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Less than a week after Joe Biden signed the Inflation Reduction Act into law, studies on its ineffectiveness continue to emerge. This time, the report came from the Tax Foundation. It concluded that, in the long run, the law would lower the incomes of virtually all Americans.
In addition to pouring $369 billion into combating “the existential crisis of climate change,” bureaucratizing the energy system, and doubling the size of the IRS, the legislation will directly affect taxpayers’ pockets.
Under the lens of the Tax Foundation, “the proposals would increase the after-tax income of the bottom quintile by about 2.1 percent in 2023 on a conventional basis, largely due to expanded health-care subsidies.”
However, we must remember that this effect will only take place in the short term (2023). Suppose we are to listen to the Disney character Rafiki, who said you have to “look beyond what you see.” In that case, the long-term scenario is very different, as after-tax income for people in all income groups except the top 1 % would fall by 0.2 %, while those in the top 1 % would see a reduction in after-tax income of 0.3 %.
“On a long-term dynamic basis, the smaller economy reduces after-tax incomes relative to the conventional analysis and most of the expanded tax credits will have expired. On average, tax filers in every quintile would experience a drop in after-tax incomes,” the report explained.
The Tax Foundation’s work contrasts with President Biden’s statements at the bill’s signing. At that time, the commander-in-chief assured that “no one —let me emphasize— no one earning less than $400,000 a year will pay a penny more in federal taxes.”
Beyond the new legislation’s tax implications, inflation is expected to rise shortly in response to the expansion of government programs. “By increasing spending, the bill worsens inflation, especially in the first four years, as revenue raisers take time to ramp up and the deficit increases,” the agency said.
In this dilemma about the long and short term to analyze economic policies, it was Henry Hazlitt who, more than 70 years ago, provided a reflection on the matter in his book Economics in One Lesson:
“The bad economist sees only what immediately strikes the eye; the good economist also looks beyond. The bad economist sees only the direct consequences of a proposed course; the good economist looks also at the longer and indirect consequences. The bad economist sees only what the effect of a given policy has been or will be on one particular group; the good economist inquires also what the effect of the policy will be on all groups.”
Joaquín Núñez es licenciado en comunicación periodística por la Universidad Católica Argentina. Se especializa en el escenario internacional y en la política nacional norteamericana. Confeso hincha de Racing Club de Avellaneda. Contacto: [email protected] // Joaquín Núñez has a degree in journalistic communication from the Universidad Católica Argentina. He specializes in the international scene and national American politics. Confessed fan of Racing Club of Avellaneda. Contact: [email protected]