Tag Archive for: InflationReductionAct

An Open Letter to Senator Sinema

Estimated Reading Time: 2 minutes

Words cannot express my disappointment in your vote on the completely mis-labeled Inflation Reduction Act that was recently voted on. The nation’s inflation rate has never been effectively reduced by spending another pile of tax-payer money that has yet to be collected. In the words of Milton Friedman: “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”

Most economic analysts suggest that this bill will retard economic growth, reduce jobs and increase inflation. How can this be in the best interests of Arizona’s residents? Only a complete simpleton would look at the content of this senatorial pork-fest and cry: “victory” unless your goal is to drive this nation from recession into the depths of depression.

I was not very enthusiastic about your election to the Senate but you have at least not voted in lock-step with the DNC as your colleague Mr. Kelly has done. It appears now that you have abandoned any economic sense and decided that going ‘green’ at the expense of your constituents is somehow a good idea. 

Bear in mind that the nation of China (which has a greater carbon footprint each month than the US does for the year) will be quitting any and all climate conversations as a result of Ms. Pelosi’s ill-timed and politically provocative trip to Taiwan. I have not seen any outcry from you or any of the other politicians on the Hill for that stupidity. Now, we are supposed to believe that this bill is actually good for the average household.  Try this novel approach – stop spending money you don’t have!  

If you are really interested in reducing the world’s carbon footprint and affecting global warming, stop all this congressional pontification over ‘green’ energy, and let’s get back to energy independence in this country. You will never convince me that the Venezuelans, the Iranians, or the Saudis can produce oil for our nation at a lower climate cost than American producers, and it is certainly not a lower economic cost. 

It may have been a long time since you had to actually produce something to earn your living but, for those of us who do, I cannot find anything in this bill that will make my life any easier and it will undoubtedly raise my cost of living. Thanks for your part in pushing this nation from recession into an outright depression.

A Little Reality About the New Spending Bill

Estimated Reading Time: 4 minutes

The Democrats are masters of misnaming the intended purpose of bills they offer up to disguise what is really happening. It is indicative of how gullible they believe we are. The Inflation Reduction Act of 2022 will do nothing to reduce inflation. The main reason is that revenues will not be achieved to offset the expenditures.

This column has a ban on using definitive terminology. I do not use words like Never, Always, or Every. That is because those terms are rarely applicable. However, here is a truism. Whenever there is a projection of revenues that will be produced from a new tax increase, they never come to fruition. Here is another truism. Whenever there is a reduction in tax rates, they always produce increased governmental revenues. I know this because I have both studied and written about it for over 40 years.

This ridiculously named bill has a few major elements of the supposed increase in revenue. Please do not believe the eventual scoring by the Congressional Budget Office (CBO). The CBO is rarely correct because they do their scoring based on whatever Congress tells them to do. Just think about this: if Schumer named this bill which he did, do you think he gave the CBO realistic numbers on which to do a projection?

The first element of this bill’s increased revenues has to do with money flowing in from audits because of new hires at the IRS. This is an agency that cannot even answer their phones. This is an agency that cannot even process their tax returns – the current estimate is they are twenty million behind, but who really knows? I believe they have finally processed all the 2020 tax returns. They are now digging into the unprocessed 2021 returns. This is an agency that is currently auditing a client of mine and they are having a problem because neither the computer of the auditor nor his supervisor can read a thumb drive I sent them. They cannot read any thumb drives.

Yes, the IRS needs an increased budget to tackle its basic problems which include a wholly inadequate computer system. Agents communicate this regularly. It is compounded by allowing agents to work from home which has significantly impacted IRS production because of these inadequate systems. If the system does not work well when they are sitting in front of their office screens, how well do you think they operate remotely?

Until they fix these problems, how are they going to hire a slew of new people to perform audits? And where are they getting all these new personnel to work at the most reviled agency in the country? We cannot get people to work at our restaurants, car repair shops, or appliance stores. So how is the IRS going to get qualified personnel to work their audits? How many people graduating college with an accounting degree are going to work for the IRS when there is a shortage of personnel at accounting firms with a much more attractive environment and future? They may be able to hire people with sociology or geography degrees who can only get jobs as bartenders. How long do you think it will take them to get prepared to audit your tax return? How long to audit Amazon?

