Washington’s Flawed New Law

Editor’s note: This is the first of a three-part series. Each part looks at a different part of the new Inflation Reduction Act. This first article offers a general assessment of the law followed by a more detailed summary of its green initiatives. The second part of this series will deal with the revenue enhancers in the law. The third part will take up the implications of its health care rules.  Commentary Washington has passed a new law. The Inflation Reduction Act (IRA) makes only tentative gestures toward inflation control. It mostly promotes Washington’s preferred green initiatives with a raft of grants, loan guarantees, and tax credits. It extends some health care benefits to low-income Americans. And it aims to pay for all this by upping corporate taxes and using stepped-up Internal Revenue Service (IRS) enforcement to collect more from everyone. The law will increase federal outlays by some $435 billion over the next five years. Its sponsors claim that the budget deficit will shrink because the law’s new taxes and enforcement efforts will raise government revenues more than enough to offset the additional spending. There is, however, plenty of room for skepticism. Administration of new corporate tax looks so complex that actual collections will likely fall far short of the estimate used in the legislation. It is also doubtful that the $80 billion allocated for IRS enforcement will pay for that expense much less net a revenue increase. The highly-regarded Penn-Wharton budget model has determined that the legislation will neither have much effect on inflation nor provide any deficit relief. Separately, the Congressional Budget Office (CBO) sees a “negligible effect on inflation” from this legislation and no meaningful reduction in deficits. Green initiatives take the bulk of the legislation’s outlays—some $385 billion over the next five years. The law offers generous tax benefits and some $40 billion in loan guarantees to promote carbon capture and “clean hydrogen” at electric facilities (regardless of energy source). It also offers tax credits and loan guarantees for nuclear power production as well as clean vehicles of all sorts. This support would extend to projects for advanced manufacturing, biogas, fuel cells, and energy storage technologies, including carbon capture and sequestration. Some $2 billion in direct loans would go to constructing and modifying electric transmission facilities. The law allows the transfer of credits to unrelated parties, but only under certain circumstances. It repeals the Trump-era moratorium on offshore wind leases. A view of the U.S. Environmental Protection Agency headquarters in Washington on March 16, 2017. (Justin Sullivan/Getty Images) The IRA also aims to reduce greenhouse emissions by 40 percent by 2030. The effort gives the Department of Energy (DOE) authority to advance an array of grants, rebates, direct loans, and cooperative agreements to pay for up to half the costs of promising projects. Some would aim to improve the efficiency of household heating and cooling systems as well as appliances, with $1 billion earmarked for “affordable housing.” Some $60 billion would go for what the legislation refers to as “environmental justice initiatives” through which it would aim benefits to previously underserved neighborhoods. The legislation also allocates some $27 billion to the Environmental Protection Agency (EPA) and more to the Agriculture Department to provide financial and technical support for projects that promise to reduce greenhouse gas emissions. Automakers would get $6 billion to produce hybrid and plug-in electric vehicles in the United States. A striving for centralized control runs throughout this legislation. It gives the heads of all the agencies involved considerable discretion on what activities can qualify for support and how they would qualify. In other words, Washington would not only direct the emphasis on production but also on the way people and businesses can pursue it. Against this quest for government command and control, complexity and expense, practical people would naturally look for something simpler, less intrusive, and perhaps more effective. A carbon tax would do that. By making the emission of greenhouse gases expensive, such a tax would unleash a great diversity of effort to limit the use of fuel and the release of such emissions. Every American would seek ways to reduce his or her carbon footprint. Instead of the IRA’s list of preferred technologies and what are effective commands on how to use them, this kind of general effort would engage everyone’s imagination. It would also proceed with more vigor than IRA’s dictates could possibly muster. Furthermore, a carbon tax would replace this law’s huge outlays with added revenues, perhaps enough to offer Americans other needed benefits or even a cut in other tax burdens. Washington, however, is not likely even to consider such an approach. Its love of command and co

Washington’s Flawed New Law

Editor’s note: This is the first of a three-part series. Each part looks at a different part of the new Inflation Reduction Act. This first article offers a general assessment of the law followed by a more detailed summary of its green initiatives. The second part of this series will deal with the revenue enhancers in the law. The third part will take up the implications of its health care rules.  

