The Daily Signal - Why So-Called Inflation Reduction Act Doesn't Reduce Inflation

Episode Date: August 10, 2022

The Senate narrowly passed the "Inflation Reduction Act" on Sunday, thanks to a tie-breaking vote from Vice President Kamala Harris. But would the bill, if also passed by the House, actually reduce the record-high inflation faced by Americans? "The bill drafters will tell you that it reduces deficits, which means it would be less pressure on the Federal Reserve to print money to cover the deficit, which is what they've been doing for the last two years, which is how we got the inflation we had," Heritage Foundation senior policy analyst Richard Stern says. (The Daily Signal is Heritage's multimedia news organization.) "However, the real truth is, if you go through the bill, it's going to probably increase deficits by $350 billion over the next 10 years, which is a lot of money obviously," Stern says. The House is preparing to vote this week on the Democrats' tax and spending bill, which likely will be signed into law Friday by President Joe Biden. Stern joins "The Daily Signal Podcast" to discuss the so-called Inflation Reduction Act, its impact on the average American, and why Stern is hopeful that better policy is on the horizon.  Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Daily Signal podcast for Wednesday, August 10th. I'm Kate Trinco. And I'm Samantha Rank. Americans are facing the highest inflation rate in nearly 40 years. Over the weekend, the Senate passed the Inflation Reduction Act with the help of Vice President Kamala Harris as the tie-breaking vote. The bill now heads to the House for a final vote this week. But what does the so-called Inflation Reduction Act actually do?

Will it really help reduce inflation? I talk with Heritage Foundation Senior Policy Analyst Richard Stern about that. how it could impact you and why the government is hiring 87,000 new IRS agents in today's episode. But before we get to Samantha's conversation with Richard Stern, let's hit today's top news. Leading Republicans are reacting to the FBI's raid of former President Donald Trump's home on Monday. The FBI searched Mar-a-Lago and reportedly removed both boxes and documents containing potentially classified information, but no electronics were taken, according to CBS. Trump issued a statement following the raid, saying, after working and cooperating with the relevant government agencies, this unannounced raid on my home was not necessary or appropriate. The former president also said the FBI even broke into a safe. Missouri Senator Josh Hawley tweeted on Tuesday morning, the raid by Joe Biden's FBI on the home of a former president who is also Biden's chief political opponent is an unprecedented assault on democratic norms and the rule of law.

Biden has taken our republic into dangerous waters. Former Vice President Mike Pence also weighed in on the news saying that he shares the deep concern of millions of Americans over the unprecedented search of the personal residence of President Trump, and that no former president of the United States has ever been subject to a raid of their personal residence in American history. It's still unclear what prompted the raid in the first place. The White House has denied knowing about the raid prior to a taking place. House Speaker Nancy Pelosi appears unconcerned about the threat of a GOP investigation into the Justice Department after the FBI's raid of Trump's home. On Monday night, Top House Republican Kevin McCarthy tweeted that if Republicans win the House, they will investigate the Justice Department. Asked about it, Pelosi said in an interview with today that she thought Democrats would hold the House, and that in light of other matters, it was a probably idle possibility, per the Hill.

Asked about the raid itself on MSNBC, Pelosi said, per Fox News, to have a warrant you need justification, and that says that no one is above the law, not even a president or a former president of the United States. Meanwhile, former New York Governor Andrew Cuomo, a Democrat who resigned in disgrace last year after sexual harassment allegations, raised questions about the FBI's actions. The former governor tweeted that the Justice Department must immediately explain the reason, for its raid, and it must be more than a search for inconsequential archives or it will be viewed as a political tactic and undermine any future credible investigation and legitimacy of January 6th investigations. President Biden signed the $280 billion Chips and Signs Act on Tuesday aimed at boosting

domestic production of semiconductor technology. The bill, which had bipartisan support, passed through the Senate with a 64 to 33 vote and in the House with a 243 to 187 vote. The Associated Press reported that the bill will dedicate $52 billion to bolster the U.S. computer chip sector. While speaking at the signing ceremony at the White House, Biden said the future of the chip industry is going to be made in America. Republican Congressman Michael McCall, who authored the Chips for America Act under former President Trump and chairs the China Task Force, supported the bill, tweeting, Right now, Taiwan produces 90% of all advanced semiconductor chips and the threat of a communist China takeover of Taiwan is real. Just recently, CIA director William Burns said, it's not a question of if Beijing will use force to control Taiwan, but how and when. Heritage Foundation President Dr. Kevin Roberts said the Chips Act does little to counter threats from the Chinese Communist Party.

