Democrats are calling it the “Reducing Inflation Act.” Republicans say it’s a “tax and spending binge.” Everyone has a study that they say proves it.
Recent bipartisan action in Congress on issues ranging from producing computer chips to expanding NATO does not extend to Democrats’ latest economic package, which is fueling a battle over statistics and forecasts over whether it will help or hurt the economy.
For President Joe Biden, Senate Democrats’ $739 billion package could help lower inflation, cut budget deficits, tackle climate change and lower health care costs — as he seeks to appeal to a broader The state marketed this message.
Biden attended a virtual event Thursday to highlight the proposal with leaders from organizations including General Motors, Cummins, Kaiser Permanente and AFL-CIO. He called on Congress to listen to the public, dig into the numbers and vote for the bill.
“Look at the facts,” Biden said. “Hand it in. Get it on my desk. Pass it on to the American people. Pass it on to businesses and workers. Pass it on to America.”
But Republican lawmakers have their own set of numbers. They countered that the 15 percent minimum corporate tax included in the package would hit American factories and middle-class workers. They say energy costs will increase, while innovation in healthcare will fall because of price caps on prescription drugs. They say the IRS audit affects more people.
“This bill will hit manufacturing,” Sen. Mike Crapo, R-Idaho, said on Wednesday. “The bottom line here is that this tax is dangerous for America.”
The Republican senators were quick to foul after Majority Leader Chuck Schumer of DN.Y. and Sen. Joe Manchin of DW.Va. reached an agreement last week. The deal still needs the support of Sen. Kirsten Sinema, D-Ariz., to pass a tie-breaker Senate with Vice President Kamala Harris in a tiebreaker.
Many economists say the plan could moderately reduce long-term inflation and improve the federal government’s financial outlook. But it’s unclear whether the skeptical public will trust experts or stick to their beliefs and talking points that resonate most emotionally.
The Congressional Budget Office estimates the proposal would reduce the budget deficit by $305 billion over the next decade. That includes about $200 billion, with an $80 billion increase in funding from the IRS. The tax agency will be able to audit people earning more than $400,000 and collect taxes owed but not paid.
But the scale of the deficit reduction could be even greater.
The U.S. Treasury Department estimates that IRS enforcement could raise a net $400 billion over the next decade while improving customer service, allowing the agency to move from answering just 15% of calls to all calls, according to a senior administration official . on condition of anonymity to discuss internal data.
The Private Committee for a Responsible Federal Budget estimates that deficit reductions could be as high as $1.9 trillion over the next 20 years, largely because Medicare is able to negotiate lower prices for prescription drugs.
The Penn Wharton budget model estimates that inflation will fall after 2024, although its impact is statistically negligible.
On Tuesday, congressional leaders received a letter signed by 126 economists that concluded: “This proposal addresses, at scale, some of the nation’s greatest challenges. And because it’s reducing the deficit, it does so. It does this while putting downward pressure on inflation.”
However, because the measure relies on tax law, there is some controversy.
Some $370 billion for climate change includes tax breaks for “clean” electricity and manufacturing, as well as breaks for buying electric vehicles. It will impose a fee on methane and impose a minimum tax of 15 percent on companies with profits over $1 billion.
“It’s just a catalog of tax increases and green folly that Democrats have wanted for years, with a false new label on the front,” Senate Republican leader Mitch McConnell of Kentucky said Tuesday.
Republicans say the corporate tax would violate Biden’s promise not to raise taxes on those earning less than $400,000 a year. Their evidence is an analysis by Congress’ Joint Tax Committee, which assumed some of the tax costs would 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 corporate minimum tax was unlikely to be a burden on workers by its design.
“That’s what we call right-wing rhetoric,” Stiglitz said. “The argument for transferring it to clients or wages is very, very weak.”
Still, higher taxes may come at a price.
Republicans noted that nearly half of the minimum tax would hit manufacturers, a group that political leaders often pledge to protect, according to joint committee estimates.
Kyle Pomeroy, a senior fellow at the center-right American Enterprise Institute, estimated that the minimum tax could erode the benefits of existing tax incentives for companies to invest in new equipment and buildings.
Manchin described the minimum tax as filling a “loophole” rather than raising taxes, while Pomerleau said the senator’s description was inaccurate.
“The minimum tax rate doesn’t close any loopholes – it leaves all the loopholes wide open,” Pomerleau said. “It just leaves companies open to parallel taxes. It’s an unsatisfactory ‘patch’ to the tax code.”
During Thursday’s roundtable, Biden specifically asked manufacturers whether the bill would hurt or help them.
Jennifer Ramsey, chief executive of Cummins, which makes engines and power generation products, told him the bill would be “good for the economy and the environment.”
“We need the right policies,” she said. “Many of the market-based incentives we think are needed are contained in the Reducing Inflation Act.”