A Comprehensive Overview of the Proposed Inflation Reduction Act (IRA)
On the heels of the monumental CHIPS Act, Senators Joe Manchin and Chuck Schumer announced a proposed deal on the Inflation Reduction Act (IRA), which is considered to be a paired down Build Back Better Plan, a previously unresponsive bill in the Senate to address inflation, reform corporate taxes, lower prescription drug prices and extend health insurance subsidies, and boost domestic energy production.
The pay-fors of this bill include:
- A 15% minimum corporate tax
- Boosted IRS enforcement
- Closing the carried interest loophole
- Drug price control proposal
When businesses are rebounding from COVID closures and facing an uncertain economic outlook, neither saddling them with further belt tightening nor passing costs to consumers is the recipe for strengthening the economy.
This past weekend the non-partisan Joint Committee on Taxation released their analysis of the bill and found that 49% of the revenue from this plan would come from increased taxes on manufacturers. An analysis by the National Association of Manufacturers says the tax in 2023 alone will reduce real GDP by $68.5 billion and cut labor income by $17.1 billion.
While the premise of the bill is aimed at reducing inflation, the Chester County Chamber of Business and Industry is concerned that this bill will exacerbate the root causes of inflation in an already battered economy. Inflation reduction would not be seen for years, while businesses would be impacted negatively by one size fits all tax approach, price controls, minimum tax, and avoiding comprehensive tax reform.
The Penn Wharton Budget Model examined the details of Schumer-Manchin’s deal and found that it doesn’t contain any net deficit reduction until 2027.
“The impact on inflation is statistically indistinguishable from zero” through 2031, say the Penn Wharton modelers. If the first deficit reduction doesn’t come for five years, what’s the help on inflation today? Inflation is hitting every sector of the economy: electricity is up 14%, groceries 12%, gas prices 60%. These prices are unsustainable and Congress’ tax-and-spend approach is not the solution.
Independent analysis continues to show that $327 billion in new taxes may slow inflation, but only if the economy falls into recession, which may be unavoidable at this point.
The last thing we need right now is to discourage investment and undermine economic growth, which is exactly what new taxes and price controls would do. The tax increases on business will discourage investment, while the Federal Reserve is also raising business costs with higher interest rates. Tax policy should be working in the opposite direction - to encourage investment when the Fed is tightening, and the economy is close to recession.
Further concern is the strategy to pass this legislation. Senate Democrats are attempting to push IRA through the budgetary reconciliation process. Reconciliation is not the traditional path for passing bills and requires only a simple majority of support versus the traditional 60 votes. Furthermore, transformative bills with such a large price tag in the face of looming economic uncertainty should be passed after thorough consideration and input from both parties.
We implore Congress to press pause on this massive bill and work toward a bipartisan solution, considering a possible recession, 40-year high inflation rates, and the current insurmountable pressure on our economy. Right now, businesses are looking for stability and initiatives to reduce inflation and increase consumer confidence. We are concerned this legislation continues to prioritize partisan initiatives and policies over American's businesses and families today.
The Chester County Chamber of Business and Industry is seeking input from our members on whether this bill would negatively or positively impact their business. Please reach out if you would like to provide testimonial.
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