We note without comment the fourth indictment brought against Donald Trump late Monday, but note that the case brought by the District Attorney in Fulton County, Georgia differs from the previous three. This indictment focuses on Trump’s efforts to overturn the results of the 2020 presidential election in Georgia and names 19 co-conspirators on racketeering charges under the state’s RICO statute. As a case brought under state rather than federal law, Trump would be unable to pardon himself if convicted.
A year ago to the day, President Biden signed into law the Inflation Reduction Act (IRA). Today, we cover this sweeping piece of legislation that provided incentives to modernize American infrastructure, enabled the federal government to negotiate pharmaceutical prices with drug companies, and raised taxes on corporations — all long overdue. Yet, the majority of Americans remain unaware of these provisions. The challenge for the Biden administration and Democrats running for Congress next year is to implement the law as quickly as possible, in order to redeem the political capital that the IRA promises if and when it is more fully appreciated.
Political Value of the Inflation Reduction Act
Roughly six in ten Americans had heard little to nothing about the Inflation Reduction Act (IRA) as of the beginning of this month. When given a one-sentence summary: “As you may know, Biden and Democrats’ legislation that was passed by Congress is called the Inflation Reduction Act, which will give Medicare the power to negotiate lower drug prices, bring down health insurance premiums, and invest in clean energy like wind and solar power,” Americans supported the legislation by 43 points, with Republicans evenly divided. A Washington Post-University of Maryland poll conducted last month comes to a similar conclusion, finding broad-based support for numerous provisions in the law, once identified.
While the vast majority of Americans support provisions in the IRA, Congressional Republicans have been unsupportive and even outrightly oppositional. Not a single Republican voted for the law when it passed in 2022, and 24 House Republicans are currently signed on to legislation that fully repeals it. Many of those sponsors and cosponsors represent districts that have received billions in corporate commitments under the law. Nevertheless, GOP members still attend groundbreakings for projects funded by the bill.
Industrial Policy Provisions and Results
Despite the fact that many parts of the Act are still scaling up, it has been transformational, and it is important to recognize the staggering scale of the investments that it has supported. Especially as it is just one of the many pieces of infrastructure legislation passed through the 117th Congress. A stark contrast from the last administration’s seven failed “infrastructure week[s]”.
The topline numbers are astounding. 272 clean energy projects had been announced by the end of July, already creating more than 170,000 jobs, with corporate commitments of $278 billion expected to create many more. These numbers represent a drop in the bucket for the law, with another expected 8.8 million additional jobs on the horizon over the next nine years. These jobs will cut prices on electricity by 9 percent and gas prices by 13 percent by 2030.
Importantly, workers who have gotten jobs in transmission, distribution and storage; solar; and wind are unionized at a higher rate than the private sector workers as a whole. This is no accident. The law specifically boosted labor, with provisions requiring recipients of government incentives to pay workers prevailing wages, including fringe benefits, fitting into the Biden administration’s broader agenda of respecting working people.
Still, the law could be more effective. Specifically, its bonus credits for domestic materials have seriously hampered the law’s implementation without providing the promised boost to those domestic materials. Notably, despite the surge in manufacturing investment, domestic production of raw and construction steel has declined, while capacity utilization in the iron and steel industry has been flat. This, despite the Treasury specifically pointing to that sector as one that would benefit from these policies. Instead, the administration is risking making the same mistake as its predecessor, which forced the American people to pay $900,000 in higher prices per steel job protected.
Despite Some Claims, the Steel Industry Does Not Seem to Have Benefited From Buy American Policies
Relative production of Raw and Construction Steel, as well as capacity utilization over the period since the signing of the IRA. Purple horizontal line represents no change.
Despite this, the legislation has provided tangible benefits to American workers. Investments under the IRA have been targeted. 11 percent of the announced investments have gone to the 100 commuter zones most affected by Autor, Dorn, and Hanson’s “China Shock” which represent a mere four percent of the population.
