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Senator Tillis Attempts to Bamboozle Me on the Inflation Reduction Act
I wrote to my two (Republican) senators asking them to vote for the (poorly-named) Inflation Reduction Act. I analyze the one response I received.
OK, this is off-topic and off-schedule. But it is important.
I wrote an email to each of my Senators requesting that they break ranks with the GOP leadership to vote for the Inflation Reduction Act because the country and the world need us to start paying serious attention to climate change. So far, I’ve heard back from Senator Tillis. Here’s a screenshot of his response:
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It’s a masterpiece of propaganda. He takes every possible opportunity to emphasize GOP talking points with innuendo, misleading statements, hypocrisy, and, I’m sorry to say, lies.
I’m going to walk you through the letter a few sentences at a time to point out his techniques and misleading statements. For clarity, I’ll put his words in italics and mine in the normal font.
Thank you for taking the time to contact me about the Biden Administration’s reckless tax and spending package. I appreciate hearing from you.
I didn’t contact him about a “reckless tax and spending package”. I contacted him about a bill to fight climate change and that’s what I talked about. But, he wants to reinforce the GOP characterization of Democrats as “tax and spend” so he shifts the narrative. The pro forma “appreciate hearing from you” is especially obnoxious because he doesn’t respond to anything that I said in my email.
Over the past year, the Biden Administration and Congressional Democratic leaders continually crafted and recrafted their partisan tax hike and spending package before Senate Democrats finally passed a $740 billion package on a strict party-line vote on August 7, 2022.
Democrats had to go it alone because GOP Senators wouldn’t even negotiate. Party-line votes are what you get when there’s no one with whom to compromise. It takes two to tango!
Where did that $740B number come from? The one-page summary of the bill show that, over ten years, the total revenue to be raised is $737B — let’s call it $740B — and the total to be spent is $437B, yielding a deficit reduction of $300B. Yeah, you could call it a $740 billion package, but I would call it a $437B investment in fighting climate change and enhancing healthcare access, plus enough revenue to both offset the spending and reduce the deficit.
And where does that revenue come from? About $265B is from negotiating prescription drug benefits, $124B from IRS tax enforcement, and $222B from a corporate minimum tax to get some taxes from the largest corporations, which often slip through corporate income tax loopholes.
Let’s talk about that corporate minimum tax. We discussed previously that many large corporations pay a lot less corporate income tax than the 21% “advertised” corporate income tax rate. Indeed, many pay zero. This is because of corporate tax expenditures, aka, loopholes.
Just so you don’t cry too much for those corporations, the top ten corporate tax expenditures amount to $276B per year. Compare that to the $222B revenue expected from the corporate minimum tax over ten years. Yes, you read it correctly — the corporate minimum tax will undo less than 10% of the corporate income tax expenditures. Corporations are still getting a phenomenal tax deal. To see which corporations will be affected, see the Washington Post’s analysis.
Despite many economic indicators pointing to a potential recession, mounting energy costs, and decades-high inflation figures, Democratic leaders decided to pour more gasoline onto the fire through hundreds of billions more of federal spending.
He’s conflating three issues, each of which, he implies, federal spending will make worse:
Potential recession: Increasing federal spending could be part of the remedy for a recession, not the cause. Just think of the boost to the economy of the purchases (and jobs) that will come from the subsidies for green energy and electric vehicles.
Energy costs: Federal spending doesn’t affect energy costs, which are determined by worldwide markets for fossil fuels, subsidies for the oil industry, and the ability of large energy companies to raise their prices — and profits — under cover of inflation. Just check out the latest profit numbers for ExxonMobil or Chevron. Pay particular attention to the large increases in their profit margins.
Decades-high inflation: Our current high inflation is due primarily to fallout from pandemic-related supply chain disruptions, helped along by the pricing ability many corporations have under cover of inflation. The inflation is a global phenomenon: An analysis from the Economic Policy Institute shows that among other OECD countries, average annualized increase in core (i.e., excluding energy and food) inflation from December 2020 (pre-pandemic) to May 2022 (roughly, now) was 3.7%; the US increase was 3.8%. It has nothing to do with US spending.
Despite Senator Tillis’ innuendo, this bill will not exacerbate these three existing problems. His gasoline metaphor is both wrong and irrelevant to these problems.
While the cost of this bill is deeply concerning, the policies proposed are equally troubling, including government-mandated price controls that will likely harm pharmaceutical innovation, and billions more in subsidies for the broken Obamacare system.
The “cost of this bill” is a $300B reduction in the deficit. For someone who complains about deficit spending, you’d think he’d be happy about that.
