One year after its passing, it is clear that Biden’s Inflation Reduction Act was a failure.
Since President Biden took office, prices have risen by 17.4 percent, accounting for a 4 percent decline in real wages and benefits. American families are spending $709 more per month than they did two years ago. Last month, Americans’ credit card debt hit a record $1 trillion, up from $770 billion when Biden took office.
Despite Democrats’ vows to address inflation – evidenced in the name of the bill itself – no relief has been delivered to the American people.
According to a new poll by HarrisX, U.S. voters are more than twice as likely to say that the IRA increased inflation (43 percent) rather than decreased inflation (18 percent).
This is unsurprising, as the Inflation Reduction Act was never about lowering inflation. In fact, at a private fundraising event in Utah, Biden revealed that he regretted the name:
“I wish I hadn’t called it that because it has less to do with reducing inflation than it has to do with providing alternatives that generate economic growth.”
In addition to the bill doing nothing to address crippling inflation, the IRA raised taxes on the American people, empowered the Internal Revenue Service (IRS) with $80 billion to harass and audit more taxpayers, and imposed dangerous price controls on medicines to fund green energy subsidies, costing lives.
IRA’s Supersizing of the IRS Will Empower the Agency to Harass and Audit More Taxpayers
The IRA spent $80 billion to supersize IRS with 87,000 new agents and auditors to ramp up audits on working households and small businesses. The IRS is now estimated to perform an additional 1.2 million annual audits as a result of the IRA. The Treasury Inspector General of Tax Administration (TIGTA), the official IRS watchdog, has found the IRS is unable to fulfill President Biden’s pledge not to increase audits on households or small businesses making less than $400,000 per year.
The IRA also included a provision that hands the IRS taxpayer funding to lay the groundwork for creating a government-run tax preparation system. This would incentivize the IRS to overcharge taxpayers or withhold information from filers to maximize revenue. Private tax preparation companies, in contrast, have a financial incentive to minimize the taxes their clients owe.
Medicare Savings in IRA Will Go Towards Green Energy Subsidies Instead of Seniors
In addition to other burdensome changes to Medicare, the IRA gave the Health and Human Services Secretary the authority to “negotiate” the price of prescription drugs on behalf of Medicare. This policy was a primary source of revenue for the bill.
In reality, the bill gives the Secretary power to simply determine the price he or she deems acceptable and impose a steep tax of up to 95 percent on companies who charge more. Starting in 2026, 10 drugs will be subject to price controls under Medicare. Roughly 16 percent of Medicare enrollees used these selected drugs in the last year.
Instead of taking the savings from the IRA’s Medicare reforms and putting it towards lowering costs for seniors or preventing looming insolvency, the savings were spent benefiting wealthy Americans through green energy tax credits.
The senior-subsidized green energy provisions include a $7,500 tax credit for luxury electric vehicles, a $4,000 previously-owned electric vehicle credit, an annual $1,200 credit for “energy efficient” doors and windows, and more.
As Mark Merritt explains in the Wall Street Journal, “the program’s costs are projected to spiral from about $1 trillion this year to $1.8 trillion in 2031,” negating any deficit reduction supposedly designed to reduce inflation through the law.
At a time when Medicare is set to become insolvent and its enrollees, on average, earn less than $30,000 a year, roughly $280 billion in savings from the bill’s Medicare prescription drug provisions went to these green energy handouts.
According to a new poll by HarrisX, 80 percent of registered voters say any Medicare savings from these caps should be applied to lower users’ prescription drug costs before being made available for unrelated tax credits, such as green tax credits.
IRA Price Controls Will Hurt Innovation, Costing Lives
While the idea of simply “lowering prescription drug costs” through blunt force can be attractive, behind each of the drugs subject to price controls are companies that do vital work in medical innovation. When extorted by the U.S. government, they will have to make up lost costs elsewhere.
As noted, this law discourages new medical innovation – a consequence that will have the furthest-reaching effects. This is because it increases the financial risk companies take on when they start to develop new drugs. Under this law, they may never recoup the amount of money they put into R&D. Notably, in an industry like drug development, the risk is already very high.