I can say if you should get audited by these people, the process will take at least twice as long as it should because they will be inexperienced. A professional CPA will need to walk them through everything about which they have no clue. So, you tell me, is this $80 billion spent over the next ten years going to bring in an additional $204 billion from all those supposed tax cheats out there? And will spending an additional $8 billion a year on the IRS for the next ten years do anything to reduce inflation in 2022, 2023, or 2024? I think you know that answer.

Then there is the big lie of this bill. It repeals the Trump “rebate rule.” This was a vague rule that has to do with Medicare Part D that was never implemented by Trump, has not been implemented by Biden, and the regulation never going into effect. This is a magical savings of $120 billion that was never implemented and thus becomes “mystery savings.”

Last, we must confront the corporate minimum tax of 15%. Sounds nice. I have read a substantial number of analyses of these corporations that supposedly pay no taxes. We hear this kind of malarkey all the time. I will get a call from a client. They will tell me they spoke to someone, and they were paying no taxes. “Why am I paying so much?” My answer is always they are full of ———. You fill in the blank. Then I tell them to get a copy of the tax return for analysis. And that is the problem, the Left-wing analyses of these “non-paying entities” never include a full analysis of the reasons why these entities are not paying taxes.

They may be getting research credits which Congress created to encourage companies to spend money on research and development with the idea that these companies will maintain or increase their position to be competitive in the world economy. They may be buying Low Income Housing Tax Credits which encourages the development of affordable housing. They may be getting credits for tax paid to foreign countries based on income made in foreign countries just like you may be getting on your investments. If we limit that tax offset, these companies will be paying a lot more than a minimum tax of 15% since they pay tax in America on their worldwide income.

This is the ultimate act of industrial policy initiated by the Democrats. They are throwing money at the computer chip industry and anybody who spends money on their questionable green policies. They want to pay for it by reducing deductions at a group of other companies. Those companies have been allowed to deduct the expense for new equipment and other purchases as opposed to writing them off over seven years or more. That encourages those companies to expand, improve efficiency and safety and hire more Americans. These tax and spending plans are used to steal the money directly from you and me. Now they have lurched into full bore Socialistic government planning policy as if that has worked anywhere.

Remember the age-old truism. Corporations do not pay taxes; they just pass the tax onto their customers or cut jobs.

And the fact that a large portion of the tax increase will come from a group President Biden has stated he would not raise taxes on – those couples making under $400,000 a year. Senators Schumer and Manchin said nothing about that.

The Democrats got their wish with new spending of over $750 billion between the Chips bill and the Inflation Will Continue Unabated Bill. They are never going to get their revenue offset. Mr. Manchin, how naïve you must be.

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This article was published by Flash Report and is reproduced with permission from the author.

It Doesn’t Get Much Worse Than ‘Build Back Better’

Estimated Reading Time: 2 minutes

Sen. Joe Manchin and Majority Leader Chuck Schumer just struck a deal on a massive spending package they call the Inflation Reduction Act of 2022. In all important respects, the legislation is no different from the Democrats’ long-running social spending plan known as Build Back Better.

Americans should be alarmed. The bill has the potential to handcuff innovation in one of the most critical and successful sectors of the American economy.

The plan would allow unelected federal officials to “negotiate” with drugmakers over the price Medicare will pay for an ever-growing list of brand-name prescription drugs.

In practice, these “negotiations” are federally mandated price controls. Under the plan unveiled by Democratic leadership in early July, the government would have enormous power to name its own price for an increasing range of advanced medicines, and drugmakers would have little choice but to submit.

The cost to patients would be disastrous. That’s because the main consequence of these price controls will be to destroy the research-and-development system that makes America the world leader in medical innovation.

Developing medicines is already a risky business. It costs, on average, nearly $3 billion over 10 to 15 years for each approved new medicine. That’s partly due to the direct expense of the research-and-development activity itself — and partly because only 12 percent of potential medicines entering Phase I clinical trials ultimately win approval. Private investors are willing to take such risks because a successful drug has the potential to earn back those costs and then some.

But if the government successfully puts itself in charge of drug prices, the chances of recouping a medicine’s development costs would plummet, and investment in new research would dry up quickly. Everything from cancer breakthroughs to new treatments for Alzheimer’s disease, COVID vaccines and heart medications would become rarer.

