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ON TUESDAY, August 16, President Joe Biden signed the Tax and Climate Change Act, also known as the “Inflation Reduction Act” by his party. The legislation seeks to bring resources to the renewable energy sector, lower prescription drug prices, and impose new taxes on businesses in the United States.
The legislation is being hailed by the Biden administration as a political triumph amid a persistent decline in his administration’s popularity.
Tax and climate change bill will not reduce inflation
With the passage of the bill, the price of some prescription drugs, such as insulin, will be directly negotiated through Medicare, which would cause them to cost less because the government has the ability to negotiate a lower price with the pharmaceutical companies.
In addition, there is a package of tax incentives for companies investing in renewable energy, mainly from wind or solar sources.
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In order to encourage the purchase of electric vehicles, the law contemplates a $7,500 tax credit in addition to the existing one. However, the approval of the law has had an undesired effect and some automakers have begun to raise the prices of their models.
Although the legislation aims to lower energy costs, this could take years before it materializes in lower prices.
The U-Penn budget model estimates that the reduction in inflation in the short and medium term will be virtually zero from the Inflation Reduction Act. In fact, this law could lead to a further increase in the price of household appliances, the purchase of which it seeks to subsidize under the pretext that Americans will purchase more energy-efficient appliances.
While Democrats seek to regain votes in the midterm elections, they will have a difficult time explaining to their voters how this law actually lowers the cost of living.
This law also creates a minimum corporate tax of 15%, as well as a 1% tax on share repurchases by companies.
President Biden and the Democratic Party have claimed that this legislation will only affect the wealthiest Americans, however, the latest analysis from the Congressional Budget Office (CBO) has found that middle class Americans could end up paying as much as $20 billion in additional taxes as a result of the new tax and climate change bill.
The Internal Revenue Service (IRS) will be the government department that will benefit the most, as it will receive more than $80 billion to collect more than 87,000 additional agents, who will be responsible for collecting taxes on businesses and Americans.
This additional $80 billion for the IRS is intended to achieve taxation of unreported income of citizens, which will have a special impact on small businesses and individuals.
Although Democrats are unwilling to admit it, the increase in the government’s fiscal apparatus will lead to citizens paying more taxes.
Treasury Secretary Janet Yellen herself has admitted that IRS expansion could lead to an increase in taxes paid by the middle class, as she warns in a letter to IRS Commissioner Charles P. Rettig:
“Any additional resources… shall not be used to increase the share of small business or households below the $400,000 threshold that are audited relative to historical levels.”
With the passage of the Inflation Reduction Act, Democrats claim a victory in Congress, while Americans will be stuck with a law that does not reduce inflation, but does raise taxes.
Economist, writer and liberal. With a focus on finance, the war on drugs, history, and geopolitics // Economista, escritor y liberal. Con enfoque en finanzas, guerra contra las drogas, historia y geopolítica