Senator Joe Manchin (D-WV) agreed last week to a massive $433 billion dollar spending bill that includes $327 million in new taxes that will be paid by … everyone.
The sales pitch Democrats used to push the bill is that it reduces the deficit, will curb inflation, and finally make those evil corporations pay their fair share. It doesn’t actually do any of that any time soon.
The tax, known as the corporate minimum tax or book income minimum tax, basically cuts into a tax deduction businesses get for investing in their companies. By curbing this incentive, corporations will be forced to cut pay, jobs, investment, and raise prices.
One well-known economic truth is that corporations don’t really pay taxes. They are essentially tax collectors, as the corporate tax rate ultimately falls on some combination of workers, shareholders and customers. Raise the corporate tax rate, and you’re cutting wages and salaries for workers.
No surprise, that’s exactly what the Joint Committee on Taxation found in its analysis of the Schumer-Manchin bill’s distributional impact. The JCT finds that average tax rates will increase for nearly every income category in 2023 under the bill.https://www.wsj.com/articles/the-schumer-manchin-tax-increase-on-everyone-wages-manufacturers-jct-democrats-income-salaries-corporate-rate-11659300317?mod=hp_opin_pos_1
And as far as inflation.. well, only once the additional taxes cause a horrific downturn in the economy.
The $327 billion in new taxes could slow inflation if the economy falls into recession, and that may be the quiet expectation. The tax increases on business will discourage investment while the Federal Reserve is also raising business costs with higher interest rates. But tax policy should be working in the opposite direction to encourage investment when the Fed is tightening and the economy is close to recession.
The last claim, that the bill reduces the deficit is sorta kinda’ true if all the assumptions in the bill hold up for another five years.
Start with the authors’ central claim that the bill will reduce the deficit and thus inflation. The Penn Wharton Budget Model, which Sen. Manchin has been known to watch, examined the details of Schumer-Manchin and found that it doesn’t contain any net deficit reduction until 2027.
The Senate parliamentarian is currently reviewing this massive boondoggle to decide if it can be passed through reconciliation – a move that would only require a simple majority for passage instead of the usual 60 votes to end debate. Even if the bill is allowed to be considered under reconciliation, and even with Kamala Harris’ tie-breaking vote, the Democrats still have a problem – Kyrsten Sinema. The Senator from Arizona has not yet made her thoughts known on the tax and spend bill although her office says she is studying it thoroughly.
The bill is currently being referred to as the Schumer-Manchin tax and spending bill, but if Sinema helps it pass, her name will be added so that both she and Manchin will have an albatross around their necks come re-election time.
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