Democrats have named their new tax-and-spend package the Inflation Reduction Act, but the party is battling economists who say the legislation won’t do anything to spare consumers from the rising cost of goods and services, and it could make things worse.
William McBride, vice president of federal tax and economic policy at the Tax Foundation, a pro-business, tax policy think tank, said the legislation would have “close to zero impact on inflation.” He said it also could unleash a potentially disastrous domino effect on the economy and the government through tax increases that might end up reducing federal revenue.
“The danger is that this would actually slow down the economy,” Mr. McBride told The Washington Times. “And at a terrible time, when it is teetering on a recession. And by slowing down the economy, you actually have a negative impact on the fiscal outlook for the federal government.”
Findings from the Penn Wharton Business Model and the nonpartisan Joint Committee on Taxation have indicated the legislation would not only fail to reduce inflation, it would raise taxes on millions of low- and middle-income earners.
The JCT, in a preliminary analysis of the proposal, said 2023 taxes would increase by $16.7 billion on those earning less than $200,000, and $14.1 billion for people earning between $200,000 and $500,000.
Economists say the plan to pay down the deficit by $305 billion over 10 years will barely make a dent in either the government’s red ink or inflation.
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The deficit was $2.8 trillion in 2021 and is expected to grow significantly over the next decade after decreasing in 2022, according to the Congressional Budget Office.
Economists also predicted the proposed 15% minimum tax on corporations will hurt manufacturers, kill jobs, reduce pay and ultimately hobble the economy.
The inflation rate rose to 9.1% in June, a four-decade high that economists blamed largely on record stimulus spending approved by Congress during the course of the COVID-19 pandemic.
Mark Zandi, chief economist at Moody’s Analytics, told CNN on Monday the bill would help reduce inflation, but not any time soon.
“It’ll nudge it lower,” Mr. Zandi said. “It lowers prescription drug costs … it lowers the cost of health insurance for lower-income Americans. Longer run, because of the climate provisions, it will reduce the cost of energy for households. So net, it will push inflation lower. It’s not a game-changer, by any respect — certainly not in the near term.”
Democrats say their legislation will reduce the upward inflation trend, despite the plan to pump a new round of hundreds of billions of dollars into the economy, through health care subsidies and massive energy tax credits.
The party plans to pay for the additional spending with new tax increases and stepped-up IRS enforcement that will bring $470 billion to the Treasury and reduce the deficit by $305 billion over the next decade.
Sen. Joe Manchin III, a moderate West Virginia Democrat who helped negotiate the terms of the legislation, said the measure would “address record inflation by paying down our national debt, lowering energy costs and lowering health care costs.”
Many economists are questioning the economic soundness of the proposal, but Mr. Manchin isn’t budging. On Monday, he refuted the findings from the Penn Wharton Business Model and JCT.
“There is not one penny of change in taxes,” Mr. Manchin said, when reporters asked about the JCT analysis. “I have no idea where they are coming from.”
Mr. Manchin said the 15% minimum tax on corporations would merely close a loophole has allowed dozens of big businesses escape paying the current corporate tax rate of 21%
“People in West Virginia, people around the country, are paying 21% tax,” Mr. Manchin said. “Most of the corporations in the country are paying, there’s very few that do not. And all I’m saying, we’re saying, is that there should be a minimum tax.”
Proponents of the measure argue it would be anti-inflationary by hiking taxes.
“Fairer taxes help reduce inflation by decreasing excess demand, including through less disposable income and consumption,” said a memo from the Center for American Progress, a liberal think tank.
Democrats and liberal proponents of the legislation are touting the hundreds of billions of dollars in spending that will advance green energy projects and help people pay for health care and prescription drugs.
The bill would extend expanded Obamacare subsidies, provided during the pandemic, for an additional three years, and it would cap Medicare’s out-of-pocket drug cost at $2,000 per year.
The bill would also provide home energy rebates and consumer tax credits that, proponents say, would cut energy costs by 10% on average.
— Dave Boyer contributed to this article.
• Susan Ferrechio can be reached at sferrechio@washingtontimes.com.
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