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Thursday, August 11, 2022

OPINION:

Liberals in the U.S. Senate are busy congratulating themselves for yet again defying the best interests of the American people and making our nation weaker. With Senate passage of their latest Big Government Socialism bill over the weekend, their actions will (if enacted) slow our economy, raise prices even higher, and increase the size of government. Lacking any pushback from a compliant media, they have the audacity to claim that it will lower inflation and reduce deficits falsely.

At a time of 40-year high inflation, the proposal grants budget authority for an additional $235 billion in federal spending over the next 5 years. As the American people have accurately assessed, the recent price increases for everything from gas to chicken have largely resulted from excessive federal spending and misguided federal policies.


Rather than reducing federal spending to mitigate inflation’s damage, the bill doles out even more money to the politically connected. The Biden Administration and liberals in Congress want to throw even more money at electric cars and solar panels with significant materials from China rather than deregulate domestic energy production that would retain American wealth in our Nation. Greater government cronyism increases demand, crowding out the generation of products and services everyday Americans purchase to improve their own lives. Most Econ 101 classes would argue that increased demand contributes to higher prices, not lower.

Simultaneously, the proposal increases taxes, primarily from the implementation of a minimum corporate income tax, increased enforcement by the Internal Revenue Service (IRS), and a newly created tax on stock buybacks. At a time of shortages and rising prices for everyday goods, telling producers that they will keep less from their efforts to curb shortages will depress the investment that our economy needs. It places our Nation’s larger businesses at a disadvantage relative to their foreign competitors, depressing economic growth.

The bill also authorizes the IRS to hire 87,000 additional auditors, which could have a major effect on smaller businesses. Proponents claim that these auditors will focus on the wealthy and larger enterprises, but they are already the primary focus of IRS audits. Instead, it will be the middle class, particularly the entrepreneurs, most of whom make much less than $400,000, who are the most likely to be targeted by this vast budget increase in the tax agency.

Additionally, the advocates of this proposal assume that these proposed tax increases will be effective. A last-minute change to the bill now charges a one percent tax on stock repurchases of companies. However, the academic finance literature demonstrated decades ago that dividends and repurchases are largely interchangeable. The result of this proposal will not be the revenue gusher its advocates have articulated and will instead just result in changed behavior by companies to avoid the tax. Instead of repurchasing shares, many will instead issue one-time dividends that are not subject to the new tax. The result will be significantly less revenue than a static estimate would forecast.

Even with these faulty assumptions, the Congressional Budget Office estimates that deficits will rise by $25 billion over the next five years. Remember that the supporters of the legislation are claiming reductions in deficits, but over the first 5 years, the bill accelerates the borrowing needs of our Nation. Of course, these forecasts assume that none of the spending will be extended beyond the timeframe provided for in the bill, except that we have seen countless times that the objective of many on the Left is to create dependency on such new spending, thereby facilitating such spending becoming permanent. 

The latest Senate legislation is another fraud on the American people. It transfers even more wealth from the productive part of our economy to legislators and bureaucrats so they can allocate the money to their friends and donors for pet projects. Despite the 40-year high inflation that Americans have been suffering from, the advocates of the bill look to repeat the same policy mistakes that caused this inflation by raising taxes and growing government while our economy enters recession.

The gimmicks and budget games in this legislation masking unsustainable government spending must stop. Before it’s too late, our Nation must reverse course. Lower taxes, less regulation, and less government spending are the America First principles that unleashed the longest economic expansion in the history of our Nation with low unemployment, low inflation, and rising incomes across all incomes and demographics. To once again realize shared prosperity, we must return to that approach.

• Michael Faulkender, former Assistant Secretary for Economic Policy at the U.S. Department of the Treasury.


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