Democrats celebrated the passing of Biden’s Inflation Reduction Act, a compact version of his Build Back Better legislation, this Sunday after months of deliberation. After the bill cleared the Senate Chuck Schumer exclaimed ” … every member of my caucus is elated about what happened. Because we, really, changed the world.” expressing the glee felt across many Democrat circles.
The pillars of the 700+ page bill are climate change, increasing corporate taxes, ramping up the IRS, and lowering the cost of prescription medications and health insurance premiums. These reforms, Democrats argue, will fight inflation indirectly.
The bill is dubbed the “Inflation Reduction Act”, but Democrats’ praise is more reactionary of the massive spending on climate change provisions. Nearly half of the $740 billion dollars in the bill go to “energy security and climate change”. Biden said in a White House statement, “Today, Senate Democrats sided with American families over special interests … ” playing up that climate is non-partisan.
Third party perspectives on the bill indicate otherwise. The Congressional Budget office stated the IRA won’t dampen inflation for years to come. The CBO agreed with Moody Analytics, a Biden-friendly financial analysis organization, who reported the bill will “modestly reduce inflation” in the coming 10 years.
Penn Wharton noted in their analysis “The Act would very slightly increase inflation until 2024 and decrease inflation thereafter. These point estimates are statistically indistinguishable from zero, thereby indicating low confidence that the legislation will have any impact on inflation.”
Even the environmentalist Bernie Sanders bashed the bill. “I want to take a moment to say a few words about the so-called inflation reduction that we are debating this evening … And I say so-called, by the way, because according to the CBO, and other economic organizations that study this bill, it will, in fact, have a minimal impact on inflation.” he said on the Senate floor. Far from world-changing, as Schumer put it.
$45.6 billion are going to IRS “enforcement”. Both Democrats and the IRS itself said this funding won’t go towards auditing the middle-class and small businesses, but if history is any indication this is far from assuring. Most audits are conducted on cash businesses and businesses filing an S-Corp. High earning individuals are audited at higher rates than the middle-class traditionally, though these high earners have the means to hire competent tax attorneys and laudable CPAs.
By necessary consequence, the $45.6 billion worth of enforcement will fall on middle-class Americans and EITC filers. They are the most vulnerable.
Democrats are attempting to fund the incredible government spending via this tax collection. The taxes are meant to offset the $400+ billion in spending. Those funds will come from the average Americans if the IRS continues in its normal fashion.
Other means to collect the money are in the bill’s 15% corporate minimum tax on book income, which piles of economic literature suggest is the worst way to raise government funds. “… it is worth reminding policymakers of a well-established finding in the economic literature: that among all the major ways to raise revenue, increasing the corporate tax is the most economically destructive due to its impact on incentives to invest.” report Alex Duarte and William McBride from TaxFoundation.org. They note the corporate tax hike leads to proportionate decreases in wages and employment, which less-than-wealthy Americans will reluctantly bear under historic inflation. Moreover, instead of issuing new land leases for fossil fuels or re-establishing pipelines to lower energy cost, Democrats gush over climate change policies which have virtually no effect on the middle class.
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