The Senate narrowly passed the Inflation Reduction Act on Sunday, thanks to a tie-breaking vote from Vice President Kamala Harris. But would the bill, if also passed by the House, actually reduce the record-high inflation faced by Americans?
“The bill drafters will tell you that it reduces deficits, which means it would be less pressure on the Federal Reserve to print money to cover the deficit, which is what they’ve been doing for the last two years, which is how we got the inflation we had,” Heritage Foundation senior policy analyst Richard Stern says. (The Daily Signal is Heritage’s multimedia news organization.)
“However, the real truth is, if you go through the bill, it’s going to probably increase deficits by $350 billion over the next 10 years, which is a lot of money, obviously,” Stern says.
The House is preparing to vote this week on the Democrats’ tax and spending bill, which, if it passes, likely will be signed into law quickly by President Joe Biden.
Stern joins “The Daily Signal Podcast” to discuss the so-called Inflation Reduction Act, its impact on the average American, and why Stern is hopeful that better policy is on the horizon.
We also discuss these stories:
- Leading Republican lawmakers speak out after the FBI raids former President Donald Trump’s Florida home Monday.
- House Speaker Nancy Pelosi uses a dismissive tone in response to a possible GOP investigation of the FBI’s raid.
- President Joe Biden signs the CHIPS Act into law.
Listen to the podcast below or read the lightly edited transcript:
Samantha Renck: Joining the podcast today is Richard Stern. He is a senior policy analyst at The Heritage Foundation and is joining the podcast to give us a rundown of the Inflation Reduction Act. Richard, thank you so much for joining us today.
Richard Stern: Thank you for having me on.
Renck: Of course. Now, let’s just dive right in. The Senate passed the Inflation Reduction Act on partisan lines on [Sunday] and the House is set to vote on it this week. It’s likely to pass given the Democrat majority in the House and will then be signed into law by President [Joe] Biden. First and foremost, Richard, how does this act reduce inflation?
Stern: Well, that’s a trick question. It doesn’t.
Now, the bill drafters will tell you that it reduces deficits, which means it would be less pressure on the Federal Reserve to print money to cover the deficit, which is what they’ve been doing for the last two years, which is how we got the inflation we had.
However, the real truth is, if you go through the bill, it’s going to probably increase deficits by $350 billion over the next 10 years, which is a lot of money, obviously. But really what it means is that the Federal Reserve is going to have to print the money to cover that.
The Federal Reserve has purchased 56% of the new federal debt during the pandemic, which is where we got this inflation spike from.
So in truth, if you un-gimmick the things that the left has put in this bill that they’re claiming are going to be savers and you actually look at the real brass tacks, it’s going to increase deficits and increase inflation at the end of the day.
Renck: So this bill is essentially a watered-down version of Build Back Better. What was modified or removed from Build Back Better?
Stern: I would say this is certainly a win. The Build Back Better bill was going to be $3.5 trillion dollars of taxes on spending and regulations and everything else. So for a decade, this is about a third of that in terms of its overall impact. So it certainly is a win.
What I would say is, they skimmed a lot out of a lot of different places. But to your point, it’s a watered-down version. It’s a third of the size, but the core things that are in it are still the same.
It’s still the expansion of Obamacare. Its regulations on drug prices [that] are going to increase health care costs for everybody. It’s still tremendous amounts of green cronies’ subsidies that are going to waste trillions of dollars of private investment, forcing them out of conventional fuels. That’s going to ultimately raise energy prices for all Americans.
And it’s still a giant increase in taxation on businesses, half of which is going to fall on U.S. manufacturers. So this is going to ship jobs overseas to fleet our industrial base. And really, those taxes, at the end of the day, are going to be felt in everybody’s pocketbooks through reduced paychecks or higher consumer prices.
Renck: You talk about people being able to feel the impact of this bill. As I mentioned at the start of the interview, it will likely be signed into law by President Biden later this week. From Friday or Saturday, whenever the bill is officially signed into law, what happens after that? How immediate will the impact of this law be felt for Americans?
Stern: So, a lot of the provisions don’t take effect until next year, but the truth is, through next year, you’re going to start seeing companies have to reduce their hiring or raise prices or cut paychecks to deal with the tax. You’re going to see drugmakers have to shift costs over to private insurance and to everybody else.
As a note, by the way, per what this bill’s doing, is, it’s giving the government a sweetheart deal where the government gets reduced prices on drugs. Doesn’t do anything to affect the real cost of producing these lifesaving drugs. So those costs are just going to get passed back on to the rest of us. Right?
However, the other part of this is, markets are aware of what’s happening. Everybody knows that you’re going to have all these tax increases at the beginning of next year, that you’re going to have these subsidies. Everybody knows. Everybody that’s really paying attention knows that it’s going to increase deficits. The Fed’s going to have to print money to cover it.
