Last week, Congress passed, and President Biden signed, H.R. 5376, called the “Inflation Reduction Act.” Whoever gave the bill that title either has a wicked sense of humor or is delusional. If it was a joke, it’s a bad one.
Since last fall, inflation has raged out of control. Inflation and the economy have consistently ranked as the most important issue on voters’ minds throughout 2022.
The Biden administration initially refused to acknowledge inflation was an issue. As it became undeniable, the administration called inflation “transitory.” When inflation proved persistent, Biden became like the Wizard of Oz: he blew a lot of smoke, made a lot of noise, and hid behind the curtain. The most powerful person in the world proclaimed there was nothing he could do. Besides, it wasn’t his fault. The administration had a laundry list of excuses:
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Covid: Biden pledged to end Covid-19. Instead, he kept the country locked down, kids out of schools, and everybody masked longer than necessary. Last week, the CDC announced a personnel shakeup due to its Covid response. News was released that Dr. Anthony Fauci will step aside as the government’s leading official on infectious diseases, including Covid. These sudden changes implicitly acknowledge errors in judgment.
The Fed: Why did Biden reappoint Fed Chairman Jerome Powell to another four-year term last February if he was mismanaging the economy? By then, it was apparent inflation was out of control.
The Supply Chain: Biden chose Pete Buttigieg, former mayor of South Bend, as Transportation Secretary. Beyond fixing potholes, Buttigieg’s qualifications for the job are questionable. Upon being sworn in, the supply chain crisis was so great that Buttigieg immediately took weeks off for paternity leave.
The Putin Price Hike: Sure, it was fun to hear Biden try to spit the phrase out, but it wasn’t true. GasBuddy.com summarized 2021: “If there is one word to describe the turmoil gas prices put us through this year, it’s ROLLERCOASTER, from a low national average of under $2.25 per gallon at the start of the year to the highest Christmas gas prices ever recorded.” GasBuddy also notes that in May, the national average price rose to over $3/gal. Fuel costs skyrocketed over nine months before the Ukraine invasion. Wasn’t Trump Putin’s puppet? During the campaign, Biden argued that he should be president because he could manage Putin.
Worldwide Inflation: Vox, not known for its conservative viewpoints, wrote:
“Regarding the exact amount of inflation, the U.S. stands out. And it started to stand out shortly after President Biden took office. A recent article published by the Federal Reserve Bank of San Francisco makes this point. The authors compare core inflation in the U.S. to the average of eight wealthy countries. Before 2021, these and the U.S. had similar inflation levels. From 2021 onward, what’s known as “core inflation” has been significantly higher in the U.S. than in other wealthy countries.”
The most significant cause of inflation was the government continuing to spend and print money. The straw that broke the proverbial camel’s back was the American Rescue Plan Act of 2021 (H.R. 1319). The legislation provided another $1.9 trillion in Covid relief even though the economy was already on track. Many economists predicted the additional spending would be inflationary.
Larry Summers, who served as Director of the National Economic Council under President Obama, Treasury Secretary under President Clinton, and Chief Economist for the World Bank, warned Congress and President Biden that the American Rescue Plan would cause inflation. This headline is from The Hill: “Larry Summers blasts $1.9T stimulus as ‘least responsible’ economic policy in 40 years.” How right he was!
When Congress passed the legislation, President Biden called it “a historic victory for the American people.” It was “historic,” as it ushered in the highest levels of inflation the country has seen in over 40 years. The San Francisco Fed estimates the extra spending is responsible for “raising inflation about three percentage points by the end of 2021.” That’s before inflation hit an annual rate of 9.1% in June.
Despite the legislation’s catchy name and, of course, people liking the idea of taxing corporations, the bill’s largest single revenue generation feature will cause prices to rise.
Realizing the political peril inflation was causing Democrats just over two months ahead of the midterm elections, they cobbled together the elements of Biden’s “Build Back Better” plan on which they could agree. More succinctly, on which they could get Senators Joe Manchin and Kyrsten Sinema to consent.
Although the legislation has little to do with inflation, like slapping lipstick on a pig, they named it “The Inflation Reduction Act of 2022” (IRA) in hopes that it would make people feel better.
The Congressional Budget Office (CBO), which is non-partisan but does use a model more similar to what liberal economists use, concluded that the IRA would “have a negligible impact on inflation this year and next.” The University of Pennsylvania’s Penn Wharton Budget Model found that over the next decade, “the impact on inflation is statistically indistinguishable from zero.”
When CNN doesn’t buy it, Democrats should realize they have a problem. The morning Biden signed the legislation, CNN White House correspondent John Harwood, appearing on “New Day,” said, “They call it the Inflation Reduction Act as a marketing device in part to lock down the vote of Joe Manchin. To reassure Joe Manchin that they were focused on his issue.”
Harwood continued, “The bill will do little on the inflation front. It is going to have a negligible effect on inflation. If it does anything, it might reduce inflation a tiny, tiny bit. But that’s not what it’s about.”
It is about a wish list of Democrat tax and spending programs. Renewable energy, controlling drug prices, corporate taxes, deficit reduction, and a stronger IRS. Some of those ideas sound good and do well in focus groups until people understand the consequences. This bill will prove inflationary and will take an already floundering economy, which may or may not be in recession, and push it over the edge beyond any doubt.