During an average drug development process, a manufacturer must invest an average of $2.6 billion and spend 11.5 to 15 years in research and development. Even so, most drug development programs fail.
As detailed by Stephen Ezell of the Information Technology & Innovation Foundation (ITIF), as little as 0.05 percent of drugs make it from drug discovery to clinical trials. Of the few medicines that make it to clinical testing, only about 12 percent of medicines that begin clinical trials are approved for introduction by the FDA. Even if a drug is approved, it is likely that the profits from said drug will not recoup its R&D costs. One study in the Health Economics journal found that 80 percent of new drugs made less than their capitalized R&D costs.
Needless to say, starting a new drug program is, statistically, an almost guaranteed financial loss for drug manufacturers. Now, even if their drug is highly effective and popular, companies risk their prices being capped by the federal government.
Even before implementation, several drug manufacturers have already warned of development programs they had to end or will likely have to end, including Eli Lilly, Alnylam, Bristol Myers Squibb, AstraZeneca, Novartis, Sage Therapeutics, Amgen, etc.
One study, conducted by Tomas J. Philipson and Giuseppe Di Cera out of the University of Chicago, details how the IRA’s price control provisions will lower R&D activity so drastically that it will result in 135 fewer new drugs, generating a loss of 331.5 million life years in the United States, more lost life years than the first two years of the coronavirus pandemic.
The loss in R&D spending on cancer treatments alone will total $18.1 billion annually, wiping out nearly a third of the current annual spending on this research. This is particularly ironic given President Biden’s alleged goal to eradicate cancer through his “Cancer Moonshot” program.
Without giving any thought to the consequences or tradeoffs of “just making companies charge less for drugs,” the Biden Administration will be responsible for an abhorrent loss of life because of its policies.
Americans Do Not Trust the Government’s Ability to Set Drug Prices
Rightfully so, there is a clear trust deficit with voters over the government’s ability to set prices for drug costs and lower out-of-pocket expenses. As detailed by HarrisX:
- A plurality of registered voters (40 percent) distrust the federal government to decide the price of prescription drugs, so that Americans will actually see lower prices at the counter.
- Over 3 in 5 Republicans distrust the federal government to set prices.
- A plurality of Independents distrust the government’s ability to set prices (38 percent).
List of Tax Hikes in the IRA
$6.5 Billion Natural Gas Tax Which Will Increase Household Energy Bills
The bill imposes a regressive tax on American oil and gas development. The tax will drive up the cost of household energy bills. The Congressional Budget Office estimates the natural gas tax will increase taxes by $6.5 billion.
The tax hike violates President Biden’s tax pledge to any American making less than $400,000 per year. Biden administration officials have repeatedly admitted taxes that raise consumer energy prices are in violation of President Biden’s $400,000 tax pledge.
A letter to Congress from the American Gas Association warned that the methane tax would amount to a 17% increase on an average family’s natural gas bill. Democrats have included a tax in the bill despite retail prices for energy surpassing multi-year highs in the United States.
$12 Billion Crude Oil Tax Which Will Increase Household Costs
With gas averaging more than $4.00 per gallon across the country and only weeks removed from record-high prices, Democrats have included a 16.4 cents-per-barrel tax on crude oil and imported petroleum products that will be passed on to consumers in the form of higher gas prices.
The tax hike violates President Biden’s tax pledge to any American making less than $400,000 per year.
As noted above, Biden administration officials have repeatedly admitted taxes that raise consumer energy prices are in violation of President Biden’s $400,000 tax pledge.
As if it weren’t bad enough, Democrats have pegged their oil tax increase to inflation. As inflation increases, so will the level of tax.
The non-partisan Joint Committee on Taxation (JCT) estimates the provision will raise $12 billion in taxes.
$1.2 Billion Coal Tax Which Will Increase Household Energy Bills
The bill would more than double current excise taxes on coal production. Under the Democrat proposal, the tax rate on coal from subsurface mining would increase from $0.50 per ton to $1.10 per ton while the tax rate on coal from surface mining would increase from $0.25 per ton to $0.55 per ton.