In a statement, Robert said, the answer to the CCP's malevolent ambitions is not spending billions of dollars to have. help Fortune 500 companies with no guarantee those dollars won't end up supporting these companies' business operations in China. Additionally, the Act's $250 billion price tag will contribute to record inflation and increase the already historic cost of living for working and middle-class Americans. The Daily Signal is the news outlet of the Heritage Foundation. That's all for headlines. Now stay tuned for my conversation with Richard Stern as we discuss the Inflation Reduction Act and how it may impact you. As I approached the walkway from around the back of the building,

they had taken crowbars to almost all of our windows, two of our doors, and just shattered all of the glass. That's the voice of Susan Campbell, executive director of Blue Ridge Pregnancy Center. In the early hours after Roe v. Wade was overturned, vandals smashed windows, and spray-painted threatening messages out of the same. inside the center. I'm Virginia Allen. The Daily Signal has just released a documentary about what

happened to the Blue Ridge Pregnancy Center. Plus, we take a deep dive into the violence and attacks against crisis pregnancy centers across the country. Make sure that you're subscribed to the Daily Signal's YouTube channel so you can watch the new documentary and never miss our new content. Joining the podcast today is Richard Stern. He is a senior policy analyst at the Heritage and is joining the podcast to give us a rundown of the Inflation Reduction Act. Richard, thank you so much for joining us today. I thank you for having me on. Of course.

Now, let's just dive right in. The Senate passed the Inflation Reduction Act on partisan lines. And the House is set to vote on it this week. It's likely to pass, given the Democrat majority in the House, and will then be signed into law by President Biden. First and foremost, Richard, how does this act reduce inflation? Well, that's the true question. It doesn't. Now, the bill drafters will tell you that it reduces deficits, which means it'd be less pressure on the Federal Reserve, the print money to cover the deficit, which is what they've been doing for the last two years, which is how we got the inflation we have to have the inflation we have to have to go through the bill. It's going to probably increase deficits by $350 billion over the next 10 years, which is a lot of money, obviously. But really what it means is that the Federal Reserve is going to have to print the money to cover that. And the Federal Reserve has purchased 56% of the

of the new federal debt during the pandemic, which is where we got this inflation spike from. So in truth, if you ungimic the things that the left has put in this bill that they're claiming are going to be savers and you actually look at the real breast tax, it's going to increase deficits and increase inflation at the end of the day. So this bill is essentially a watered down version of Build Back Better. What was modified or removed from Build Back Better? So I would say this is certainly a win. The build back better bill was going to be $3.5 trillion of taxes and spending and regulations and everything else over a decade.

This is about a third of that in terms of its overall impact. So it certainly is a win. What I would say is they skimmed a lot out of a lot of different places. But to your point, it's a watered down version. It's a third of the size. But the core things that are in it are still the same. It's still an expansion of Obamacare. it's regulations on drug prices that are going to increase healthcare costs for everybody.

It's still tremendous amounts of green cronious subsidies that are going to waste trillions of dollars of private investment, forcing them out of conventional fuels that's going to ultimately raise energy prices for all Americans. And it's still a giant increase in taxation on businesses, half of which is going to fall on U.S. manufacturers. So this is going to ship jobs overseas to pleader industrial base. And really those tax at the end of day are going to be felt in everybody's pocketbooks through, you know, reduce paychecks or higher consumer prices. And you talk about people being able to feel the impact of this of this bill.

As I mentioned at the start of the interview, it will likely be signed into law by President Biden later this week. From Friday or Saturday, whenever the bill is officially signed into law, what happens after that? Like, how immediate will the impact of this law be felt for Americans? So a lot of the provisions don't take effect until next year, but the truth is, through next year, you're going to start seeing companies have to reduce their hiring or raise prices or cut paychecks to deal with the tax. You're going to see drug makers have to shift costs over to private insurance and to everybody else. As a note, by the way, part of what this bill is doing is it's giving the government a sweetheart deal where the government gets reduced prices on drugs.

It doesn't do anything to affect the real cost of producing these life-saving drugs. So those costs are just going to get passed back on to the rest of us, right? However, the other part of this is markets are aware of what's happening. Everybody knows that you're going to have all these tax increases at the beginning of next year, that you're going to have subsidies. Everybody knows, everybody's really paying attention, knows that it's going to increase deficits. The Fed's going to have to print money to cover it. So the truth is you're going to start seeing subtle effects tomorrow.

