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Democrats call it the “Cut Inflation Act.” Republicans say it’s a “tax and spend spree.” And they all have a study they say proves it.
Recent bipartisan action in Congress on issues ranging from computer chip production to NATO expansion does not extend to the latest economic package from Democrats, which is creating a dueling battle of statistics and projections over whether it would help or hurt the economy .
For President Joe Biden, Senate Democrats’ $739 billion package can help reduce inflation, reduce the budget deficit, tackle climate change and address medical bills — a message he’s trying to sell to the wider country amid strong criticism of the Republicans.
Biden appeared at a virtual event Thursday to highlight the proposal with leaders from General Motors, Cummins, Kaiser Permanente and the AFL-CIO, among other organizations. He called on Congress to listen to the public, look at the numbers and vote for the bill.
“Look at the facts,” Biden said. “Pass it. Bring it to my desk. Pass it for the American people. Pass it for business and workers. Pass it for America.”
But GOP lawmakers have their own numbers. They counter that the 15% minimum corporate tax included in the package would hurt US factories and middle-class workers. They say energy costs will increase while health care innovations will decrease because of price caps on prescription drugs. They say IRS audits will affect more people.
“This bill will hurt manufacturing,” Sen. Mike Crapo, R-Idaho, said Wednesday. “The bottom line here is that this tax is dangerous for America.”
Republican senators were quick to cry foul when Majority Leader Chuck Schumer, DN.Y., and Sen. Joe Manchin, DW.Va., closed the deal last week. The deal still needs support from Sen. Kyrsten Sinema, D-Ariz., to pass an evenly divided Senate in which Vice President Kamala Harris is the tie.
What many economists say is that the plan could modestly lower inflation over the long term and improve the federal government’s economic outlook. But it is unknown whether a skeptical public will trust the experts or stick to their beliefs and more emotionally resonant talking points.
The Congressional Budget Office estimates that the proposal would reduce budget deficits by $305 billion over the next decade. That includes about $200 billion of the $80 billion increase in IRS funding. The IRS will be able to audit people making more than $400,000 and collect taxes that are owed but not paid.
But the size of the deficit reduction could be even greater.
Treasury Department estimates show that IRS enforcement could raise a net $400 billion over the next decade, while improving customer service so that the agency can only answer 15 percent of its phone calls in all, according to senior executive who spoke on condition of anonymity to discuss internal details.
The private Committee for a Responsible Federal Budget estimates that deficit reduction could reach $1.9 trillion over two decades, largely because Medicare would be able to negotiate lower prescription drug prices.
The Penn Wharton Budget Model estimates that inflation will decline after 2024, although the effect would be statistically insignificant.
On Tuesday, a letter signed by 126 economists was sent to congressional leaders, which concluded: “This proposal addresses some of the nation’s biggest challenges on a significant scale. And because it’s reducing the deficit, it’s doing so while putting downward pressure on inflation.”
However, the measure is causing some controversy because of how it is based on tax law.
The roughly $370 billion available for climate change includes tax breaks for “clean” electricity and for manufacturing, as well as breaks for buying electric vehicles. It would put an end to methane and impose a minimum tax of 15% on companies with more than $1 billion in profits.
“It’s just a list of tax hikes and greenies that Democrats have wanted for years, with a fake new label on the front,” Senate Republican Leader Mitch McConnell of Kentucky said Tuesday.
Republicans say the corporate tax would violate Biden’s pledge not to raise taxes on people making less than $400,000. Their data is an analysis by the Congressional Joint Committee on Taxation, which assumes that some of the cost of the tax will be passed on to workers in the form of lower wages.
Columbia University economist Joseph Stiglitz, a Nobel laureate who worked in the Clinton administration, said the minimum corporate tax is unlikely to burden workers because of its design.
“That’s exactly what we call right-wing rhetoric,” Stiglitz said. “The argument that it will be passed on to either customers or wages is very, very weak.”
However, higher taxes are likely to come at a cost.
Based on joint committee estimates, Republicans note that nearly half of that minimum tax would hit manufacturers, a group that political leaders have often vowed to protect.
Kyle Pomerleau, a senior fellow at the center-right American Enterprise Institute, estimated that the minimum tax could undermine the benefits of existing tax incentives for companies to invest in new equipment and buildings.
Manchin has described the minimum tax as closing a “loophole” rather than a tax increase, while Pomerleau said the senator is inaccurate in his description.
The “minimum tax doesn’t close any loopholes — it leaves all the loopholes open,” Pomerleau said. “It just subjects corporations to a parallel tax. It’s a one-time patch on the tax code.”
At Thursday’s roundtable, Biden specifically asked manufacturers whether the bill would hurt or help them.
Jennifer Rumsey, CEO of Cummins, which makes engines and power products, told him the bill would be “good for the economy and good for the environment.”
“We need the right policies,” he said. “And many of those market-based incentives that we think are needed are included in the Inflation Reduction Act.”
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