This predictable consequence will leave the innovative biopharmaceutical industry in no position to compensate for the investment loss. A recent review led by University of Chicago economist Tomas Philipson notes that studies consistently show a 1 percent reduction in industry revenue leads to a 1.5 percent reduction in research-and-development activity. He finds this legislation would reduce industry revenue by 12 percent through 2039 and R&D activity by 18.5 percent, or $663 billion. He estimates the result will be 135 fewer medications being developed in that period — a crippling shortfall that will also be measured in lives lost.

Families worldwide rely on research and innovation from the American health and science industries to bring new lifesaving medicines to their loved ones facing diseases lacking cures. The Build Back Better plan will obliterate future breakthroughs and any hope that comes with them instead of providing real solutions.

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This article was published by AIER, American Institute for Economic Research, and is reproduced with permission.

In Condemnation of Kyrsten Sinema

Estimated Reading Time: 4 minutes

Last January we wrote a piece called “In Praise of Krysten Sinema.”

It was written in a generous bi-partisan spirit. The senior Senator from Arizona had stood up to a massive, expensive, intrusive spending bill.  She had done so under relentless attack. These attacks even became personal as she was accosted in a bathroom at ASU by progressive activists and even had a wedding she attended disrupted by activists. By showing better judgment and courage, we felt she deserved the praise.

Now, in the interest of fairness and a generous spirit, we must condemn her.

After the capitulation of Senator Joe Manchin, Sinema, who holds the “maverick seat” in Arizona, folded like a cheap lawn chair.

She is no maverick. She is a progressive Democrat.

A maverick in this context means a leader who stands independent of party and acts in the interests of constituents.

The so-called Inflation Reduction Act is just a slightly smaller version of Build Back Better which she previously rejected. This suggests that the original objections she may have had were not based on principle rather she was just concerned about the size of the original proposal.

However, what is being proposed is massive compared to most previous legislation.

Moreover, it has some really nasty features: higher taxes on the middle class, corporate welfare for green energy industries, higher corporate taxes which will simply be passed on to the public, creates a gigantic army of IRA agents to harry and harass citizens, price controls on drugs, all financed by higher deficit spending.

Even Barack Obama had enough common sense to know you don’t raise taxes in a recession. But Sinema seems to endorse a key provision of Modern Monetary Theory, to wit, you fight inflation by raising taxes. Since the government itself is the source of inflation, this leaves the taxpayer in the untenable situation of either paying higher hidden taxes via currency debasement or higher direct taxes back to the government. Either way, they take the money your earned and spend it on things the government wants, rather than the things you want.

Price controls on drugs will have the same result as price controls on New York apartments. It will stifle investment and innovation, creating chronic shortages and eventually even higher prices.

Moreover, she buys into some of the critical mistakes of the Green New Deal.

Advocates desire to “transition” from fossil fuels to what they contend are “clean and sustainable” energy sources. This is all based on the theory of global warming, which itself is unproven. And even if there is a relationship, it is far less costly to adapt to higher temperatures than attempt to control the temperature of the earth 100 years from now.

Such top-down policies will not succeed given the following variables. It does not control the tilt of the earth, the amount and strength of solar radiation, or volcanic activity both above the surface of the land, and below the sea. Then there are sea currents and all kinds of other natural variables.  The earth’s climate is always changing for reasons we cannot control and in many cases, do not understand.

Finally, we cannot control even man’s activities, let those of the universe. While we are cutting back on coal and oil, China and India are burning more. How will our sacrifices and destruction of our economy do anything constructive, based upon the progressive theory of global warming, when countries with much greater populations than ours are still putting CO2 in the atmosphere?

Senator Sinema, what is your answer? Are you willing to destroy our standard of living to make a meaningless gesture? Do you see what electricity prices are in Europe?

Starting with that base assumption of a relationship between CO2 and warming, Senator Sinema how much of a reduction in temperature are we going to get with the bill and when? Please specify what we are getting for our money. If that is the reason for this monstrosity, we are entitled to an answer.  We know the cost is over $700 billion, can we know the benefit?