JCT estimates that this will raise $1.2 billion in taxes that will be passed on to consumers in the form of higher electricity bills.
$225 Billion Corporate Income Tax Hike Which Will Be Passed on to Households
Democrats imposed a 15 percent corporate alternative minimum tax on the financial statement income of American businesses reporting $1 billion in profits for the past three years. These American companies employ millions of Americans.
The cost of this tax increase will be borne by working families in the form of higher prices, fewer jobs, and lower wages.
A Tax Foundation report from last December found a 15 percent book tax would reduce GDP by 0.1 percent and kill 27,000 jobs.
Preliminary cost estimates from the Congressional Budget Office found the provision would increase taxes by more than $225 billion.
According to JCT’s analysis, 49.7 percent of the tax would be borne by the manufacturing industry at a time when manufacturers are already struggling with supply-chain disruptions.
$74 Billion Stock Tax Which Will Hit Your Nest Egg — 401(k)s, IRAs and Pension Plans
When Americans choose to sell shares of stock back to a company, Democrats will impose a new federal excise tax which will reduce the value of household nest eggs. Raising taxes and restricting stock buybacks harms the retirement savings of any individual with a 401(k), IRA or pension plan.
Stock buybacks help grow retirement accounts. Raising taxes and restricting buybacks would harm the 58 percent of Americans who own stock and more than 60 million workers invested in a 401(k). An additional 14.83 million Americans are invested in 529 education savings accounts.
Retirement accounts hold the largest share of corporate stocks, accounting for roughly 37 percent of the outstanding $22.8 trillion in U.S. corporate stock, according to the Tax Foundation.
In 2017, corporate-sponsored funds made up $4.45 trillion in market value; union-sponsored funds accounted for $409 billion; and public-sponsored funds, which benefit teachers and police officers, added up to $4.25 trillion.
When companies perform stock buybacks, these investors are the ones who benefit. A tax on buybacks could dissuade companies from conducting this action and negatively impact retirement savings.
95% Federal Excise Tax on American Pharmaceutical Manufacturers
Democrats would impose a 95 percent excise tax on prescription drugs unless drug manufacturers accept government price controls.
In reality, all drug manufacturers would accept the price controls or stop selling the drug in the U.S. market entirely rather than pay the 95 percent tax.
This provision would restrict U.S. medical innovation and limit the supply of new medicines.
Price controls never work because they cause supply shortages. CBO warned the reduction in manufacturers’ revenue could be as high as $1 trillion over the next ten years and would “lower spending on research and development and thus reduce the introduction of new drugs.”
The CBO further stresses the “uncertainty” in assessing the number of new medicines that would be prevented from coming to market. The agency already revised its original assessment to increase the number of drugs prevented from being introduced by 50 percent.
$52 Billion Income Tax Hike on Mid-Sized & Family Businesses
Just as the U.S. economy slides into a recession, Democrats are including a tax hike on passthrough businesses with declared losses. This provision widens the net of taxable income. Preliminary cost estimates from the Joint Committee on Taxation show the provision will increase taxes by $52 billion.
Senate Democrats passed an amendment to the bill before final passage that created a two-year extension on loss limitations of noncorporate taxpayers if the amount of the loss is in excess of $250,000 ($500,000 in the case of a joint return). This provision was scheduled to sunset in 2026 under current law.
This provision would raise taxes on a manufacturer, retailer or other capital-intensive business that sees significant business losses in any year due to the cost of wages, rent, new equipment, inventory, and interest payments.
The loss limitation was originally created by the Tax Cuts and Jobs Act passed by Congressional Republicans but was used to offset the creation of the 20 percent deduction for passthrough businesses, resulting in a net tax cut for these businesses. Senate Democrats have now extended this loss limitation for two additional years to pay for their reckless tax and spend spree. They did not extend the 20 percent deduction for passthrough businesses.
This provision violates President Biden’s campaign pledge to small businesses: “Taxes on small businesses won’t go up.”