Coloradans are probably wondering what to make of the Inflation Reduction Act. Is it a reckless tax and spend scheme that includes teeth in the form of 86,000 new IRS agents, or is it a fiscally responsible way to save us from the worsening global warming crisis?
First, yes, the title is ridiculous – it isn’t likely to reduce inflation by any significant measure, although it will reduce health insurance costs for those buying their plans on the ACA marketplace with a continuation of increased subsidies.
A far more accurate title would be the Renewable Energy Incentives and Tax Reform Bill.
The bottom line is that the legislation will do some demonstrable good in helping the U.S. transition away from fossil fuels, and we don’t think you have to worry too much about the additional funding to the IRS … unless there’s something big in your tax record that you’d rather the IRS not know about, you scofflaws.
Also, the bill is paid for with a much-needed 15% minimum corporate tax on companies with more than $1 billion in profit. What that means is even if some of America’s largest corporations have found clever ways to reduce their tax bill far below the 21% rate, they will still pay a minimum of 15% (with a few caveats and deductions).
The bill net reduces the annual deficit (how much our $30.6 trillion national debt increases by each year) by around $300 billion. A good chunk of that reduction comes from Medicare finally being empowered to negotiate drug prices, so it’s a theoretical savings for now.
Compare that reduction, however, to the 2017 reconciliation bill, Trump’s Tax Cuts and Jobs Act, which cut the corporate tax rate from 35% to 21% and almost immediately caused a huge increase – from 3% of GDP in 2016 to 4.6% in 2019 — in the federal deficit, long before COVID wreaked havoc on our economy and federal spending. Today our deficit sits at an unhealthy 12.1% of GDP, higher even than the last economic crisis spending.
The bill attempts to reduce carbon emissions to slow global warming with a three-pronged approach: incentives for manufacturers of solar panels, wind turbines, and other green technologies; incentives for families to reduce their carbon footprints; and an excise tax (read penalty or fine) on methane emissions which are 25 times more heat-trapping in our atmosphere than carbon dioxide.
U.S. Sen. John Hickenlooper, who helped keep the lines of negotiation open with the needed Democrat hold-out vote, Sen. Joe Manchin, says the bill will be a turning point.
“The goal of this bill was to use the power of the market to drive a transition. We are going to call this someday the great transition, and we are going to look back on 2021-2022 as the tipping point,” Hickenlooper said in a meeting with The Denver Post on Wednesday. “We are going to scale when you look at $100 billion as incentives for wind and solar. We’re going to attract large investment companies. We’re talking about huge amounts of clean energy at a lower cost.”
Hickenlooper’s optimism is contagious. He talks about a revival of bipartisanship in the Senate with such hope — Sen. Mitt Romney came to his rescue when he and his wife, Robin Pringle, needed a place to quarantine during their bout with COVID. Manchin’s requirements for the bill were quite reasonable, as Hickenlooper tells it, including common sense measures like putting an income cap on tax incentives for electric vehicles and home efficiency improvements.
However, while we would like to trust that the $100 billion offered to green energy manufacturing efforts will be put to effective use by corporate America, we’ve seen too much fraud and graft with corporate incentives to celebrate too enthusiastically. We still remember Obama’s $80 billion green energy investment, which suffered so many failures, including the collapse of Solyndra after it received a $500 million loan guarantee, that it eclipsed any successful ventures.
Whether or not the bill is a colossal waste of taxpayer money or if it ushers in a new green economy will depend in large part on who gets the incentives, how honest they are, and how successful their enterprise is in bringing down the cost and improving the technology of green energy.
We also recognize, however, that Congress had to do something, and doing something has not been Congress’ strong point of late.
Hickenlooper did well to keep the ball moving forward, and perhaps corporate America will rise to the task of using our taxpayer dollars wisely and effectively. We are hopeful because there is no alternative to hope.
In the end, we hope Coloradans view the bill as a fiscally responsible step in the right direction for a government that hasn’t been able to take a step in many years.