The biggest news in Washington DC is the new spending bill brokered between Sen. Manchin and the Democratic leadership: The Inflation Reduction Act of 2022. After reading the draft bill and several reports on the subject, what is clear is that there is “nothing clear” about this piece of legislation.
The biggest question mark is whether this legislation will actually reduce inflation. The bill will spend 433 billion dollars for new initiatives for clean energy projects and for a plan to allow the federal government to negotiate lower drug prices for Medicare patients. It also spends an additional approximate 100 billion dollars on the IRS to improve tax collection and to build a task force to catch taxpayer cheating. To pay for the bill, a mandatory 15% tax that excludes many loopholes, will be imposed on corporations with profit over 1 billion dollars. While this is not strictly a new tax, instead removal of many write-offs and loopholes previously used by corporations to reduce their tax burden, it will still result in a projected collection of a reported additional 739 billion dollars in revenue.
The truth is, no one knows the long term costs of negotiating drug price reductions for Medicare patients. Secondly, because much of the new federal spending is in the form of tax incentives for corporations and citizens who invest in new green energy and electric vehicles, no one really knows how much this will ultimately cost the federal government.
As far as the likelihood of this bill “reducing” out of control inflation, by spending an additional 500 billion dollars during a recession, it is anyone’s guess. Sen. Manchin admits he was wrong two years ago about the massive Democratic spending bill that helped kick start inflation, but said he believes this bill is more about investment in US manufacturing, technology and “clean” energy and should not be inflationary in nature. Many economists, however, believe increasing government spending in any form while in an inflationary spiral/recession, will only make the situation worse. What economists are thankful for is that Sen. Manchin opposed the 2 ½ trillion dollar Democratic proposal and negotiated it down to just 500 billion.
So, what are the pros and cons for Meade County citizens?
First, while consumers purchasing selected electric automobiles will receive a cash rebate, the bill will require that new or used vehicles receiving a tax rebate, must be made with US developed and manufactured batteries. This is a real boost to Kentuckians who will be employed in the new battery plant near Elizabethtown. While the new plant is not expected to open until 2025, this policy will boost investment in this fledgling industry in Kentucky.
Second, the proposal to reduce Medicare drug costs will benefit seniors on limited incomes. However, the plan will not produce actual cost reductions until after 2026 and then the real cost to taxpayers to accomplish that task is unclear.
Third, the money being spent for IRS should help catch those pesky “neighbors and businesses” who manage to cheat on paying their fair share of taxes. This is good for all honest citizens. Additionally, the bill requires the IRS to bring a plan to the Congress within one year, on building a “free” effective on-line E-tax filling system for all taxpayers. This is also good news for citizens who do not wish to pay fees to file their taxes.
First, the newest businesses in Meade County (NUCOR) will fall under this new corporate tax policy. Reduced profits for any corporation could have a long-term impact on employment. More importantly however, is the impact taxing corporations has on price increases to the consumer and the impact on future investment by these corporations. Everyone knows that corporations will react to reduced profits by reducing their costs, employment, and increasing the price of their produced goods to off-set their losses. Increasing taxes at the same time corporations are experiencing huge wage increases (an avg of 5% in 2021) and inflation of their raw material costs, is not a good idea. Inflation is the number one concern for Meade County citizens right now. Any bill that may increase inflationary pressures is questionable.
Second, the involvement of government in health care has been a less than successful affair over the past 10 years. The prospect of them getting involved in drug pricing is just another example of big government overreach.
Third, the use of 433 billion dollars to incentivize electric energy