If it is for the “environment”, why do we need to hire so many IRS agents? Are they going to be installing solar panels?  No, they are going to be looting the American people.

This is bait and switch. Bait with a vague undefined promise of helping “the environment” while switching to price controls on drugs, higher taxes, corporate welfare, higher deficits, and a vast addition to the ranks of IRA agents.

We have gone through energy transitions before. The question is whether it is a voluntary transition or a forced transition. A good example of a voluntary transition was the transition from whale oil for interior lighting to kerosene. John D. Rockefeller was perhaps the greatest savior of the whales ever. It occurred gradually, required no government money or subsidy, and was embraced by consumers.

Any energy choice should pass the test of the marketplace where voluntary transactions between mutually consenting parties, each seeking their own best interests, are concluded.

What she is backing is a forced transition, using taxes as weapons and subsidies as incentives, to force consumers to make choices they do not wish to make. The evidence for this statement is verified by the policy. A natural transition of energy sources does not require government intervention. It happens because consumers desire it and entrepreneurs desire to profit by satisfying that demand. Choices and competition are present to direct economic decisions and minimize waste to the correct mix of alternatives. If consumers want less expensive and cleaner energy, they will choose it because it is in their best interests. It does not require a centralized government, command, and control approach that likely will make political decisions largely based on pleasing special interests that contribute to campaigns. 

This is not a bill that supports the public’s best interests, rather it supports special interests, i.e. the green industrial complex. And quite alarmingly, this group of interests is largely Chinese communist. They are not reliable partners that have our best interests at heart.

The Biden/Sinema energy transition is a top-down, centrally planned debacle wherein our existing energy infrastructure is being destroyed while the new infrastructure is yet to come on line. This is causing a huge spike in energy prices, contributing greatly to inflationary pressures, and leaving the West, particularly Europe, in the tender hands of Vladimir Putin. This is just stupid geopolitical thinking.

For oil and gas, we leave ourselves vulnerable to Putin. For the rare earth minerals and production capacity for solar and wind, we leave ourselves in the hands of the Chinese Communists.

This bill is bad for the economy, bad for the environment, and bad for our geostrategic interests. We can and should produce all the energy and minerals we can by ourselves.

Senator, you will soon be up for re-election and we will not forget it was your cowardice and bad judgment which unleashed this travesty upon us.

Yes, we know your party is pushing it and you are not completely to blame. But you knew you were the pivotal vote, and it would not move forward without you. So, in that sense, the full responsibility does fall on you. And, you failed us.

 

A Political Victory for the Joes Is a Loss for the Country

Estimated Reading Time: 5 minutes

Editors’ Note: If Manchin thinks this will end the war on fossil fuels, he of course is wrong. The legislation through taxation and subsidies still directs energy choices through a top-down, central planning model, rather than allowing free competition among choices. It also does nothing to challenge the dubious science of global warming, rather it embraces it. Nor does it stop wrecking our existing energy infrastructure while new plans fail to deliver. You would think with the example of Germany right before us, our leaders would have more sense.This defection could have been predicted as he is, after all, a Democrat. With such a narrow margin in the Senate, this capitulation by Manchin is of serious consequence to the nation. Senator Sinema of Arizona remains, but we doubt she has either the nerve or philosophical gumption to resist caving as well.

 

After months of being portrayed as a villain or worse in the mainstream media, Joe Manchin suddenly has become a Democratic Party hero—all because he has declared he will support legislation that he and President Joe Biden claim will “reduce inflation” and give us better weather. Not surprisingly, the New York Times is leading the way in effusively praising the legislation, claiming the bill “would be the most ambitious action ever taken by the United States to try to stop the planet from catastrophically overheating.”

The “newspaper of record” continues:

The bill aims to tackle global warming by using billions of dollars in tax incentives to ramp up wind, solar, geothermal, battery and other clean energy industries over the next decade. Companies would receive financial incentives to keep open nuclear plants that might have closed, or to capture emissions from industrial facilities and bury them underground before they can warm the planet. Car buyers with incomes below a certain level would receive a $7,500 tax credit to purchase a new electric vehicle and $4,000 for a used one. Americans would receive rebates to install heat pumps and make their homes more energy-efficient.