Let’s talk about what he calls “government-mandated price controls”. There are no price controls in the bill. (To be fair to Senator Tillis, there was a $35 monthly cap on the cost of insulin for privately-insured people, but that cap was removed from the bill after the Senate parliamentarian ruled that the cap is subject to the filibuster, meaning at least 10 Republican senators would have to vote for it. None did.)
What Senator Tillis probably means by price caps, is what I would call a teensy-weensy bit of capitalism now being injected into the market: Currently, Medicare buys drugs for its beneficiaries but is prohibited by law from negotiating the prices it pays for those drugs.
Can you imagine a corporation being prohibited from negotiating the prices it pays for supplies it purchases? Me neither. Do you think that private insurers don’t negotiate drug prices? Of course they do — there’s a whole industry called pharmacy benefit managers who, as Wikipedia puts it (emphasis mine), “are primarily responsible for developing and maintaining the formulary, contracting with pharmacies, negotiating discounts and rebates with drug manufacturers, and processing and paying prescription drug claims.”
For the first time, Medicare will have a very limited ability to negotiate prices of a few drugs, starting in 2026 with ten drugs. Yes, ten, four years from now. That will go up to 60 drugs by 2029.
Also, co-pays for insulin will be limited to $35 per month for Medicare beneficiaries, and drug companies will have to pay rebates if their drug prices for Medicare beneficiaries rise faster than inflation.
None of this applies to anyone other than Medicare beneficiaries. So, there are no price controls, just negotiating prices for drugs that Medicare buys for its beneficiaries, analogous to the way pharmacy benefit managers negotiate for private insurers.
The price negotiation is done within a framework that allows pharmaceutical companies to get higher prices for drugs less than 9 years from FDA approval, so, for many years, pharmaceutical companies will be able to get full price. The Kaiser Family Foundation has an excellent PowerPoint presentation that explains how this all works. Hardly seems like a threat to innovation.
And I see that we’re still playing the broken-record Obamacare song. Are we still going to replace it with that oft-promised, never-heard GOP proposal for something better? Obamacare is how 35 million people get their healthcare. Calling it “broken” but not even proposing another way to get those people healthcare is irresponsible.
So, here’s what the IRA bill does to help people afford healthcare through Obamacare: In 2021, as part of the Covid relief bill, Congress removed some caps on subsidies for Obamacare policies, qualifying 7 million additional people — people making 400 to 600 percent of the federal poverty line — to get free healthcare insurance. Those caps were due to be reinstated at the end of this year, leaving those 7 million people to face higher healthcare costs. The IRA extends the enhanced subsidies through 2025.
Furthermore, the tax and environmental provisions would harm the U.S. economy and hardworking American families, including job-killing tax increases, unprecedented taxpayer investment in the Internal Revenue Service to harass hardworking families and job creators, and billions more in wasteful spending on ‘green initiatives’ without appropriate oversight.
The investments in green energy and electric vehicles will boost the economy and create jobs. And if we don’t make those investments, the already-apparent costs of our inaction on climate change will devastate the economy and the lives of many people. This is not optional if we want our kids and grandkids to have a future.
Contrary to Senator Tillis’ statement, there are no tax increases in this bill except for the already-mentioned minimum tax on very large corporations. This is not going to affect any jobs. It will have a tiny effect on the shareholders and executives of those corporations, who are mostly high-income and high-wealth people.
The IRS investment needs to be understood in the context of what’s been happening to the IRS for the last 30 years:
Republicans in Congress have driven dramatic cuts to the IRS budget. IRS spending on enforcement has declined by 26% from 2010 to 2020 alone. These cuts are working as intended — audit rates on wealthy individuals and corporations have declined:
So, the IRS needs to recover from 30 years of malicious behavior by those in Congress eager to protect corporations and wealthy individuals from having to pay the taxes they owe. So, yeah, we need to invest in the IRS to increase enforcement. And we need to invest in the IRS to improve the level of service they give to non-wealthy taxpayers.
The next two paragraphs of Senator Tillis’ letter are a rehash of the misleading and incorrect statements he made earlier. Friendly closing though:
Again, thank you for taking the time to contact me. Please do not hesitate to get in touch with me about other issues important to you.
But, why would I take the time to “get in touch” when the response is propaganda, misleading platitudes, and lies?
Today’s topic leapt to my attention because it illustrates so much of what we have to overcome to reach win-win solutions to our country’s problems. Since the bill has just been passed, I wanted to quickly get this in front of you in case it helps you discuss the bill with your friends and relatives.
Having taken the time to write this, I don’t have the bandwidth to write the newsletter that I had planned to write for next weekend. So, to get us back on our first-and-third-Saturdays-of-the-month schedule, I plan to publish the next issue — the one that continues our discussion of inequality with a focus on the moral aspects of inequality — on the first Saturday of September. Until then, enjoy the waning weeks of summer!
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