In yet another glaring example of America’s dire need for congressional spending controls and fiscal oversight, Senate Democrats passed the “Inflation Reduction Act” with all Republicans dissenting. Despite the misleading title and positive press coverage, economists all over the country have raised red flags around what the true impact of the legislation will have on inflation. Spoiler alert: it’s not a reduction.
The bill has four main categories, the first two being spend and the last two categories being supposed revenue. The Congressional Budgetary Office recently graded the bill finding the bill will contribute $20 billion to deficit reduction within the first year. Aside from $20 billion being a drop in the bucket compared to the $2.8 trillion-dollar deficit, the revenue dollars listed lack consistency or facts to support them.
The two main areas Senate Democrats claim will provide significant revenue over time are a 15% corporate tax on companies earning more than a billion dollars in revenue and an IRS expansion to find “missing money.” The bill also touts major savings on specific medications.
The problem is that NONE of these programs positively impact inflation. As a matter of fact, basic economics tells us the bill will contribute to inflation due to the additional spending and taxation. For example, a 15% tax on billion-dollar companies will force businesses to increase prices to make up the loss and or make cuts that may include layoffs, cutting employee benefits, and cut vendor costs. Price hikes from Americas largest companies impact the entire country. The multi-billion-dollar climate spending will immediately add more cash in circulation combined with increased prices by corporations is the very definition of inflation. In fact, it’s a sure way to throw the economy into stagflation.
In addition, Senate Democrats believe sending the IRS to find “change in the couch” will amount to billions of dollars. However, there is zero data to back up these assumptions. According to the CBO, the IRS expansion will cost $80 billion but the increase in tax revenue will be $220 billion. As of today, there has been no shared specifics on what the IRS expansion means or who, what, and how the program will target the “lost funds.” It is fair to assume that all taxpayers will be affected negatively as this program is sure to indirectly raise taxes.
The legislation also regulates prices on some prescription drugs which are listed as a “revenue driver.” It is simple to understand their reasoning. If drugs cost less, it will help offset the rising cost of Medicare and save tax dollars. The revenue number of $101 billion is a gross overestimate because medication and pharmaceuticals are driven by the market, not the government. Capitalism doesn’t allow for price caps and government interference and will ultimately push big pharma to find ways around it. Politicians in Washington are patting themselves on the back for lowering the cost of specific diabetes medications. According to the CBO this will equal 99 billion in revenue based on the lowered costs. However, at any time new medications that perform better and cannibalize the controlled medications can go to market and the revenue attributed to the cost caps quickly dries up. Like the IRS fishing expedition there is no way to predict the future of the market or what extra cash is lying around.
Supporters of the bill claim the decrease in inflation will be the result of the reduction of the deficit by the ‘revenue’ collected. Contrary to what you hear from the Biden administration, there is no direct connection between inflation and the deficit. The deficit is a result of spending both new and mandatory. Inflation is a direct result of that spending combined with increased prices on goods and services. Since 1970 we have only had a surplus four times and all of which had different levels of inflation confirming that an inflation and deficit or surplus correlation does not exist.
Furthermore, the bill allows for immediate spending on climate change initiatives and Medicaid but factors the income over a ten-year period. Essentially, we are adding to the deficit immediately while waiting for the ‘revenue’ to trickle in within ten years. This creates a double spend: one, the immediate spending increases the deficit immediately. Two, the third biggest expense of American tax dollars is the interest on debt and adding to the deficit increases the interest owed. In other words, adding to the deficit is not only driven by increased spending but it also raises the interest we pay to finance that deficit.
Sadly, the Inflation Reduction Act is a veiled attempt to deceive Americans by using terms like "inflation reduction" and "cheaper medication," when ultimately the bill does more harm than good. Disgustingly, supporters of the bill are using the American desperation for some financial reprieve from inflation to instill false hope and gain support pre-mid-terms. This legislation is just a New Green Deal and welfare spending boondoggle package that will only hurt Americans.
This unchecked reckless spending and unethical and dishonest press coverage is, yet another reason America is in dire need to convene a Convention of States. The good news is that Convention of States Action is continuing to apply pressure on these politicians. This is and will continue to force change and push our movement further and faster. The more our unaccountable politicians roll out these ridiculous bills, the more support the Convention of States movement will receive.