Commentary

Washington has passed a new law. The Inflation Reduction Act (IRA) makes only tentative gestures toward inflation control. It mostly promotes Washington’s preferred green initiatives with a raft of grants, loan guarantees, and tax credits. It extends some health care benefits to low-income Americans. And it aims to pay for all this by upping corporate taxes and using stepped-up Internal Revenue Service (IRS) enforcement to collect more from everyone.

The law will increase federal outlays by some $435 billion over the next five years. Its sponsors claim that the budget deficit will shrink because the law’s new taxes and enforcement efforts will raise government revenues more than enough to offset the additional spending.

There is, however, plenty of room for skepticism. Administration of new corporate tax looks so complex that actual collections will likely fall far short of the estimate used in the legislation. It is also doubtful that the $80 billion allocated for IRS enforcement will pay for that expense much less net a revenue increase. The highly-regarded Penn-Wharton budget model has determined that the legislation will neither have much effect on inflation nor provide any deficit relief. Separately, the Congressional Budget Office (CBO) sees a “negligible effect on inflation” from this legislation and no meaningful reduction in deficits.

Green initiatives take the bulk of the legislation’s outlays—some $385 billion over the next five years. The law offers generous tax benefits and some $40 billion in loan guarantees to promote carbon capture and “clean hydrogen” at electric facilities (regardless of energy source). It also offers tax credits and loan guarantees for nuclear power production as well as clean vehicles of all sorts. This support would extend to projects for advanced manufacturing, biogas, fuel cells, and energy storage technologies, including carbon capture and sequestration. Some $2 billion in direct loans would go to constructing and modifying electric transmission facilities. The law allows the transfer of credits to unrelated parties, but only under certain circumstances. It repeals the Trump-era moratorium on offshore wind leases.

Epoch Times Photo
A view of the U.S. Environmental Protection Agency headquarters in Washington on March 16, 2017. (Justin Sullivan/Getty Images)

The IRA also aims to reduce greenhouse emissions by 40 percent by 2030. The effort gives the Department of Energy (DOE) authority to advance an array of grants, rebates, direct loans, and cooperative agreements to pay for up to half the costs of promising projects. Some would aim to improve the efficiency of household heating and cooling systems as well as appliances, with $1 billion earmarked for “affordable housing.” Some $60 billion would go for what the legislation refers to as “environmental justice initiatives” through which it would aim benefits to previously underserved neighborhoods.

The legislation also allocates some $27 billion to the Environmental Protection Agency (EPA) and more to the Agriculture Department to provide financial and technical support for projects that promise to reduce greenhouse gas emissions. Automakers would get $6 billion to produce hybrid and plug-in electric vehicles in the United States.

A striving for centralized control runs throughout this legislation. It gives the heads of all the agencies involved considerable discretion on what activities can qualify for support and how they would qualify. In other words, Washington would not only direct the emphasis on production but also on the way people and businesses can pursue it.

Against this quest for government command and control, complexity and expense, practical people would naturally look for something simpler, less intrusive, and perhaps more effective. A carbon tax would do that. By making the emission of greenhouse gases expensive, such a tax would unleash a great diversity of effort to limit the use of fuel and the release of such emissions. Every American would seek ways to reduce his or her carbon footprint. Instead of the IRA’s list of preferred technologies and what are effective commands on how to use them, this kind of general effort would engage everyone’s imagination. It would also proceed with more vigor than IRA’s dictates could possibly muster.

Furthermore, a carbon tax would replace this law’s huge outlays with added revenues, perhaps enough to offer Americans other needed benefits or even a cut in other tax burdens. Washington, however, is not likely even to consider such an approach. Its love of command and control stands in the way.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.


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Milton Ezrati is a contributing editor at The National Interest, an affiliate of the Center for the Study of Human Capital at the University at Buffalo (SUNY), and chief economist for Vested, a New York-based communications firm. Before joining Vested, he served as chief market strategist and economist for Lord, Abbett & Co. He also writes frequently for City Journal and blogs regularly for Forbes. His latest book is "Thirty Tomorrows: The Next Three Decades of Globalization, Demographics, and How We Will Live."