August 11, 2022
Center for the American Worker
The Big Government Spending Package Shrinks American Wages and Attacks Small Businesses
August 11, 2022
Liberals in the Senate, spearheaded by Senators Schumer and Manchin, have passed a massive spending and tax hike bill deceptively titled the “Inflation Reduction Act.” While the premise of this legislation is to reduce inflation, the bill’s substance indicates that the effect is likely to be the opposite. In fact, even the Biden White House has acknowledged that this package would do little to impact inflation—a contention further bolstered by an independent, nonpartisan analysis from the Penn-Wharton budget model, which finds that the bill would lead to modestly higher inflation in the short term.
With Americans already suffering from an inflation tax that has eroded purchasing power by $3,600 for a dual-earning couple, this bill would add a further $739 billion in taxes. Contrary to the Left’s spin, the burden from these higher taxes would extend to households making less than $30,000 a year, according to a nonpartisan analysis from the Joint Committee on Taxation (JCT). On one end of the spectrum, the tax hike on carried interest would reduce access to financing for small business startups, which are the driving force for job growth in the U.S. On the other end of the spectrum, the corporate minimum tax would discourage investment, with the JTC finding that manufacturing businesses would experience the lion’s share of the burden—weakening them precisely when they are most needed to help shore up America’s domestic supply chains against China’s growing economic malfeasance.
Undercutting American workers and their hard-earned incomes could not come at a worse time. In addition to 40-year high record inflation levels facing Americans, the U.S. economy just recorded a second consecutive quarter of negative GDP growth, placing the country into recession territory—a recession that need not have occurred had the federal government pursued fiscally responsible, pro-growth fiscal policies over the past year and a half. Instead, the Biden Administration and liberals in Congress have embarked on a path of reckless spending, work disincentives, and anti-energy regulations. The bill also comes when American workers remain on the sidelines, with labor force participation still below 2020 levels.
The bill proposes to hire 87,000 new IRS agents to enforce these new tax provisions. This will dramatically increase audits—not just for billionaires and millionaires but for Americans at every income level. Only 4 to 9% of the likely money brought in by this supercharged IRS would come from those making more than $500,000. Sending the IRS after the middle class is no way to tame inflation or supercharge economic growth.
Hiking taxes amidst stagflation is terrible enough on its own, but it is even more egregious when the revenues go toward more big government spending when federal debt as a fraction of GDP has surpassed World War II levels. Of the $433 billion in new spending, 85% of the money goes toward green energy subsidies, which does nothing to lower the cost of gasoline for those unable to purchase an expensive electric vehicle.
American workers and businesses are hurting. Inflation, labor shortages, and crippling supply chain blockages have cut real wages, increased costs, and hurt everybody’s bottom line. Doubling down on the same failed policies of the past year and a half with more government spending and higher taxes will do nothing to reverse the tide, no matter what misleading title the Left decides to give the bill.