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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The Committee for a Responsible Federal Budget favors the Inflation Reduction Act

by Rod Williams, Aug. 2, 2022- I have reached a point to where disgust with extreme partisanship makes me less likely to believe something just because a Fox news host or a Republican Congressman tells me it is true. When they continue to support the big lie of the stolen election and still display fealty to Donald Trump they are not to be trusted. 

Congress is on the verge of passing a bill called the Inflation Reduction Act which will raise taxes on the super-wealthy and fund some green energy initiatives and allow Medicare to negotiate with drug companies to lower drug prices and do some other things.  I tend to think raising taxes in a recession is never a good idea. However, this bill is probably not as bad as some on the right would have you believe.  It may not do much good, but probably not a lot of harm either. 

I have read the editorials and news accounts of the bill and watched the talk shows. Actually understanding the economic impact of the bill would take more time than I could give it and is probably above my paygrade anyway. Since I certainly do not trust the Tucker Carlson's of the world and do not trust the woke partisan mainstream media to tell me the truth, I need guidance from some trusted source. 

One source I have trusted is The Committee for a Responsible Federal Budget.  I have considered them "conservative," but that is because it seems to me that most people that actually understand economics are conservative.  Over the years The Committee for a Responsible Federal Budget has advocated for many policies favored by conservatives. The organization has advocated social security reform and has been a major voice advocating deficit reduction. They have opposed student loan forgiveness proposals. They have also been a major voice in alerting the public and Congress about the pending insolvency of many of the trust funds, such as the Highway Trust Fund to be insolvent by 2027 and the Medicare Hospital Insurance Trust Fund insolvent in 2028.

The Committee for a Responsible Federal Budget is truly non-partisan. It has some prominent Democrats who were founders and currently serve on its board and some steller Republicans. The current co-chair is Mitch Daniels, former governor of Indiana, and who served as Director of the Office of Management and Budget under President George W. Bush.  It has some of the most credentialed economists in the country servings as researchers and analysts. 

Here is the recent press release from CFRFB.

IRA Will Help Fed Fight Inflation

AUG 1, 2022 - A recent Penn Wharton Budget Model (PWBM) study has been used by opponents to claim the Inflation Reduction Act (IRA) would increase rather than reduce inflation. In reality, the study finds the legislation would have essentially no effect on inflation in the near term and would reduce inflation modestly over time. We believe the actual deflationary effects of the bill will be more significant on both fronts for several reasons. Specifically, the IRA’s deficit reduction is likely to be higher than estimated by PWBM, accompanying regulatory and permitting reforms will help reduce inflationary pressures, and the microeconomic effects of the bill – by lowering observed prices for households and businesses – will likely help combat persistent inflation.

Ultimately, we expect the IRA to very modestly reduce inflationary pressures in the near term while lowering the risk of persistent inflation over time and thus make it easier for the Federal Reserve to reduce inflation without causing a recession. Policymakers should follow the IRA with further inflation-reducing actions and should especially avoid policies that would worsen inflation and make the Federal Reserve’s job harder.

.... However, the effects are likely to be modest, especially in the near term. The IRA can assist the Federal Reserve in fighting inflation by making its job easier, but it will by no means replace the need for action from the Fed. To further support the Fed's efforts, lawmakers should build on the IRA with further deficit-reducing and health-care-cost-lowering legislation and actions. And they should especially avoid measures that would worsen inflation, such as extending the student debt repayment pause.

The IRA isn’t going to fix inflation on its own, but having fiscal and monetary policy row in the same direction is an important step forward. (continue reading)

Sounds boring right? Policy is often boring. I don't understand the "Penn Wharton Budget Model' but there are people who do and I trust them more than TV pundits screaming "Socialism!" 

 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. But every policy decision is not black and white.  There are a lot of grays. Every vote is not the good guys on one side and the bad guys on the other.  Sometimes one is not 100% certain of one's position but only 51% certain of one's position. Sometimes if people would talk to one another rather than scream at one another they might end up with better solutions. One should be able to disagree without being disagreeable.  Thinking rather than just emoting is a virtue. Compromise and bi-partisan should not be dirty words. One should strive for a little courtesy, modesty, and dare I say, "moderation."  

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Why no significant infation?

I have wondered why the rapid escalation of government printing of money (quantitative easing 1, 2 and 3) has not led to inflation, which has been minimal for the last few years. If you have wondered the same thing, here is the answer. 

At about the same rate the Fed has been increasing the money supply, dollars have left the country in the form of balance of trade deficits and and interest paid on the national debt.  So, despite the increase in the money supply of about $470 billion a year for the last few year, the amount of money in circulation in America has not significantly increased. We are not experiencing too many dollars chasing too few goods.  As long was we continue to be the tallest midget in the room, we can keep doing this. That is, as long as foreign nations use the US dollar as the worlds reserve currency we are OK. If however, the Chinese or Saudis were to dump their dollars, we would be up the creek. This policy of perpetual quantitative easing is not without risk. The more we do it, the greater the likelihood that a day of reckoning is coming. To learn more follow this link.