Biden declared: “This is the action the American people have been waiting for,” adding that the proposed bill provides “investments in our energy security for the future.”

Progressives claim this combination of new taxes, tax credits, and political favoritism will promote wind and solar energy, vastly curb carbon dioxide emissions, save the US government billions of dollars via cheaper drug prices, and curtail inflation (it is currently titled The Inflation Reduction Act of 2022). And—to ensure Manchin’s endorsement—it supports a natural gas pipeline in Manchin’s home state of West Virginia.

If anything can embody the current disconnect between progressive elites in politics, academe, and the media with how things operate in that sphere we call reality, it is the response to this legislation. We are told that increasing taxes on individuals and businesses, putting in a regime of price controls for drugs (which have artificially high prices in the first place because of government favoritism toward that industry), installing a system of tax credits for vehicles that are mostly a plaything of wealthy people, along with creating credits and subsidies for wind and solar power is going to reduce inflation and improve most Americans’ lives.

While each portion of this hodgepodge of wish lists needs scrutiny, one can sum up the entire ordeal by pointing out that the gap between what supporters of something like this claim it will do and what it actually does is enormous. Not surprisingly, the media concentrates upon the political aspects of passing the legislation, the “big story” being Manchin’s willingness to go along with it after having opposed similar legislation before.

Rarely, if ever, are the results of legislation—and especially the kind of legislation progressives tout—scrutinized after passage. Instead, progressives assume that the legislation in question will do everything its supporters claim. One should not expect to see an assessment of the results of this latest “historic” bill on the NYT op-ed page a year from now.

For example, any bill with the goals and actions presented in this “inflation reduction” legislation needs to be examined based on real costs and benefits. Tax credits and subsidies for “renewable” energy (which many unrenewable components go into producing) will mask the prices people must pay for these goods, but what are the real costs? What is the value that people will receive in return?

The first thing to remember is that while one can argue over whether a tax credit is a government subsidy or a real benefit, the fact that often is lost in the argument is that without the possible tax reduction, many people would not purchase the subsidized good in the first place. The tax credit incentivizes car buyers to make choices they would not have made otherwise, and it further distorts structures of production.

For all the happy talk about electric cars and the slick advertisements that herald a new age of electricity, the so-called transition is not about political goals and NYT editorials that claim otherwise. When we go past the rhetoric, we are dealing with government central planning, an energy-focused form of the Gosplan, which made the USSR’s economy nonfunctioning. Central planning can call for reallocation of resources and lay out the plans, but without market prices and profits and losses, resource allocation will become an economic train wreck.

While progressives give lip service to profits and losses, even trying to tilt the economic landscape with tax credits, bans on certain goods, and other coercive means, resources still will move in the direction of consumer choice. Economies depend upon real information, real goods, real prices, and real resources. If we do not have these things, along with free consumer choice, then there inevitably will be resource dislocations as production is pulled onto an unsustainable path.

Take the automobile industry, for example. Although some companies have announced their intention to go all-electric in the next decade, one doubts that anyone in those industries believes that operating vehicles purely with batteries is going to have the outcomes that progressives are promising. While battery costs have declined in recent years, they are decreasing at a decreasing rate. The gasoline-electric hybrids have more potential both in terms of unit cost declines and lowering emissions (when one takes in the entire scope of emissions per mile), but the political climate is pointing everything toward the exclusive use of batteries.

When politics and reality collide, reality always must win, no matter the rhetoric progressives give us. Joe Manchin can claim this newest version of “Build Back Better” is going to reduce inflation and improve life for most Americans, but the reality is that it is going to result in more inflation and shortages. The government can create new tax credits for electric cars, but that will not change the technological reality of building those cars. Consumers still are going to have to wait weeks and even months for their new electric cars, and after they get them, they will have to deal with the limitations those cars place upon them.

As for the progressives in the Democratic Party, the propaganda machines will move in reverse. Manchin now is a hero instead of a villain, and Gail Collins may even write something nice about him for a change.

The hard reality, however, is that central economic planning will create unnecessary hardships for many Americans—and this legislation attempts to do just that. In the end, the rhetoric accompanying this bill cannot overcome the reality that when politicians direct economic resources, bad things happen.

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This article was published by the Ludwig von Mises Institute and is reproduced with permission.