THE INFLATION REDUCTION ACT OF 2022

OH NO, WHAT NOW?…

While we have been distracted by the weaponization of the justice system by the party in power against its political opponents (see last week’s article on The Criminalization of Politics), the destruction of our Democracy, and life as we know it on this earth, let us pause to return to the mundane but still bizarre nature of our Congressional legislative system and its recent efforts culminating in the “Inflation Reduction Act.”  At least they didn’t make an acronym out of it as they do for so many spending bills, perhaps because if they had tagged it as “The IRA” we would have been confused as to whether they were messing with our retirement accounts or sending aid to the Irish Republican Army. Maybe I should check on that.  No, the naming of the “Inflation Reduction Act” is sufficient enough cover to confuse and confound us from further inquiry as we engage in more compelling pursuits such as our child’s first day at school or where the cheapest place to get gas is.  However, for those who do have a passing interest as to what is coming our way, I, as your humble correspondent, will try to clarify these issues contained in the 755 pages of legislation…so you don’t have to.

The Inflation Reduction Act or as redefined by some in the media as the “Spending Bill” or the “Climate, Health Bill” should be broken down into two easy parts.  There is the “spending side” and there is the “taxing side”.  Ok, I admit that I have perhaps offended the legislative classes with the terms "spending” and “taxing”, instead of the new jargon “investments” and “revenue enhancements”.  There is $437 Billion with a “B” in “investments” for example, as in I am going to invest in that 6 pack of beer because the liquid will keep me from dehydration while at the same time providing essential life-giving carbohydrates, put me in a pleasant state of mind to enhance my mental health while supporting the economic interests of farmers who grow grains and hops.”   I can do this all day. On the “Revenue Enhancement” side it is like “Give me your wallet.  I will take $20 out of it to enhance the revenue contents of my wallet” which is eerily similar to the federal government’s relationship with its taxpayers.

SPENDING

Climate

So let’s start with the “enhancement side”… No I can’t do it.  This is spending!  $369 Billion of the $437 Billion (84%) of spending goes toward “Climate”.  It is a dizzying array of gifts, incentives, loans, block grants, equity, pork and kickbacks.  Lots of good stuff for the solar and wind interests as well as the Electric Vehicle Manufacturers.  There is also the kicking in of a comparatively tiny amount for nuclear, hydrogen from “clean” (of course) sources, geothermal and an unpermitted natural gas pipeline for West Virginia for Joe Manchin. (Good luck on getting those permits, Joe!)  Of course, this is the usual transfer of tax dollars paid by ordinary folks for incentives so that rich people will buy electric vehicles and install solar panels that they otherwise wouldn’t buy if they had to pay it all with their own money.

Of special note are provisions tucked in this section for “equity” with $3 billion ear-marked for environmental justice block grants plus another $3 billion+ for air pollution monitoring in low-income communities which will do nothing to reduce pollution since they are only “monitoring it”; $3 Billion so the poor people will know how bad they have it. 

Health Care

Then we have $64 Billion in subsidizing the Obamacare premiums that Congress had promised would expire. The COVID American Rescue Plan funded an extension which they promised would expire in 2023 and now will expire in 2025, if ever. The crisis apparently was that if the subsidies were going to expire in 2023, notices had to go out this fall before the midterm elections which was well… inconvenient.

Drought (which is kind of like climate)

Finally, they tacked on $4 billion for western drought resiliency (whatever that is) for Sen. Kristen Sinema (D-AZ) which may be a little late since the Department of the Interior just cut 521,000-acre ft of water from Arizona (21% of its allotment from the Colorado River) which is going to turn Arizona (which has the most junior water rights in the entire basin) and Phoenix, back into a desert.

TAXING

Minimum Corporate Tax

Moving to the taxing side, Congress thinks it can get $222 billion by instituting a 15% corporate minimum tax on very wealthy corporations. Credit Suisse, already working on new loopholes to minimize the damage, said that “just over 170 companies in the S&P 500 paid less than 15% in taxes last year.  Of those corporations, less than half would likely see a tax hike for 2023 since the legislation allows companies to use adjusted earnings, which can be massaged in a number of ways.” (Emphasis mine) Credit Suisse, Accounting Strategist, Ron Graziano, said in an interview that, “In general, the impacts could be somewhat minimal overall and at this point, complicated to truly understand.  Will some companies possibly be hit more than others? Possibly, yes. The overall impacts are not material to the large corporations.”  Well of course they aren’t.  Despite the wailing by the Progressives that Corporations are not paying their “fair-share”, they have forgotten that Corporations do not have a share.  There are only two types of people in this country who really pay, and they are taxpayers and consumers, and they are all us. If Corporations have to funnel more “revenue” to the Government, they simply raise their prices, cut their employees compensation, or reduce dividends to their shareholders. The corporate tax exercise is merely a complicated shell game to move money from one group of individuals to another group of individuals with the Government as middleman taking a cut off the top to administer it.  Not only that, but the corporations are really good at taking advantage of the loopholes in the tax code that Congress keeps giving them.

1% Excise Tax on Stock Buyback

Another area where the legislators think they can outmaneuver business is by imposing a 1% excise tax on stock buy backs thinking they will pick up $74 billion.  There are numerous ways to frustrate Congress’ money grab, but I would suggest one way that I developed after 30 seconds of casual contemplation, don’t buy back any stock.  Projected revenue-$74 billion now goes to $0.