So the truth is, you’re going to start seeing subtle effects tomorrow. I mean, frankly, you’ve already seen them.
I think a perfect example, by the way, is, since they came out with the new framework that ended up becoming this bill, Elon Musk has gained $38 billion in net worth because of Tesla stock going up, just since they started talking about bringing back the electrical vehicle credits that are in this bill. So that’s a real-world effect that’s already happened now. You know what I mean?
So it’s going to be hard to be able to point to exactly when people are going to start feeling exactly what. But in many ways, markets are already adjusting to what you were talking about, which is the kind of seeing the inevitability that this is going to be signed into law.
Renck: Yes. And I actually wanted to talk a little bit more about the spending that’s dedicated solely to climate action. In a Heritage report that you co-authored, you talk about the spending that is dedicated to tackling the climate crisis. The bill includes $369 billion toward this intended goal. How will this bill impact the average American who has already been facing higher gas prices?
Stern: It’s going to make everything worse. That $360 billion you’re talking about, I think one of the important parts about this for all the listeners is that that’s $360 billion of federal subsidies that’s going to be used to leverage trillions upon trillions of dollars of investments. Right?
It’s one of these where, if you’ve got an industry that actually is profitable, that actually produces real value for Americans, like oil and gas and coal, and they’ve got a margin of 10%—right? And I say, “I’m going to hand 20% over to some Solyndra-type project.” I’m only spending $20, but I’m moving a hundred dollars worth of investment. Right? That’s what’s happening here.
That $369 billion is going to be trillions and trillions of dollars of investment that could have gone to oil, to gas, to coal, to real cheap energy sources that fuel America. It would keep energy prices low for all Americans and allow for much more job opportunities and increasing paychecks.
Instead, that money is now going to be shifted into green energy, things like Solyndra, things that don’t store energy, where the wind isn’t blowing or the sun isn’t shining, you don’t get anything out of it. So it’s going to mean dramatically higher energy prices for all Americans.
You just have to look to Europe where you can see that energy prices in a lot of cases have gone off 50%, have doubled in these countries where they’ve done exactly what this bill is doing, which is nudge the market so that they stop investing in real reliable energy sources. And it shifted these kind of Solyndra-like projects.
Renck: Now, this bill will also create a so-called slush fund for the IRS with a price tag of $78.9 billion. This is also a point that you talked about in the report. That money will also be used to hire 87,000 new IRS agents. Can you tell us a little bit more about this IRS fund and the impact or potential impact these new agents could have on the American taxpayer?
Stern: So this, I think, is a pivotal thing about the bill. Right? At the end of the day, this is going to mean that it’s average Americans that are going to get audited. They’re going to be forced to have to settle with the IRS or pay thousands of dollars to fight an audit, even if they did everything right. And that’s a sad reality of how it works.
So I think as a important point on this, the FBI, in what is clearly a political abuse, raided the former home of President [Donald] Trump for no reason whatsoever. Right?
This bill is going to hire 87,000 more IRS agents. It’s going to nearly double the labor force of the IRS. A lot of these people are going to be armed. The IRS is holding onto tremendous stock piles of ammunition and arms, and things like that.
What the Democrats are claiming is that this is going to be used for enforcement that catch tax cheats. You know what, though? Four out of five audits that the IRS does right now are on people and families making less than $200,000. In fact, 51% of audits in the IRS are on households making less than $75,000.
So this isn’t enforcement on wealthy people or large corporations. This is using the power of the federal government to pressure low- and middle-income Americans into paying money to the IRS. This is squeezing them for what they’re worth, just to make a few extra bucks to pay for this socialistic nightmare.
Renck: There’s also this 15% corporate minimum tax on businesses in the bill. Can you talk a little bit more about that? And also, too, how could that potentially trickle down to the American consumer?
Stern: To answer your question, it’s absolutely going to trickle down and not just the consumer, but to workers, to your retirement account, everything.
So here’s how this works. Right now, companies pay an enormous amount of taxes. They pay payroll taxes, property taxes, sales taxes. The truth is, every step of the production process, there’s some kind of tax.
The left always loves to come out and say, “Oh, here are all these corporations that don’t pay income taxes.” Really what they mean by that is that there are companies that make profits, but then park every dollar of profits back into building new factories, new facilities, hiring new people, giving that money back to the American public by creating job opportunities and creating the business services we all love and enjoy.
So the way that the taxable income works is, if you make those kind of good investments as a business—so you’re hiring people, expanding your operations—we don’t tax you in that profit. It’s not really profit, it’s reinvestment and expanding operations. What this does is it creates a “minimum tax” where it uses a different definition of income that doesn’t take into account the investments you make.
