The title given to the act is a masterpiece of duplicity. It’s not about inflation at all, but about raising taxes and spending more money on Obamacare and green projects. Therefore, it is important to consider the provisions of the law and their potential impact and not fixate on inflation. This law would raise marginal tax rates on labor and capital, which would otherwise shrink the economy. It will do little to offset global warming. Moreover, it is a sadly missed opportunity to do something meaningful to reduce the growth of carbon dioxide emissions.

This is the second paragraph of David R. Henderson’s, “The Law of Shrinking the Economy,” Defined conceptsAugust 11, 2022. This is about the misnomer Inflation Reduction Act.

Another quote:

One tax provision that has received the most attention is the 15 percent minimum tax on corporations. Why should companies in the current 21 percent tax bracket worry about a minimum of 15 percent? Aren’t they already paying at least 15 percent? no The reason is after the 21 percent tax is deducted on corporate income. But 15 percent tax on corporate income except Some deductions. One such major exemption is for corporate investments. Under the tax law, companies can “expense” investments, taking a deduction for capital purchases in the year in which they are made. But in their financial statements, they must depreciate the value of the asset purchased over the life of the asset. The 15 percent tax applies to their income as reported in their financial statements rather than their income minus full statutory exemptions.

Ironically, this provision will harm manufacturers. In recent years, Democrats have claimed they want to boost manufacturing in the United States. But those cries of lost manufacturing have now turned into crocodile cries of their own.

And, on carbon taxes, electric vehicles and the hateful N-word:

That’s a shame, because if their real concern had been global warming, Senate Democrats could have made a big impact at a small cost. A basic principle of economics is that if you want to reduce a negative externality and you can’t bring all parties together, you tax the externality.

I am skeptical of a carbon tax because I am not convinced that a carbon tax is the least expensive way to combat global warming. It may be better to wait until the world warms and use advanced technology to lower the world’s temperature or engage in geoengineering to adjust to higher temperatures. But if politicians are determined to reduce carbon, the best way to do it is with a carbon tax. Thus, they do not put themselves in the position of central planners trying to decide which particular technologies to subsidize.

Consider an example: subsidies on electric vehicles. Ignore the ironic fact that because of the domestic content restrictions senators put in place for those producers to qualify, few EVs will qualify for subsidies. Even if all EVs qualify, are EVs the way to go? Have senators been outside lately to see electric bicycles rolling around, bicycles that can be powered by a fraction of the coal or natural gas used to generate electricity for electric cars and trucks? However, those bicycles will not be subsidized. Neither should they. No one should get subsidy.

And what about the hateful N word: nuclear? Nuclear power produces zero carbon emissions and is incredibly safe while being relatively expensive. But advanced low-cost technologies that are beginning to appear in some states, combined with a tax on carbon production, could make nuclear power the lowest-cost way to generate electricity, at least in parts of the country where non-nuclear electric power is relatively expensive.

Read the whole thing.


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