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Democrats’ reconciliation bill, improperly named the “Inflation Reduction Act,” contains numerous gimmicks designed to deceive voters and circumvent congressional rules.  

This bill uses several budget gimmicks: a short extension of Obamacare subsides, a repeal of the “rebate rule” that never has nor never will go into effect, and supersizing the Internal Revenue Service (IRS) to “solve” an overstated tax gap. This bill attempts to circumvent the Byrd rule by erroneously calling a mandate “a tax.” The bill would also violate President Biden’s tax pledge to not raise taxes on anyone making less than $400,000 a year.  

1. The Obamacare subsidies in this bill are only extended until 2025, despite expectations that they will be extended again. 

In the American Rescue Plan (ARP), President Biden and congressional Democrats expanded Obamacare subsidies – specifically the advanced refundable premium tax credit – by increasing benefits for households at every income level and expanding them to households earning more than 400 percent of the federal poverty level. Because these enhanced benefits are set to expire later this year, Democrats are attempting to extend them through 2025 in this legislation. 

Once these expanded subsidies have been in place for five years total, it will be extremely difficult to get rid of them. Given the high likelihood – and expectation – that these subsidies will be extended once they’re set to expire again, the three-year extension is a clear gimmick.  

If the expanded subsidies were extended indefinitely, the 10-year budget deficit reduction falls from $248 billion to $89 billion, according to the Penn Wharton Budget Model.  

2. The bill repeals the “rebate rule,” despite the fact that it was never going into effect. 

Under the Trump administration, the HHS released the rebate rule which sought to lower drug prices by altering payments from drugmakers to pharmacy benefit managers. The Trump administration never went through with this rule nor has the Biden administration taken it back up again (to be clear, they never will).  

Even so, Democrats claim the repeal would reduce the deficit by $120 billion. Clearly, it would not.  

Already, between the likely extension of Obamacare subsidies and this rebate rule, the bill doesn’t actually reduce the deficit at all.  

3. The IRS would be supersized to solve an overstated “tax gap.” 

The Joint Committee on Taxation estimates that $80 billion in additional funding to the IRS would increase tax revenue by $125 billion. While increasing tax enforcement would certainly raise more money from unsuspecting small businesses, the Left has assumed that this can and will be done through increased enforcement on the wealthy. 

In reality, wealthy individuals and large corporations are almost always tax compliant. The wealthy and large corporations already have armies of lawyers and accountants that ensure they legally take advantage of the plethora of credits and deductions offered by the tax code. Further, the IRS already audits the largest corporations at high rates. It doesn’t matter how much more the agency receives in funding – they will not find violations in the law that do not exist. 

Thus, the IRS won’t find much more revenue from their big targets.  

Additional funding will instead be used for invasive, time-consuming, and non-fruitful audits of middle-class Americans and small businesses. The IRS previously announced a goal to increase small business audits by 50 percent.  

As previously reported by CNBC, experts say a fattened-up IRS would go after small businesses that necessarily depend on cash transactions:  

Certain small businesses may face an audit under the plan. “I think the industries that should be concerned are those in cash,” said Luis Strohmeier, a Miami-based CFP and partner at Octavia Wealth Advisors.  

[He expects the agency to scrutinize cash-only small businesses like restaurants, retail, salons and other service-based companies.]  

4. The bill implements price controls through a 95 percent tax

The bill would give the Health and Human Services Secretary the authority to “negotiate” the price of prescription drugs on behalf of Medicare. By “negotiation,” Democrats mean drug manufacturers will pay a 95 percent excise tax on prescription drug profits unless they accept price controls set by the Department of Health and Human Services (HHS). In 2023, the Secretary would be able to determine the prices of 10 prescription drugs. The determined price would go into effect in 2026. The number of drugs the HHS Secretary could set prices for would then increase to 15 in 2028 and 20 in 2029.    

That tax itself is forecasted to raise zero revenue. Neither the JCT analysis nor any independent analyses estimate that any company would pay this exorbitant tax. A 95 percent “tax” on revenue is just a stick to enforce a mandate for government price controls. This is a way to circumvent the Byrd rule, which requires that all the provisions in a reconciliation bill directly change federal spending or revenue. While a tax is obviously protected under this rule, it’s not clear that mandates of this kind are.  

5. The reconciliation bill raises taxes on those making less than $400,000, violating President Biden’s tax pledge.  

Throughout the ten-year window, the JCT estimates that nearly every single income group will see their taxes raised. Those Americans making less than $200,000 will see their taxes raised by nearly $17 billion. For those making between $200,000 and $500,000 (as the JCT doesn’t cut off brackets at $400,000), their taxes would increase by another $14 billion.  

Senate Finance Ranking Member Mike Crapo (R-Idaho) rightly points out that at least half of all new tax revenue raised by this bill would come from those earning under $400,000: 

According to JCT data, 98 percent of all tax returns filed by those in the $200,000 to $500,000 category are filed by those earning between $200,000 and $400,000, with at least three-fourths of the income in the $200,000 to $500,000 category also coming from those below $400,000, meaning it is likely that at least half of all new tax revenue raised next year would come from those earning under $400,000.” 

Clearly, this tax hike violates President Biden’s pledge not to raise one penny of taxes on any American earning less than $400,000 per year. 

If Biden and Harris want to keep their pledge, they must veto the bill or instruct congressional Democrats to change the bill.