Biden Administration Admits Inflation Reduction Act Would Raise Americans' Taxes, Will Barely Affect Inflation

This week, Senate Democrats want to approve legislation that they call a historic investment in climate change mitigation, affordable health care, and tax code justice.

As per Moody's Analytics senior economist Mark Zandi, the 725-page plan negotiated by Senators Chuck Schumer (D-NY) and Joe Manchin (D-WV) would only reduce the Consumer Price Index - a frequently watched gauge that monitors how much consumers spend for goods and services - by 0.33 percent by 2031.

Democrats Rush To Pass Inflation Reduction Act

According to Schumer and Manchin, the plan will cut inflation by decreasing prescription medicine and energy costs while also reducing the federal budget deficit by imposing a 15% minimum tax on firms with annual revenue of at least $1 billion. The IRS has expanded tax enforcement, as well as demanding a cut of profits produced by general partners at private equity, hedge funds, and venture capital companies, known as carried interest.

However, analysts believe that the Democrats' inflation remedy is likely to be unsuccessful and may even be worse than the disease. According to Alex Muresianu, a federal policy analyst with the Tax Foundation, the corporation tax, also known as the book minimum tax, would decrease supply in the long term by lowering incentives to invest, particularly for manufacturing enterprises, as per New York Post.

As the United States enters a recession after two-quarters of negative GDP, Sen. Joe Manchin is rejecting statistics that show his measure will raise taxes on the middle class in such a difficult economic environment.

Based on the committee's study, Manchin's measure, formally dubbed the Inflation Reduction Act, would boost taxes in 2023 on six of eight income categories earning less than $200,000. Republicans, meanwhile, argue that Manchin's measure, launched last week with Senate Majority Leader Chuck Schumer, D-N.Y., makes no sense during a technical recession with two-quarters of the economy contracting, according to Fox News.

Republicans Reveal Consequences of Passing the Bill

Republican lawmakers also cited a budget model developed by the University of Pennsylvania's Wharton business school, which predicted that the legislation would very slightly increase inflation until 2024 and decrease inflation thereafter. Manchin, a key player in the bill's negotiations, said he would "agree to disagree" with the JCT's predictions.

On Monday, Manchin told reporters at the US Capitol that the package has not one penny of tax reform for Americans earning less than $200,000. The proposal is Democrats' latest effort to pass a major budget bill without Republican backing before the November midterm elections.

Among other things, it increases the IRS budget, offers green energy subsidies, expands Affordable Care Act (ACA) subsidies, and decreases prescription medication costs. According to the Penn Wharton Budget Model, the $740 billion measure, which contains around $433 billion in additional expenditure, would cut the deficit by $248 billion.

However, making ACA subsidies permanent would reduce the deficit reduction to just $89 billion. In addition to boosting taxes on Americans earning less than $200,000, the JCT estimates that it would raise taxes on Americans earning $200,000 to $500,000 by $14.1 billion.

Americans earning more than that would face a $23.5 billion tax increase. Republicans allege that after 2031 Democrats' green energy tax credits will compel Americans earning less than $400,000 to "carry up to two-thirds of the weight of the increased tax revenue gathered that year."

However, the GOP-commissioned JCT report excludes the benefits of healthcare and green energy subsidies, as well as decreased prescription medication costs, for regular Americans.

Manchin and Senate Majority Leader Chuck Schumer discussed the deal behind closed doors. Manchin, who has previously failed to pass a budget bill through reconciliation, promoted the proposal on all five major news networks' Sunday broadcasts.

The reconciliation approach would allow Democrats to approve the package with only a slim Senate majority and Vice President Kamala Harris' tie-breaking vote. However, for it to pass, every member must vote in unison. He also disputed that his support for the measure would jeopardize future bipartisan attempts, Daily Mail reported.