Congressional Democrats have put the finishing touches to a questionable bet: that higher taxes will help tame rising prices and that voters will reward the effort.
On Friday afternoon, the House of Representatives approved a $300 billion tax hike with a vote on the party line, 220-207, sending the inflation-reducing bill to President Joe Biden’s desk. It passed the Senate with a similar party-line vote on Sunday.
Despite the bill’s name, independent analysts have noted that it will have virtually no impact on inflation. In reality, it’s a stripped-down version of what Biden originally proposed as a “Build Back Better” plan — it omits much of the spending from the original bill, but retains a huge corporate tax hike, huge spending on green energy initiatives, and a plan to expand the ranks of IRS agents. What was originally a roughly $4 trillion proposal that would have relied heavily on borrowing has become a rarity in Washington: a bill that will generate more revenue than it spends.
And where does it get this income from? Most likely from you. Households earning as little as $50,000 a year are more likely to see a tax increase than a tax break from the legislation.
In the final hours before the House vote, the Joint Committee on Taxation (JCT) presented a breakdown of how the bill’s corporate tax increases would affect households at different income levels. The JTC, an impartial number-crunching agency within Congress, found that households earning between $50,000 and $75,000 are more likely to see a tax increase than a tax cut next year.
Higher-income households are more likely to see tax increases, but households making more than $1 million in the next year are more likely to receive a tax break than lower-income households.
That fits with what The Tax Foundation, a tax policy think tank, found when analyzing the bill. The inflation reduction law will “in the long term also reduce the average after-tax income of taxpayers in every income quintile,” the tax foundation reported on Wednesday. Those tax hikes will reduce long-term economic output by about 0.2 percent and could cut 29,000 jobs, the group noted.
Democrats pushed the law as a cost-cutting measure that would help Americans make ends meet, reduce the federal budget deficit and help protect the environment.
“It makes a difference at the kitchen table,” says Pelosi said at a press conference on Friday morning. “And at the boardroom table, companies now have to pay their fair share.”
If only those two things could be separated as cleanly as Pelosi implies. Corporate tax increases are passed from the boardroom table to the kitchen table in a variety of ways: lower wages for workers, higher prices for consumers, and lower returns on investments for shareholders.
As reason A length has been detailed in recent weeks, and other aspects of the bill also leave a lot to be desired. It would provide about $300 billion in new revenue to reduce the long-term budget deficit, but that aspect of the bill is probably better understood as a plan to pay for about one-eighth of the borrowing Congress has approved since Biden took office Has. Meanwhile, a massive budget increase for the IRS to allow it to hire 87,000 new agents likely means more tax audits aimed at the middle class, no matter what Democrats currently claim. Expanded subsidies for purchasing health insurance through Affordable Care Act marketplaces are likely to push up inflation. And the bill’s goal of reducing carbon emissions by 40 percent below 2005 levels by 2031 may be plausible, but only just.
Perhaps the only aspect of the anti-inflation law that is as bizarre as its name is the meta-analysis of the bill that is taking place in the political media. Its passage is a “win” that “could give Democrats a midterm boost,” according to NPR. It “will help confirm the Democrats’ monopoly of political power in Washington and give Joe Biden a notable presidential legacy ahead of the November midterm elections,” enthused CNN’s Stephen Collinson.
Time will tell, but that sounds like a reiteration of claims made after last year’s bipartisan infrastructure package — which, regardless of what you think of its merits, apparently didn’t do much to reverse Biden’s flagging approval rating.
Voting for tax hikes after a year of skyrocketing price increases doesn’t seem like a foolproof political strategy to me. More importantly, tax hikes are unlikely to help tame inflation. Biden and the Democrats clinched their slimmed-down House victory Friday night, but it’s probably not the political victory they envision.