Surprises In the “Inflation Reduction Act”

Surprises In the “Inflation Reduction Act” August 16, 2022

Now that the “Inflation Reduction Act” has been passed by the House and is being signed into law today, we can apply what Speaker of the House Nancy Pelosi said of the Obamacare bill, that we can find out what’s in it once we pass it.  And the $433 billion climate, healthcare, and tax increase package that has the Democrats giddy with optimism about their accomplishment has some surprises.

Doubling the Number of IRS Agents

The bill provides $80 billion for hiring 87,000 new agents for the Internal Revenue Service, effectively doubling the size of the agency’s enforcement arm.  (The math would indicate that the appropriation comes to $919,540 per agent, presumably including support personnel, office space, equipment, etc., with surely not all of it going to salary.)  So that would mean the IRS would have 174,000 agents.

This makes some Americans nervous, especially when an ad for new IRS criminal investigator agents specified that applicants must be willing to use “deadly force.”  But the Biden administration said that no one making under $400,000 would be audited at any more than the “historic levels.”  But, as Ben Zeisloft observes, audits for people making less than that amount had dropped up to 92% from those “historic levels,” due to staff shortages.

So all Americans can expect to get audited by the IRS more frequently.  After all, there are only 614 billionaires in the United States.  There are 395.5 million Americans, so the top 1% would number only 3.95 million individuals, giving the 174,000 IRS agents a caseload of only 22 if they decided to go after everyone.  Probably the biggest targets will be businesses and non-profits (such as churches) that get involved with politics, which would violate their tax-exempt status.  At any rate, those agents are going to have to keep themselves busy.

To be sure, we should all pay the taxes that we owe, that being one of the few specific obligations to the earthly government that Scripture commands (Romans 13:7).  But the prospect of an even bigger army of IRS agents descending on them will grate on Americans just the same.

A Subsidy No One Will Qualify For

The new law includes a $7,500 subsidy for buying an electric car.  The problem is that there are hardly any electric cars that Americans can buy today that would be eligible.

This is because the law requires that the batteries be made in America from minerals mined in America.  And the “rare earth”  minerals that electric vehicles need currently come from countries such as China, Myanmar, and Congo.

The goal of the requirement, of course, is to build a domestic industry, but if there are no domestic sources, what are manufacturers and consumers to do?

If the metals requirement isn’t met, car buyers might still get a tax credit of half that amount, up to $3,750.  And separate made-in-America requirements would eliminate that.   And the requirements get stricter every year.  The industry estimates that of the 72 models of electric vehicles now available, 50 would not qualify at all. “The $7,500 credit might exist on paper,” said industry spokesman John Bozzella, “but no vehicles will qualify for this purchase over the next few years.”

Besides, if you make more than $150,000 or the vehicle costs more than $55,000, you won’t be entitled to a subsidy anyway.

Lower Drug Prices in Four Years

The main claim to reduce inflation in the Inflation Reduction Act is that it will reduce drug prices, at least for us retirees on Medicare.  The new law gives Medicare officials the ability to negotiate with pharmacy companies to get lower prices.  But this won’t go into effect until 2026!

The law does cap drug costs for Medicare recipients at $2,000 per year, which will help some of us.  But many will not live to see the lower prices.

But Higher Taxes Will Lower the Deficit, which Will Lower Inflation

As we blogged about before, the main reason this law was billed as the “Inflation Reduction Act” was that it raises taxes more than it spends.  Over a ten year period, the package will cost $433 billion, while raising taxes by $739 billion.  So cutting the deficit will reduce inflation.  Never mind that Democrats have denied that correlation before during their spending sprees, but let that go for now.

Now that the bill is safely passed, even liberals are admitting that it will do little to stop inflation.  An Associated Press story by Christopher Rugaber and Josh Boak quote an array of Ivy League economists who explain why that is so, despite the deficit reduction.  From Inflation Reduction Act May Have Little Impact on Inflation (August 12, 2022):

Douglas Holtz-Eakin, who was a top economic adviser to President George W. Bush and later a director of the CBO [Congressional Budget Office], noted that the lower deficits won’t kick in until five years from now and won’t be very large over the next decade considering the size of the economy.

“$30 billion a year in a $21 trillion economy isn’t going to move the needle,” Holtz-Eakin said, referring to the estimated amount of deficit reduction spread over 10 years.

He also noted that Congress has recently passed other legislation to subsidize semiconductor production in the U.S. and expand veterans’ health care, and suggested that those laws will spend more than the Inflation Reduction Act will save.

The Bottom Line

Insofar as the Inflation Reduction Act reduces inflation at all, which as we have shown will be minimal, it will at best only reduce inflation in the future–when the drug negotiating kicks in, when or if we have domestic rare earth sources, when or if electric vehicles are totally American made, after the small deficit reduction kicks in in five years–but when or if that future comes, we might not even have inflation!

The new law amounts to a jobs program for college-educated white collar workers who want a career with the IRS and offers, if only on paper, subsidies for affluent, environmentally-sensitive Americans who want to buy an electric car.  Most of both groups are already Democratic constituents.  And many senior citizens might be induced to vote for Democrats if it advances their interests by enhancing Social Security or Medicare.  The working class, though–oil field workers, auto mechanics, factory workers, truck drivers, farmers, etc.–won’t be getting much help and might even be hurt by the bill, but they have left the Democratic party long ago and are now Trump supporters, so they apparently don’t count.

But even those political payoffs and paybacks don’t seem to have been thought through, with so many of the alleged benefits back loaded into the theoretical future.

Aside from sneaking through many items on the Democrats’ wish list, the Inflation Reduction Act also demonstrates the incompetence, hypocrisy, and deception of our lawmakers.

 

Image by rawpixel.com


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