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Quanititative easing explained

I am posting this for it's entertainment value. I don't know how accurate it is but it is entertaining. I know a lot of stuff but I admit I am not an expert on monetary policy or the Federal Reserve. (Hey, I try, but I can't be an expert on everything.) When I heard about the Feds' inflating of the money supply, called "quantitative easing," I did not find it reassuring. Creating a lot of money out of thin air does not sound too smart to me, but what do I know. This video explains it. Now, I understand it. Enjoy.

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Get Ready for Inflation and Higher Interest Rates

The unprecedented expansion of the money supply could make the '70s look benign.

By ARTHUR B. LAFFER, The Wall Street Journal, June 10, 2009

[excerpt] With the crisis, the ill-conceived government reactions, and the ensuing economic downturn, the unfunded liabilities of federal programs -- such as Social Security, civil-service and military pensions, the Pension Benefit Guarantee Corporation, Medicare and Medicaid -- are over the $100 trillion mark. With U.S. GDP and federal tax receipts at about $14 trillion and $2.4 trillion respectively, such a debt all but guarantees higher interest rates, massive tax increases, and partial default on government promises.

[excerpt] It's difficult to estimate the magnitude of the inflationary and interest-rate consequences of the Fed's actions because, frankly, we haven't ever seen anything like this in the U.S. To date what's happened is potentially far more inflationary than were the monetary policies of the 1970s, when the prime interest rate peaked at 21.5% and inflation peaked in the low double digits. [Full Article]

Commentary

Arthur Laffer is a highly esteemed economist and was the one who popularized the Laffer Curve which illlustrates that at a certain level, higher tax rates actually produce less tax revenue. He was a member of President Ronald Reagan's Economic Policy Advisory Board for both of his two terms. He is the author of numerous books and has been widely published in both scholarly and popular publications. Currently, he resides in Nashville and is the founder and CEO of Laffer Associates, an economic research and consulting firm that provides global investment-research services. I have had the privilege of seeing him speak on two occasions. If you are ever invited to an event where he is speaking, don't miss it. He is entertaining, humours, insightful, and informative. He is able to make economics interesting.

In this article, he explains, in easy to understand terms, the process of how money is created and why our current economic policy will doom us to massive run-away inflation. These predictions seem to me to be undeniably. I am amazed that we continue down the road of greater and greater deficits and that this looming crisis is not more of a concern to the average person, the mainstream press, elected officials, and political pundits.

It seems the only way we can avoid the coming crisis, is if we have such tremendous economic growth that the future debt is a much smaller than forecast percentage of our future GNP. I don't think anyone really thinks that that can happen. It is as if we are in a hole, and instead of trying to get out, we keep digging deeper. Our nation has never been in the circumstances that we now find ourselves. When the crisis hits, no one can say that we were not warned. Unfortunately, Laffer is a prophet crying in the wilderness.

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Your bill: $546,668 government debt per household

According to an analysis by USA Today, American taxpayers “are on the hook for an extra $55,000 a household to cover rising federal commitments made just in the past year for retirement benefits, the national debt and other government promises.” Federal obligations now stand at a record $546,668 per household, quadruple what the average U.S. household owes for all mortgages, car loans, credit cards and other debt combined.

This debt is composed of medicare obligations, social security, Federal borrowing, civil service retirement obligations, military pensions, and miscellaneous other debts. And, we are not through adding to this debt load. With national health care in the works and continueing massive government spending, the debt burden will only grow. More and more tax receipts will have to go just to pay the interest on the debt.

Does anyone really think that we can grow the economy sufficiently to pay off this debt? Government borrowing will freeze out private investment and with anti-growth policies like cap and trade being anticipated and with greater government involvement in the economy, I do not look for vigorous economic growth to pull us out of this hole. We are much like a household that is borrowing on the credit card to pay the electric bill and each month we must borrow more just to keep the lights on. The difference is that in a household, eventually the credit card will max out. Unlike a household, government can print money. The only way we can pay our debts is with cheaper dollars. Does anyone doubt that massive inflation is not in our future?

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Glen Beck-Wealth Destruction, Government Style

I honestly believe we are headed toward hyperinflation. On Friday the Federal Reserve announced that it would purchase $1,15 trillion in treasury securities. That is, over one trillion dollars will be created out of thin air. We are monetizing the debt. This is what we euphemistically refer to that as “printing money.” I fear we are facing an economic crisis like we have never experienced. This is the start of the process of devaluing the currency. The only way hyperinflation can be avoided is if the stimulus works beyond our most optimistic projections and we have miraculous economic growth.

I hope I am wrong. I hope the stimulus works, but I do not see how it is possible to have sufficient economic growth to absorb all the money being created. It is a big gamble. We are rolling the dice hoping it will work. This 9-minute clip from Glen Beck does a good job of explaining the enormity of the problem we face.

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