Friday, August 5, 2022

The Tax Foundation and The National Taxpayers Union Foundation oppose the Inflation Reduction Act

by Rod Williams, Aug. 4, 2022- I recently posted The Committee for a Responsible Federal Budget favors the Inflation Reduction Act. I explained that this was an organization I trusted. I quoted from the organization's analysis of the proposal giving their reasons for concluding that the IRA was a good piece of legislation and over the long haul would moderately reduce inflation and achieve some desirable outcomes.

I also said, however, "If I were in Congress I would not buck the party and vote for IRA because despite the recommendation of CFRFB there are other responsible voices persuading me it is not a wise move." One of those other responsible voices is The Tax Foundation. Below is their analysis.

Details & Analysis of the Senate Inflation Reduction Act Tax Provisions

 The Tax Foundation -Last-week’s Democrat-sponsored Inflation Reduction Act (IRA), successor to the House-passed Build Back Better Act of late 2021, has been touted by President Biden to, among other things, help reduce the country’s crippling inflation. Using the Tax Foundation’s General Equilibrium Model, we estimate that the Inflation Reduction Act would reduce long-run economic output by about 0.1 percent and eliminate about 30,000 full-time equivalent jobs in the United States. It would also reduce average after-tax incomes for taxpayers across every income quintile over the long run.

By reducing long-run economic growth, this bill may actually worsen inflation by constraining the productive capacity of the economy.

Our analysis contains estimates of the budgetary, economic, and distributional impacts of the Inflation Reduction Act as specified in bill text provided on July 27.

Using the General Equilibrium Model, we estimate that the tax provisions, IRS enforcement, and drug pricing provisions in the bill would increase federal revenues by about $656 billion over the budget window, before accounting for $352 billion in expanded tax credits for individuals and businesses, resulting in a net revenue increase of about $304 billion from 2022 to 2031.

Excluding the anticipated revenue from increased tax compliance and the drug pricing provisions, the bill would lose about $126 billion in revenue over the budget window. (Read more)

Another organization I trust is the National Taxpayers Union Foundation. Here is what they had to say:

The Inflation Reduction Act Probably Won’t Reduce Inflation

National Taxpayers Union Foundation- .... Policymakers like Sen. Manchin and some non-government stakeholders have praised the deficit reduction in the bill, arguing that this will reduce the record levels of inflation the U.S. economy has been experiencing for the better part of a year.

A closer look at the timing of the new spending and tax cuts in the bill (versus the timing of reduced spending and revenue increases) suggests that the bill won’t reduce inflation in the next few years because, on net, the Inflation Reduction Act may spend more than it saves in some of the early years. Any front-loaded deficits will increase interest payments on the national debt. As a rule of thumb based on CBO data, each $100 million increase in spending in 2023 will add $27 million to debt interest costs over the decade.

Only in FY 2027 do deficits start to decrease substantially, likely well beyond the immediate period of elevated inflation based on CBO estimates and consumer expectations. (FY 2022 is almost over, so it is likely that the IRA has no practical effects on government spending or revenues in FY 2022.) 

....The IRA may not pour fuel on the inflation fire like the American Rescue Plan Act did, but it is unlikely to reduce near-term inflationary pressures as proponents claim. The “paying down our national debt” that Sen. Manchin refers to won’t start occurring for five years. The “lowering [of] energy costs” involves investments in future technology that will require years to develop and take effect. And the “lowering [of] healthcare costs” doesn’t take effect for years (as with the prescription drug price controls) or merely masks high health care costs rather than meaningfully addressing them (as with the ACA subsidies). (read more)

Boring, right? Policy is often boring.  I have not attempted to master the Tax Foundation’s General Equilibrium Model just I have not mastered the Penn Wharton Budget Model (PWBM) or the analysis of The Committee for a Responsible Federal Budget, or the analysis of The Congressional Budget Office.  But I still trust experts who do analysis.  It is worth noting that experts often disagree.  On more mundane things like car repairs licensed mechanics may disagree until they get under the hood.  When dealing with health issues we are often advised to get a second opinion. Because experts disagree we do not stop listening to experts. People who know what they are talking about deserve to be heard more than does someone who may not know what they are talking about but have a lot of passion. 

One thing you will notice in the above excerpts from these two reports and from The Committee for a Responsible Federal Budget is the use of words like "probably" "may" and "suggest." I have underlined some of those terms above. These experts lack the certainty of the loud-mouthed TV pundits.  

Today on the car radio I heard some Republican politician (I didn't pay that close of attention to know who it was.) say that what was happening to our economy was no accident, that Democrats were intentionally trying to destroy the economy so they could impose Marxism on America.  I don't buy it. I think Democrat policies are almost always wrong, but I just do not accept that their motives are evil.  Sure, there are some Marxists on the left just as there are some anti-democratic forces on the right, but by and large, I still think most people mean well.  One can be wrong and yet not evil.

While I do not support The Inflation Reduction Act, it is not the worst thing to ever happen to our country. It won't do much good, but it probably won't do much harm either.  People need to get a grip and stop demonizing others over issues about which even informed experts lack certainty. 

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