So this is really just an end-around way to go to American businesses and say, “Hey, did you want to build a new factory? Did you want to hire more people? Did you want to produce more stuff? Before you can pass go and collect your $200, you got to give that money to the federal government.”
So instead of building new steel mills, instead of building new factories, businesses are not going to take that money that they would’ve invested right here in new jobs and they’re going to hand it to the federal government.
And the left is going to claim that somehow this is companies paying their fair share. The real sad truth of it is, it’s lower paychecks. It’s higher consumer prices. It’s less availability of goods and services. It’s fewer factories and facilities built here just to give the government money all based on this lousy, completely incorrect talking point, and by corporations needing to pay some kind of minimum tax. So that’s really all this fantasy is right now.
Renck: As I mentioned earlier, this bill is likely to pass the House and is likely to be signed into law by President Biden on Friday. Do you think that Democrats will stop here or do you anticipate similar legislation moving into the future?
Stern: Oh, I would anticipate way more of this. To the question you asked me earlier in this, this is about the third of the size of the impact of the original BBB. They want to do all of it, right?
… Some put that red line, saying, “We’re not going to raise taxes during a recession.” Seems like a great idea, right? We’ve got a recession now, and yet they’ve now come out in favor of this bill that raises taxes, right?
So even when it seems that the other side has shown some semblance of reasonableness and respect for the economic reality crushing down on all Americans, they’ve still come back then with some other new bill, new taxes, new spending, new regulations.
We know what they want to do. They want to do BBB and really, they want to blow past that. They would like to spend, I mean, we’ve got the Green New Deal that would’ve spent $10 trillion over 10 years. That’s what they want to do.
So yes, I think they’re going to take every minute they can, every moment they can, and move as close as they can to inserting the government in your lives and controlling as much of your money as they possibly can at every step that they can.
Renck: Now, Richard, finally, is there anything else you would like to address that you think that the media might be missing in its coverage of the bill?
Stern: I think one of the big things I always point out on this is the media’s taking them at their face value that this is somehow decreasing deficits, but there’s a more important thing than that.
Even if the bill did decrease deficits, and so it slightly reduced inflation, even if that was the case, the media is complicit in the idea that tax revenues are not harmful to people, but inflation is. The truth is both are harmful. Right? So this bill reducing inflation by raising taxes is still coming out of your wallet.
Every American worker on average has faced a $3,400 decline in real wages. Part of that is inflation, part of that is taxes, regulations, things like that. So the media likes to hyperfocus on saying that, “Oh, you can do this one thing or that one thing.” The truth is, these things all interact with each other.
To get rid of inflation by raising taxes, you’re simply stealing more money from people right now. If you wanted to cut taxes but not cut government spending, you create the inflation we’ve had over the last few years, which is at tax in of itself.
The real thing that needs to happen here is, we need to cut government spending and we need to cut government regulations.
There’s no magic money pot somewhere. The only way that we’re going to allow the American economy to grow and for people to see the kind of prosperity we had back under Trump and decades ago in this country is by cutting the size of government, giving the money back to people, giving them back their economic freedom back. That’s the only way to go about it.
Renck: How likely do you think that will be to just have that solution? Are you hopeful?
Stern: I am always very hopeful.
I will tell you this. So back in the 1970s, where we had kind of similar what’s going on here right now—a stagnant economy, prices spiraling through the ceiling, you had [President Richard] Nixon saying they were all Keynesians now—there seemed to be this kind of complete abandonment of limited government conservative principles of believing in people to take care of themselves and innovate in a way that prospers all of America.
So in the 1970s, it looked like that dream was dead, but there you had 1980, [Ronald] Reagan is elected. And in 1981, and then later in ’86 as well, we had fundamental tax reform that dramatically reversed course and allowed the U.S. to expand its manufacturing base and have the prosperity we had of the ’80s and the ’90s. Right? So even in that kind of bleakest moment, there was that push right there.
I think what you’re seeing right now is an enormous percentage of the country is just fed up. They understand that taxes are bad, that regulations are bad. They understand that the federal government spent its way and printed money its way into the inflation crisis. They’re looking for a solution that respects them and respects their freedom.
I think all we need is a conservative movement in this country that’s willing to embrace that, the way that Reagan did, and offer that vision again. I think we might be one or two elections away, frankly, from being able to have that movement take hold again and do some of these kind of once-in-a-generation reforms that really would expand what’s possible and lift everybody.
Renck: Well, Richard, thank you so much for joining me today to discuss the Inflation Reduction Act. I really appreciate it. Again, we had Richard Stern joining us. He’s a senior policy analyst at The Heritage Foundation. Thank you.
Stern: Thank you so much for having me on.
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