$256 Billion Drug Pricing “Reform”

This allows Medicare officials to “negotiate” with drug companies to lower the price of certain medications. If the companies don’t “negotiate” to the liking of Medicare, the government can impose a 95% sales tax on that drug.  Hmmm… some negotiation, but do not despair for the drug companies.  First of all, this Act will only initially look at 10 drugs and nothing will happen until 2026.  Then they jump to 20 drugs by 2029.  May we all be healthy and live that long.  But again, to the extent that negotiations don’t go the drug companies’ way, and they can’t maintain the prices of the drugs they sell, the non-Medicare/Medicaid patients will just have to cover the gap and if that doesn’t work, Pharma can just simply quit making and selling those drugs.  Nobody gets hurt here, well….except us? 

$124 Billion IRS Enhanced Tax Enforcement

Finally, we have the $124 billion “revenue enhancement” as a result of the IRS increased enforcement.  This has been a standard over the years along with “reducing fraud and waste”.  This has excited America due to the provisions in the bill for hiring an additional 87,000 IRS personnel for a price tag of $80 billion. The Democrats believe that there is $204 billion in tax cheating in the country, but it will cost $80 Billion to hire the 87,000 additional IRS agents to find out.  In fairness (and I don’t know why I am fair to them as they have never been fair to me), the entire $80 Billion probably won’t be spent on new enforcement agents.  It is estimated that “only” 47,000 agents will be assigned to harass us with the others in support roles.  With the additional 87,000 IRS employees, this would bring the agency to a total of over 160,000 employees.  To put this in perspective.  The FBI only has 35,000 employees, only 7800 of whom are Special Agents.  The DEA has 6984.  Even the active-duty marines number only 177,000.  The Democrats claim that they will only do enhanced auditing of rich people which I always think of is anyone making more money than me. Even though the IRS claims that they will only target taxpayers making over $400,000, analyses have shown that there aren’t enough rich people in the country making over $400,000 to be able to squeeze out that $124 Billion. 

On the other hand, I wouldn’t worry a whole lot about the IRS actually hiring 87,000 new IRS staff.  Do you really think there are 87,000 people out there who want to work for the IRS?  I have an eight yr. old grandson who on his first day of school this year declared he was going to be a coal miner obviously a contrarian when rexamining the current economy, but that is compared to last year when he was going into 2nd grade and had determined to be Santa which I had assumed was a desire to engage in a political career.  At no time, however, has he nor I ever believed any significant number of Americans dreamed that their life would be complete if only they could pursue high wealth tax cheats.

Inflation?

Finally, what does this have to do with inflation?  Well apparently, other than its official name, nothing.  Numerous outside “experts” have said that, at best, the bill would reduce inflation 0.1% over 10 years.  This was confirmed by that fiscal hawk, Bernie Sanders, who agreed that this wasn’t an inflation reducing measure before proposing to add more spending.  A little concerning was the argument made by advocates for this program that this Act would reduce inflation because it would take money away from corporations and individuals and would thus result in a reduction of demand for goods and services. I am not sure the “Make Americans Poor so They Can’t Buy Stuff” is an inflation policy winner.

Does it Really Matter?

At the end of the day, this money will be spent on new green deal initiatives with no chance it will have any measurable effect on planetary temperatures.  Cutting through the hype, it appears that even if we assume that every program in this bill will go according to plan (which it won’t), the temperature would only be reduced by a tenth of a degree or so as opposed to doing nothing.  The main accomplishment that was articulated would be that it would “encourage” and “show leadership” for other countries to step up to their voluntary commitments to the Paris Climate Accord.  Of the 196 countries who signed the Paris Climate Accord, only Nigeria, Ethiopia, Morocco, Gambia, Kenya, Costa Rica and Nepal are “on track” to meet pre-industrial climate goals and that is the case probably because they started out as pre-industrial.  However, with China planning to build another 43 new coal fired power plants and 18 blast furnaces, Europe slowing its conversion to green energy, and the third world pushing back against being required to stay poor and unindustrialized, I doubt if US encouragement and purported leadership will matter a whole lot.

Politically, the Democrats say they wanted this bill passed so they would have a legislative accomplishment to run on.  Gallup polls show “poor leadership in government” is tied with “inflation” at 18% as the most pressing problems we face. Spending to further new green deal initiatives rank at 14th with 2% of voter interest behind the economy, fuel prices, gun control, crime, and immigration. Income inequality, i.e. tax the rich is at 16th, tied with 17 other issues at 1%. This will not save the day for Democrats in the midterms.

What should we take away from all of this?  First hopefully, you have enjoyed the summary of the Act.  However, at 755 pages and accompanying commentary by others, there is no way have I identified all the problems with these initiatives due to lack of space, time and personal energy. The bottom line really is this is just a repeat of Congressional action that has been going on time and time again to reward their friends, benefit certain segments of society hoping to be able to buy votes, shuffle money from one group of people to another, and not a whole lot more. It is spending money that we do not have, to accomplish little about matters of which we do not care. There will be bad consequences that we will have to deal with which will distract us from more pressing public matters. The Democrats wanted to pass this Act to show America that they could do more of the same if only they would be reelected. If America believes them, Good Lord, help us.

Special Note: If you are interested in what was said here, thought it was fun or even got a laugh or two, send it on to a friend! It helps my stats! Dave