NPR – Senate Majority Leader Chuck Schumer, D-N.Y., and Sen. Joe Manchin, D-W.Va., have released preliminary details of a bill to address climate change, taxes, health care, and inflation.
The agreement is a major reversal for Democrats, who had narrowed their ambitions for the package to address looming lapses in the Affordable Care Act and changes to prescription drug prices after Manchin raised concerns over approving more spending during record inflation.
“After many months of negotiations, we have finalized legislative text that will invest approximately $300 billion in Deficit Reduction and $369.75 billion in Energy Security and Climate Change programs over the next 10 years,” the senators said in a joint statement. “The investments will be fully paid for by closing tax loopholes on wealthy individuals and corporations.”
The legislation — called the Inflation Reduction Act of 2022 — would also continue expansions to the Affordable Care Act that passed during the pandemic through 2025 and allow Medicare to pursue lower drug costs by negotiating directly with drug companies. Democrats say the plan avoids any new taxes on families making $400,000 or less and does not include any new taxes on small businesses.
Read the bill here. In a statement after the deal was announced, Biden praised it as “the action the American people have been waiting for.” If all goes well for the Democrats, it may pass. Some more conservative critiques may praise it – as it is not as bad as Biden’s previous trillion dollar “Build Back Better” program, which is now effectively dead. But is it really deficit neutral?
What is in the bill?
The bill includes $430 billion in new spending on energy and health insurance investments and more than pays for itself by raising minimum taxes for big companies and enforcing existing tax laws, Schumer and Manchin said in a statement.
Manchin and Schumer, in a statement, said the bill would reduce the nation’s deficit by about $300 billion, lower carbon emissions by about 40% by the year 2030, and allow the government’s Medicare health plan to negotiate prescription drug prices. But they did not provide specifics.
Republicans were quick to criticize the move. “I can’t believe that Senator Manchin is agreeing to a massive tax increase in the name of climate change when our economy is in a recession,” Senator Lindsey Graham said. McConnell also criticized the bill, saying it would “kill many thousands of American jobs.”
The following is a basic table of the plan below.
Here are the basic problems with this bill. One could reasonably argue that this bill will actually add to inflation and not reduce it. Perhaps they should relabel the bill to the – “Inflation Agumentation Act of 2022.” Consider the following.
- There are no spending cuts. It is merely growing the size of the federal government (by nearly10%). The last thing we need is “bigger” government, considering they have not done such a wonderful job to this point.
- Raising taxes on businesses and price fixing products (i.e., prescription drugs) will only largely be passed on to the customer. This will add to inflation.
- In terms of investments that it reports – there are significant problems with the assumptions of the two major categories cited.
- Healthcare benefit costs that it proposes to pay are not investments – rather mere consumption and add to federal expenditures. These also may have mechanisms in them that causes these budgets to grow over time.
- Climate Change spending is another ruse. It will create yet another slush fund of wasteful spending.
- Imagine another $124bn to be squeezed out of the American people by the IRS, which will add cost to the regulatory environment and will stifle business.
Depending on the level of productivity of the “investments,” which will be poor at best, and the growth of government – instead of subtracting the two numbers (in the table above) from each other, more realistically, they should be added together as more budget-busting economic effects on the American people. Another trillion dollar boondoggle from Congressional politicians.
US federal spending and revenues vary year to year based on economic cycles and government policy. The chart below shows more of an average over the years until 2019 and projections to 2025 – learn more here. The blue line represents average revenues, and the red line represents average outlays in government spending. One can see that the two are widening over time and will obviously explode in our economic faces one day. The widening gap on a long-term trend timeline has been structural in nature. To change the trend will require political will, which has not been seen in many years.
The unfortunate reality, this new deal (Inflation Reduction Act of 2022) cooked up by Manchin and Schumer will merely exacerbate the inflation problem in America. Americans need to heed the warnings from our founding fathers.
What could go wrong?
See more Chart of the Day posts.
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