Sen. Joe Manchin, D-W.Va., who is promoting this damaging bill.
Otherwise, it’s a terrific piece of legislation that just magically appeared full-blown at 700-plus pages out of a darkened basement, rather like our befuddled and wildly unpopular president.
Let’s review. How is this bill supposed to fight inflation? First, by allowing the government to negotiate certain drug prices, which supposedly will save $288 billion over ten years.
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Fully 40% of that ($122 billion) comes from revoking a rule put in place by the Trump administration that was never going to be implemented anyway. Such are the games played in this legislation.
There is no doubt that the government could effectively set prices on a variety of drugs, since it controls roughly 36% of total healthcare spending. But drug companies, hit by those price limits, are almost sure to raise prices on other products, new drugs or even on those same products marketed to private customers. They will not simply absorb the lower profits delivered by the feds, nor should they.
Plus, the rising cost of prescription drug prices is not driving inflation. In fact, in May, while the Consumer Price Index rose 8.6%, prices paid for prescription drugs rose less than 2%.
So, capping a commodity that is not actually contributing much to inflation cannot be expected to bring it down.
Second, the bill will purportedly fight inflation by bringing down the deficit. Of course, since Democrats deny that their reckless $1.9 trillion American Rescue Plan blew up our already bloated budget deficit and delivered inflation, this is a tricky argument.
Apparently, some deficits are worse than others.
In any event, the deficit impact depends partly on whether giving the IRS an additional $80 billion will yield substantial incremental revenues.
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In an earlier iteration of Build Back Better, the Biden administration estimated such an investment in tax snoops would yield $316 billion over ten years; the non-partisan CBO cut that down to $200 billion. Now Democrats estimate the windfall at $124 billion, a further downgrade that does little to build our confidence.
The other source of increased revenue comes from tax hikes that, according to the Joint Committee on Taxation, would raise an additional $16.7 billion on American taxpayers earning less than $200,000 in 2023. The proposal would raise another $14.1 billion from taxpayers earning between $200,000 and $500,000.
Moreover, over the ten-year window covered by the bill, the average tax rate paid by every single income category would increase.
That’s because the 15% minimum tax on "book" corporate profits – profits reduced by the immediate expensing of depreciation for tax purposes -- will stifle business spending that increases productivity and that leads to wage increases. And, because corporations don’t eat those tax hikes – they pass them along via lower wages and reduced investment.
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The National Association of Manufacturers says the tax next year will reduce income for workers by $17.1 billion – and that’s just one year. They conclude it will also cost 218,108 workers their jobs.
The bill, though, will give hefty taxpayer handouts to some favored industries. The Wall Street Journal notes that "companies will get tax credits for spending on wind, solar, critical minerals, biofuels, hydrogen, carbon capture, nuclear, "sustainable" aviation fuel, lithium-ion batteries, electric-vehicle charging stations and more."
We’ve seen how successful the federal government can be when picking winners and losers. Remember Solyndra?
Democrats argue the bill will reduce our deficit by $300 billion over the next decade. However, if the ObamaCare subsidies contained in the bill become permanent, which they will, that number shrinks to only $89 billion – a drop in the federal bucket.
As our country slides into recession and deals with 40-year high inflation, this is not the time to experiment.
It is not the time to funnel hundreds of billions of dollars, in addition to similar amounts allocated in earlier bills, to favored causes. It is, for sure, not the time to raise taxes on job creators.
Democrats must deep-six this dangerous bill, or expect to be deep-sixed themselves come November.
