Save America. Kill the bill. The bill, of course, is the Schumer-Manchin reconciliation bill. Killing it will not be easy, but we will continue to put our best foot forward on policy grounds.
The more we learn about this bill, the less everybody seems to like it. The “Inflation Reduction Act” doesn’t seem to have much inflation reduction in it, according to the Penn-Wharton budget model.
It’s not a supply-side model, but its results suggest that the impact on inflation is statistically indistinguishable from zero. Let me just say, there’s never any automatic link between budget deficits and inflation anyway. So, I never bought that argument to begin with.
The principle cause of inflation is overly easy money and in this current cycle, overly excessive federal spending contributed as well, but one of the economy killers beside sky-rocketing inflation is Biden’s woke regulatory strangling of the economy starting with fossil fuels, but continuing through virtually all business and industry.
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Biden slapped on $200 billion worth of regulatory costs in his first year alone. That’s more important than a bunch of phony accounting gimmicks designed to bring down the budget deficit for a couple of years.
If you take a look at reconciliation, there’s a $739 billion tax hike and $433 billion in spending, but the Obamacare spending is only scored for three years. Over 10 years it will be over $200 billion, so that wipes out about $150 billion in so-called deficit reduction and the idea that we’re going to give the IRS another $80 billion that will generate another $124 billion in tax revenues, that game is tried again and again, and it fails again and again, and it’s just more phony baloney.
Also, energy loans and loan guarantees are scored as interest-yielding assets generating a lot of money. Good luck with that. Remember Solyndra? Or how those student loans worked out? But the biggest whopper is that the deficit reduction crowd kind of forgot to add in the $280 billion CHIPS+ bill that had no pay-fors.
I’m sure it’s just an oversight, but suddenly when you tally last week’s congressional actions, there’s almost $900 billion in spending against $740 billion in revenues, which sounds like a deficit to me.
Please feel free to check my math, but more important is this whole idea that 100% expensing of business investment is a tax loophole. It’s not. The reason taxable income is lower than book income for corporations is you get to deduct by law, by intention, in the 2017 Trump tax cuts, to permit immediate bonus deductions for new plants, equipment, technology, etc.
This was done to make America more competitive, to increase productivity and real wages and typical family incomes on purpose, along with the tax rate reduction from 35% to 21%.
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Those were the twin pillars of the supply-side business tax cut and it worked. Median income soared. Unemployment crashed. Poverty fell. Inequality fell and there was no inflation and abstracting from the pandemic shutdown, it paid for itself as the Laffer curve kicked in.
The Schumer reconciliation bill would stop the surge of business investment. Big mistake ! And, because 70% of the corporate tax burden is borne by blue-collar working folks, putting in a 15% alternative minimum tax on book income is going to lead to across-the-board tax increases.
According to the Joint Committee on Taxation, which is no friend of supply-siders, 50% of the burden of the minimum tax would hit manufacturers. By the way, today’s ISM report for manufacturing fell to its lowest level since June 2020, but then, to varying degrees, every other industry will shoulder tax hikes, including a 7.2% tax hike on coal, and a $25 billion tax hike on oil, and for that matter fossil fuels in general and—get this—there’s a carveout for Green New Deal tax credits. There’s a shocker!
There’s also a carveout for a refundable tax credit on semiconductors, although the chip industry will be hit hard by the 15% minimum corporate tax. What the one hand giveth, the other hand taketh away.
Some other tidbits, again from the Joint Committee on Taxation: People earning under $10,000 a year will be hit the hardest with a 3.1% tax hike. Folks between $20,000 and $30,000 will have a 1.1% tax hike. People under $100k will get a $6 billion tax hike. People making less than $200k a year will have a $17 billion tax hike.
So pretty much everybody gets a tax hike. What a joy! Just like Christmas in August. Terrific stuff.
Here’s a multiple-choice question: Will this tax hike make the economy A) growthier, or B) more recessionary? If you answered B, you win the lottery. Next question: Will roughly $900 billion in additional spending generate: A) higher inflation, or B) lower inflation? If you answered B, you also win the lottery.
But on an after-tax, after-inflation basis, lotteries are not worth what they used to. For heaven’s sakes, save America, kill the bill.
This article is adapted from Larry Kudlow’s opening commentary on the August 1, 2022, edition of “Kudlow.”