The so-called Inflation Reduction Act is one of the greatest examples of deceptive marketing around today. Not only will the legislation fail to reduce inflation, it will further increase prices.
Inflation is fundamentally a problem of too much money chasing too few goods and services. It was hardly a surprise: In the last two years, the government has spent, borrowed and printed trillions of dollars while also hamstringing production in the economy. The result was a vast increase in the amount of money in circulation without comparable growth in the size of the real economy. All that extra money bid up the price up goods and services, a phenomenon we call inflation.
Unfortunately, this latest piece of legislation in Washington does nothing to solve the problem. It does not reduce the amount of money in circulation. Worse, it reduces the quantity of goods and services through measures like higher energy taxes and excessive regulation.
People underestimate just how much energy affects the price of everything we do and everything we buy. Before an item can be placed on a store shelf, it had to be transported there, whether on a train, a ship, a plane, a truck or even all of these. Energy is used not just in transportation and manufacturing, but also in supplying services.
The modern world could not function without electricity. More than 60% of electricity in the U.S. comes from coal, oil and natural gas. Additional taxes on those fuel sources under this new legislation will drive up electricity prices, which will trickle down into higher prices everywhere in the economy. Yet this legislation is marketed as providing relief to consumers—a bald-faced lie.
Meanwhile, natural gas is not only a widely used fuel for both power stations and home use, but also used in producing countless chemicals that go into making even more products. Additional taxes on natural gas will make all these more expensive. Once again, the marketing around this legislation is not merely misleading, but exactly opposite its actual effects.
The higher prices that stem from these tax increases on energy will ultimately decrease the amount of goods and services that consumers can afford. As fewer goods and services are traded, the economy contracts. In June, sky-high energy prices proved a sure-fire way to decrease consumer purchases. Gasoline consumption in July fell to levels below where it was two years prior—during the pandemic when there were mandatory lockdowns, causing people to drastically cut back their driving.
As if the energy taxes were not bad enough, the legislation provides for 87,000 new IRS agents. We’re told they’re intended to hound tax-cheating billionaires, but this is just more deceptive marketing. There are fewer than 3,000 billionaires in the country, and they already face high audit rates. The new army of agents will allow the IRS to perform an additional 1.2 million audits a year, far exceeding the number of billionaires supposedly in the crosshairs. The claims about only going after those making more than $400,000 a year is also just a political talking point because when Congress had the chance to enshrine that into the statute, it was voted down by Democrats—strictly on party lines.
The expansion of the IRS will target the middle class. Unlike the claims of going after tax cheats, the massively expanded IRS will prey upon people who are overwhelmed by a 10-million-word tax code. In one experiment, when 46 different tax professionals were given the same family’s tax return to file, they produced 46 different estimates for what the family either owed or was entitled to in a refund.
Even if the IRS expansion is successful in raising billions of dollars from the already-squeezed middle and working classes, that money does not magically disappear from the economy; the government will simply spend it instead of households. The amount of currency in circulation has not been reduced, it has merely changed hands. In other words, there is still no reduction in inflation.
The talking points and even the name of the Inflation Reduction Act are misleading at best. The more one digs into the legislation, the bigger the lies become. Perhaps a single line from the 1940′s film Pinocchio best sums up the marketing of this tax-and-spend boondoggle: “A lie keeps growing and growing until it’s as plain as the nose on your face.”
This piece originally appeared in The Sacramento Bee