Inflation is caused by too much money chasing too few goods. That means there are only two ways to reduce inflation: reduce the growth rate of the money supply or increase the growth rate of the economy. The act would do neither. In fact, by raising taxes and diverting resources from the productive private sector to the inefficient government sector, the act would reduce economic growth.
This is from David R. Henderson, “Inflation Reduction Act Will Increase Taxes for Most People,” TaxBytes, August 3, 2022, published by the Institute for Policy Innovation.
Another excerpt:
Fortunately, the Joint Committee on Taxation (JCT) has done its job, estimating the increase in taxes for people in each income group.
The $54.3 billion tax increase for 2023, the JCT estimates, won’t increase taxes for anyone with income between $0 and $30,000. But the JCT also points out that its measure of income includes not just adjusted gross income but also employer contributions to health insurance, the employer’s share of the Social Security tax (FICA), and the insurance value of Medicare benefits. So millions of people whose adjusted gross income is below $30,000 will pay somewhat higher taxes.
People with income up to $75,000 won’t pay much more. But people with income between $75,000 to $100,000 will see their average tax rate rise from 15.8 percent to 16.0 percent. The average tax rate for people with income between $100,000 and $200,000 will rise from 19.1 percent to 19.4 percent, and between $200,000 and $500,000 will rise from 24.1 percent to 24.4 percent.
Read the whole thing, which is quite terse.
READER COMMENTS
vince
Aug 4 2022 at 10:37am
Interesting comment in the article: “The U.S. Congress’s Joint Committee on Taxation estimates that for every $100 in taxes on corporations, owners of capital (shareholders) pay $75 and workers pay $25.”
What is meant by workers paying $25–reduced benefits? Shouldn’t consumers absorb some of the taxes?
aaron
Aug 4 2022 at 12:17pm
Increasing the supply of the reserve currency and policy that makes investment in production uncertain/impractical, reducing competition to increase supply affects prices everywhere.
Biden’s actions on his first day n office made this dynamic inevitable: https://web.mit.edu/krugman/www/opec.html
https://mobile.twitter.com/aaronshem/status/1555207451359813633
aaron
Aug 4 2022 at 12:22pm
It will take strong leadership to break this dynamic. From 2011 facebook post.
Whenever people start talking about OPEC, like to point out this Paul Krugman paper from 2001, http://web.mit.edu/krugman/www/opec.html.
When people say that the US cannot affect the price of oil, I like to point out several things: 1.) That’s a good thing because every bit we produce goes to our GDP. 2.) That’s a good thing because every bit we don’t import adds to our GDP. 3.) That’s a good thing because every bit we don’t import reduces our trade deficit. 4.) That’s a good thing because it means lots of tax revenue (see and 2). 5.) Don’t be so sure about that, a little competition could spur production in lots of other places.
Many producers produce inefficiently (and messily) because they believe price rises will keep them wealthy. E.g. Venezuela, Russia in the 1990s… They don’t keep their equipment maintained and they waste/spill a lot. US hoarding sends a signal to oil producing nations with two implications: 1). Alternative Energy is nowhere near ready, otherwise the US would be extracting its oil before prices fall; the US likely doesn’t expect alternatives to ever be better than fossil fuels. 2). Current producers can make money by keeping production low.
If the US told the world it believes alternative energy R&D would pay off within the next 50 it would mean nothing, unless they back it up with extraction for the medium term.
I believe that if the US said that there was no future in oil, and backed it up by pumping full- tilt to take advantage of the current high prices, we’d see both alternative research take off as well as exploration, extraction, and productivity throughout the world.
Reagan wasn’t the Great Communicator because of how he talked. Actions speak far louder than words.
aaron
Aug 4 2022 at 12:28pm
Nothing would do more to reduce inflation and stimulate the economy than this campaign. And it would reduce greenhouse gas emissions more than kyoto and paris. It would earn a lot of goodwill for other efforts.
“Nothing would do more to reduce fuel consumption & traffic than to get people to accelerate faster, pay attention & avoid using brakes. After that, replace speed limits with adjustable Target Speeds. And, get rid of unnecessary stop signs!” #AntiFragileEnergy
Michael
Aug 5 2022 at 6:46am
Just allowing climate change, by contrast, is costless: it has not and will not increase “taxes” on anyone.
Comments are closed.