The IRA provides another $437 billion in spending, which Democrats euphemistically call “investments.” The majority of the spending is on alternative energy and climate change.
You probably have heard that Joe Biden’s answer to high gas prices is to buy an electric vehicle (EV). You may also be aware that EVs are expensive. The legislation helps subsidize the cost of an EV, with tax credits of up to $7,500. Individuals earning up to $150,000 and couples up to $300,000 can qualify for the credits, which is probably right because only people who make that much money can afford most EVs.
If you were thinking about running out and buying a Tesla, hold on. Cars must meet conditions to qualify for credits. Only vehicles manufactured in North America qualify. Right now, there are 21 models on the list. Additional requirements will be phased in next year. The Alliance for Automotive Innovation, a key automaker trade group, reports that no single model would be eligible today. So, good luck.
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The government tried picking winners and losers in renewable energy before. Remember Solyndra?
For years, Democrats have tried to allow Medicare to negotiate lower drug prices. The IRA permits the government to begin negotiating prices on ten drugs starting in 2026, with the list expanding to twenty in 2029. It’s a narrow list, with considerable fine print about medicines that can and cannot be included. Pharmaceutical companies that decide not to participate face stiff penalties — up to 95% of the drug’s sales. I don’t object to enabling the government to negotiate prices. I have a problem with its ability to penalize drug companies that choose not to — which no private insurer could do.
While Congress hammered out this legislation, the media demonized Republicans for voting against a provision that caps insulin copayments at $35. There are literally thousands of news stories about mean Republicans, but good luck finding anything about the Republican alternative to supply insulin at even lower prices to low and middle-income Americans. The Kennedy Amendment vote (#5385), which would have made insulin free or up to $10, took place on a Sunday at ten a.m. with every Republican voting for it and every Democrat voting against. Where are the articles about mean Democrats? Why do Democrats want Americans to pay more than three times what Republicans proposed?
Even searching “Republican insulin alternative” returned thousands of stories about Republicans voting against affordable insulin. After considerable searching, I found Marco Rubio’s op-ed in The Washington Times, good coverage in the Muscatine (Iowa) Journal, and a brief mention in a Newsweek article.
The IRA begins putting price controls on drugs. If you’re not old enough to remember the 1970s, you don’t recall how damaging price controls can be. The most likely result is harming innovation in the pharmaceutical industry.
No Democrat legislation would be complete without tax increases. The IRA imposes a minimum 15% corporate tax on large corporations.
What Democrats never understand is that corporations don’t pay taxes; people do. Taxes are a cost of doing business. They are passed along to the consumer. Despite the legislation’s catchy name and, of course, people liking the idea of taxing corporations, the bill’s largest single revenue generation feature will cause prices to rise.
The legislation also supplies $80 billion in additional funding for the IRS. Democrats claim Republicans are trying to scare Americans. Well, Americans should be scared. The CBO estimates that “enhanced I.R.S. tax enforcement” will help the government find another $124 billion in revenue. Spend $80 billion, get $124 billion, and the only people with anything to worry about are the ones who look like “Rich Uncle Pennybags” (the Monopoly man). They need the extra resources to have somebody there to answer the phone when taxpayers have questions at filing time. Got it?
The added 87,000 new IRS employees are a Republican invention. Don’t pay any attention to this Treasury Department report that says otherwise. It’s all Republican fearmongering.
Suddenly, Democrats are concerned about the deficit. The IRA is supposed to reduce the deficit by $300 billion over ten years, although that happens mainly in the final five years.
Let me try to comprehend the math for a moment: Biden proposed a $6 trillion budget for the fiscal year 2022, and Democrats are patting themselves on the back for $300 billion in deficit reduction over ten years. If I’m reading the long-term budget correctly, the proposal is to increase spending by $4 trillion over ten years. Give or take a few trillion, Biden’s economic team is proposing spending $64 trillion over ten years and cutting $300 billion from the deficit along the way. And that tremendous fiscal responsibility is going to cut inflation?
The Inflation Reduction Act does nothing to relieve inflation. It raises corporate taxes immediately, which will cause upward inflationary pressure and cause companies to slow down hiring. Second quarter earnings reports suggest that the recession has likely begun and will worsen. The IRA is the last thing the country needs as the economy tiptoes along a recession fault line.
When Biden signed the American Rescue Plan, the catalyst for inflation, he called it “a historic victory for the American people.” Upon signing the Inflation Reduction Act, he proclaimed, “Today offers further proof that the soul of America is vibrant. The future of America is bright, and the promise of America is real and just beginning.”
That’s Biden-speak for “The recession is on.”
Andy Bloom is president of Andy Bloom Communications. He specializes in media training and political communications. He has programmed legendary stations including WIP, WPHT and WYSP/Philadelphia, KLSX, Los Angeles and WCCO Minneapolis. He was Vice President Programming for Emmis International, Greater Media Inc. and Coleman Research. Andy also served as communications director for Rep. Michael R. Turner, R-Ohio. He can be reached by email at email@example.com or you can follow him on Twitter @AndyBloomCom.