Reducing Rx Costs
While most of the benefits to seniors have yet to take effect, it has now been more than eight months since their insulin costs have been capped at $35 a month for the estimated one-third of seniors with diabetes. In addition, the law has stopped enrollees in Affordable Care Act health care plans from seeing a 53 percent increase in their premiums. Since the enactment of the law, health care costs, as measured by a chain-type price index from personal consumption expenditures, have increased at a much slower rate than overall prices, a major coup in a sector that has grown from less than five percent of consumer expenditure to sixteen percent over the last six decades.
These benefits are just the tip of the iceberg. This year and next year, CMS will begin to negotiate with drug companies on prices for the first time. This will lower prices for the more than one-third of the population that receives their health insurance from Medicare or Medicaid.
Increased Corporate Taxes
The law also broke new ground in tax policy and helped restore some equity to the tax code, going out of its way to crack down on tax avoidance by the richest and most powerful Americans. The alternative minimum tax of 15 percent on companies that book a minimum of $1 billion in profits over a three-year period was expected to raise $313 billion over a decade. In 2021, companies like Amazon, J.P. Morgan, AT&T, and Dow paid an effective rate that was much lower, and the IRA will make sure that it does not happen this year. That year, a single American taking the standard deduction would reach a 15 percent average tax rate after $73,293 in income. J.P. Morgan paid an effective tax rate of 5.9 percent on its $48.2 billion in earnings.
In theory, corporate stock buybacks and dividends are the same: in the event of a buyback of $1 and a dividend of $1, a firm has simply returned $1 to shareholders. In the world that existed before the IRA, however, there was a big difference: dividends were (and are) taxed. Buybacks were indirectly taxed on the capital gains they generated, but foreign investors and trusts have long been exempt from these taxes. This tax advantage was the direct cause of the 52.6 percent surge in buybacks following the passage of the Trump corporate tax cuts. To address this discrepancy, the IRA introduced a one percent nondeductible excise tax on buybacks. Though a one percent statutory rate seems a lot lower than that on dividends, the widespread tax avoidance on securities leads to the excise tax making up roughly 21 percent of the estimated effective tax rate differential.
The IRA had another critical component: funding the IRS so that it can crack down on tax cheats. By 2019, a decade of budget cuts had rendered the IRS functionally unable to conduct audits of the top one percent of taxpayers, resulting in comparable audit rates between them and recipients of the Earned Income Tax Credit (EITC), leading to a gap between the amount of taxes Americans owed and the amount they paid of almost $630 billion: 64 percent of that year’s deficit. In 2021, the Treasury found a direct correlation between this gap and the IRS’ diminishing enforcement capacities.
The IRA allocated more than $80 billion in additional funding for the IRS over the next decade, which the CBO estimated would yield at least $186 billion in additional revenue over that period. Combined with the other tax increases, the law is more than paid for, with the CBO projecting a deficit reduction of $90 billion over a decade. Importantly, this estimate is a floor, with the Treasury projecting a number closer to $480 billion, and prominent economists like Larry Summers projecting that it could be more than twice that number. Unfortunately, Congressional Republicans, in their zeal to protect the richest Americans from the same rules that working people have to follow, forced a multibillion-dollar cut to the IRS onto the agreement to prevent default in May. Still, thanks to the IRA, the IRS will have more money to enforce the law against the tax cheats currently defrauding the United States of America.
Lifting Up the IRA’s Achievements
Last week, we talked about how the Republican party’s campaign of massive resistance to any sort of revenue raising was weakening our fiscal balance. This week, we present a mirror of that argument, pointing out that the Democratic party alone appears capable of and interested in groundbreaking legislation like the IRA. But we note that while strong legislation is necessary, it is not enough to make the American people take note of the administration’s industrial policy wins.
If we fail to inform the American people of our policy intentions and successes in implementing them, we will have trouble earning credit and trust sufficiently to build on current efforts. The White House is doing a good job collecting information about the benefits of the work they have done, but we in the progressive community need to do a better job of continually uplifting the IRA’s achievements. The administration knows this. While they are laser focused on successfully implementing the provisions of the law, President Biden and Secretary Yellen are still leading a nationwide tour to mark the anniversary of the signing. Those of us outside of the government can do our part and should follow their lead.