With inflation raging and the shadow of recession looming, it’s difficult to envision a worse time to pass a tax-and-spend bill like the Inflation Reduction Act (IRA). Yet, that’s just what Senate Democrats did Sunday. It’s even harder to imagine that “moderate” Sens. Joe Manchin (D-W.Va.) and Kyrsten Sinema (D-Ariz.), both of whom voted for the bill, believe it will live up to its Orwellian name. If so, they are at odds with the Congressional Budget Office (CBO), hundreds of economists, millions of Americans, and even Sen. Bernie Sanders (I-Vt.).
Yes, Bernie Sanders. It turns out that the Vermont socialist is more honest about IRA than Manchin, who consummated the deal behind closed doors with Senate Majority Leader Charles Schumer. During Saturday’s protracted debate over the bill, Sanders gave the lie to Manchin’s claim that it will reduce inflation, saying, “According to the CBO, and other economic organizations that have studied this bill, it will, in fact, have a minimal impact on inflation.” This was a reference to a CBO analysis, requested by Sen. Lindsey Graham (R-S.C.), indicating that the bill will have a “negligible effect on inflation” during calendar years 2022 and 2023.
This CBO report suggests that the IRA would be merely ineffective against inflation. However, a letter sent to congressional leaders and signed by 230 economists warns that the bill may do real harm. Fox Business reports that the signatories “include Nobel laureate Vernon Smith, former Chair of the Council of Economic Advisers Kevin Hassett, former Director of the Office of Management and Budget Jim Miller, and Robert Heller, former president of the Federal Reserve Board.” The letter opens ominously: “The U.S. economy is at a dangerous crossroads.” It goes on to say that the IRA makes no attempt to address the perilous situation:
[I]nflation must be the top short-term economic priority to avoid further economic decline and hardship. Unfortunately, the inaptly named “Inflation Reduction Act of 2022” would do nothing of the sort and instead would perpetuate the same fiscal policy errors that have helped precipitate the current troubling economic climate.
At a time when the economy already faces supply/demand imbalances, the residual effects of stimulus, labor shortages, and supply chain disruptions, this bill would compound rather than alleviate many of these problems.
This indictment of the bill by so many economists confirms the instincts of most Americans. A new Economist/YouGov poll asked 1,500 adults the following question: “Do you think that this [IRA] bill will increase or decrease inflation?” Only 12 percent of the respondents said it would decrease inflation. A full 36 percent said the bill would actually increase inflation, while 23 percent said it wouldn’t change the rate. Americans should also be skeptical concerning Democratic promises about tax hikes. According to several analyses, the bill violates Democratic pledges not to increase taxes on small businesses and individual taxpayers.
According to a report from Americans for Tax Reform (ATR), the bill was changed on Saturday to raise taxes on small businesses. The report states:
In the most recent version of the legislative text released Saturday, Democrats altered the language of the new 15 percent book minimum tax to now impact small to midsize businesses with profits well below the $1 billion in profits threshold Democrats claim.
This obviously violates President Biden’s campaign promise not to raise taxes on small businesses. Moreover, according to a Wall Street Journal report, an analysis by Congress’ Joint Committee on Taxation (JCT) on the IRA found the following:
The JCT finds that average tax rates will increase for nearly every income category in 2023 under the bill. Taxes will rise by $16.7 billion in 2023 on Americans earning less than $200,000 a year. Taxpayers earning between $200,000 and $500,000 will pay $14.1 billion more. This gives the lie to Democratic claims that no one earning under $400,000 will pay more taxes under the bill, a promise Mr. Biden also made in his campaign. The reality is that the Schumer-Manchin bill is a tax increase on nearly every American.
All of which means the IRA will do nothing to reduce inflation and it will raise taxes on small businesses and individuals. Sadly, it gets worse, particularly for Manchin’s constituents. According to a statement from America’s State Coal Associations, the bill “doubles the current tax on coal and subjects mining companies to the highest tax of any other American business.” The statement also points out that the bill gives Environmental Protection Agency (EPA) officials the “unbridled ability and expanded budget to regulate greenhouse gases and state coal assets however they deem appropriate or in the most punitive manner possible.”
When Manchin announced his support for the Inflation Reduction Act, he insisted that its purpose was to “get our economic and financial house in order.” It does the opposite. When the bill passed, Sinema issued a statement claiming that it helps her constituents by “lowering prices … [and] making health care more affordable.” It does neither. Manchin and Sinema aren’t moderates. Their Sunday votes clearly established what they really are and that all their high-minded rhetoric amounted to little more than haggling over price.