I mean, frankly, you've already seen them. I think a perfect example, by the way, is since they came out with the new framework, right, that ended up becoming this bill. Elon Musk has gained $30 billion in net worth because of Tesla stock going up just since they started talking about bringing back the electrical vehicle credits they're in this bill. So that's a real world effect that's already happened now. You know what I mean? So, you know, it's going to be hard to be able to point to exactly when people are going to start feeling exactly what, but in many ways, markets are already adjusting to what you're talking about, which is the kind of seeming inevitability that this is going

to be signed into law. Yes, and I actually wanted to talk a little bit more about the spending that's dedicated solely to climate action in a heritage report that you co-authored. You talk about the spending that is dedicated to tackling the climate crisis. The bill includes $369 billion toward this intended goal. How will this bill impact the average American who has already been facing higher gas prices? It's going to make everything worse. So that $360 billion you're talking about, I think one of the important parts about this for all the listeners, is that that's $360 billion of federal subsidies that's going to be used to leverage trillions upon trillions of dollars of investments, right? It's one of these where, you know, if you've got an industry that actually is profitable that actually produces real value for Americans like oil and gas and coal, and they've got a margin of 10 percent, right?

and I say I'm going to hand 20% over to some, you know, cylindra-type project. I'm only spending $20, but I'm moving $100 worth of investment, right? That's what's happening here. That $369 billion is going to be trillions and trillions of dollars of investment. It could have gone to oil, to gas, to coal, to real cheap energy sources, the fuel America. It would keep energy prices low for all Americans and allow for much more job opportunities and increasing paychecks. Instead, that money is now going to be shifted into green energy, things like Cylendra, things that don't store energy that, you know, with the wind isn't blowing or the

sun isn't shining, you don't get anything out of it. And so it's going to mean dramatically higher energy prices for all Americans. You just have to look to Europe where you can see that energy prices have been a lot of cases gone up. 50% have doubled in these countries where they've done exactly what this bill is doing, which is nudge the market so that they stop investing in real reliable energy sources and shifted these kind of cylindra-like projects. Now, this bill will also create a so-called slush fund for the IRS with a price tag of $78.9 billion. This is also a point that you talked about in the report. That money will also be used to hire 87,000 new IRS agents.

Can you tell us a little bit more about this IRS fund and the impact or potential impact these new agents could have on the American taxpayer. So this, I think, is a pivotal thing about the bill, right? At the end of the day, this is going to mean that it's average Americans that are going to get audited. They're going to be forced to have to settle with the IRS or pay thousands of dollars to fight an audit, even if they did everything right. And that's a sad reality of how it works. So I think there's an important point on this. The FBI, and what is clearly a political abuse, rated the former home of President Trump for no reason whatsoever, right? This bill is going to hire 87,000. into more IRS agents, it's going to nearly double the labor force of the IRS.

And a lot of these people are going to be armed. The IRS is holding onto tremendous stockpiles of ammunition and arms and things like that. What the Democrats are claiming is that this is going to be used for enforcement, the catch tax cheats. You know what, though? Four out of five audits that the IRS does right now are on people making and families making less than $200,000. In fact, 51% of all... audits in the IRS are on households making less than $75,000. So this isn't an enforcement on wealthy people or large corporations.

This is using the power of the federal government to pressure low and middle income Americans into paying money to the IRS. This is squeezing them for what they're worth just to make a few extra bucks to pay for this socialistic nightmare. And there's also this 15% corporate minimum tax on businesses in the bill. Can you talk a little bit more about that? and also, too, how could that potentially trickle down to the American consumer? So to answer your question, it's absolutely going to trickle down. And not just the consumer, but to workers, to your retirement account, everything. And so here's how this works, right?

Right now, companies pay an enormous amount of taxes. They pay payroll taxes, property taxes, sales taxes. The truth is, every step of the production process, there's some kind of tax. The left always loves to come out and say, oh, here are all these corporations that don't pay income taxes. Really what they mean by that is that there are companies that make profits but then park every dollar of profits back into building new factories, new facilities, hiring new people, giving that money back to the American public by creating job opportunities and creating the goods and services we all love and enjoy. So the way that the taxable income works is if you make those kind of good investments as a business, so you're hiring people expanding operations, we don't tax you on the profit. It's not really profit. it's reinvestment and expanding operations. What this does is it creates a quote-unquote minimum

tax where it uses a different definition of income that doesn't take into account the investments you make. So this is really just an end-around way to go to American businesses and say, hey, did you want to build a new factory? Did you want to hire more people? Did you want to produce more stuff? Before you can pass a go and collect a $200, you've got to give that money to the federal gap. So instead of building new steel mills, instead of building new factories, businesses are not going to take that money that they would have invested right here in new jobs, and they're going to hand it to the federal government. And the left is going to claim that somehow this is companies paying their fair share. The real sad truth of it is it's lower paychecks, it's higher consumer

prices, it's less availability of goods and services, it's fewer factors and facilities built here just to give the government money all based on this lousy, completely incorrect talking point about corporations needing to pay some kind of minimum tax. So that's really all this fantasy is right As I mentioned earlier, this bill is likely to pass the House and is likely to be signed into law by President Biden on Friday. Do you think that Democrats will stop here or do you anticipate similar legislation moving into the future? Oh, I would anticipate way more of this. To the question you asked me earlier on this, this is about the third of the size of the impact of the original BBB. They want to do all of them, right?

So I think, you know, they, you know, Mansion and Cinema put down red lines. saying we're not going to raise taxes during a recession. Seems like a great idea, right? We've got a recession now, and yet they've now come out in favor of this bill that raises taxes, right? So even when it seems that the other side has shown some semblance of reasonableness and respect for the economic reality crushing down on all Americans, they've still come back then with some other new bill, new taxes, new spending, new regulations.

We know what they want to do, right? They want to do BBB, and really they want to blow past. that. They would like to spend, I mean, we've got the Green New Deal that would have spent $10 trillion over 10 years. That's what they want to do. So yes, I think they're going to take every minute they can, every moment they can, and move as close as they can to inserting the government in your lives and controlling as much of your money as they possibly can at every step that they can. Now, Richard, finally, is there anything else you would like to address that you think that the media might be missing in its coverage of the bill? So I think one of the big things

I always point on this, right, is the media is taking them at their face value that this is somehow decreasing deficits. But there's more important than that, even if the bill did decrease deficits, and so it slightly reduced inflation, even if that was the case, the media is complicit in the idea that tax revenues are not harmful to people, but inflation is. The truth is both are harmful, right? So this bill, reducing inflation by raising taxes, is still. coming out of your wallet. Every American worker on average has faced a $3,400 decline in real wages. Part of that's inflation. Part of that's taxes, regulations, things like that. So the media likes to hyper focus on saying that, oh, you can do this one thing or that one thing. The truth is

these sins all interact with each other. To get rid of inflation by raising taxes, you're simply stealing more money from people right now. If you wanted to cut taxes but not cut government spending, you create the inflation we've had over the last few years, which is a taxing of itself. The real thing that needs to happen here is we need to cut government spending and we need to cut government regulations. There's no magic money pop somewhere. The only way they were going to allow the American economy to grow and for people to see the kind of prosperity we had back under Trump and decades ago in this country is by cutting the size of government, giving them money back to people, giving them back their economic freedom back. That's the only way to go about. How likely do you think that will be to just have that solution?

Are you hopeful? I am always very hopeful. I will tell you this. So back in the 1970s, right, we had kind of similar what's going on here right now, right? A stagnant economy, prices spiraling through the ceiling. You know, you had Nixon saying, you know, they're all Keynesians now, right? There was, there seemed to be this kind of complete abandonment of limited government conservative principles of believing in people to take care of themselves and innovate in a way that prospers all of America. And so in the 1970s, it looked like that dream was dead. But there you had 1980, Reagan's elected, And in 1981, and then later, you know, in 86 as well, we had fundamental tax reform that dramatically reversed course and allowed the U.S. to expand its manufacturing base and have the prosperity we had of the 80s and the 90s, right? So, you know, even in that kind of bleakest moment, there was that push right there. I think what you're seeing right now is an enormous percentage of the country is just fed up. They understand that taxes are bad, that regulations are bad, they understand that the federal government spent its way and printed money its way into. the inflation crisis. They're looking for a solution. They respects them and respects their freedom. I think all we need is a conservative movement in this country that's willing to embrace that,

the way that Reagan did, and offer that vision again. And I think we might be one or two elections away, frankly, from being able to have that movement take hold again and do some of these kind of once in a generation reforms that really would expand what's possible and lift everybody. Well, Richard, thank you so much for joining me today to discuss the inflation reduction I really appreciate it. Again, we had Richard Stern joining us. He's a senior policy analyst at the Heartage Foundation. Thank you. And that'll do it for today's episode. Thank you for listening to The Daily Signal podcast. If you haven't already, please be sure to subscribe to the Daily Signal podcast on Apple Podcasts, Google Play, Iheart Radio, and Spotify. And please leave us a review and a five-star rating on Apple Podcasts and encourage others to subscribe.

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