On Sunday, August 7, the U.S. Senate passed the Inflation Reduction Act. This is a scaled-down compromise of Biden’s original Build Back Better Act, introduced in 2021. Proponents of this bill say it will increase the federal government’s revenue by $739 billion by adding a 15% corporate minimum tax, prescription drug pricing reform, IRS tax enforcement, and closing the carried interest loophole. This bill will also invest in clean energy and healthcare to the tune of $433 billion. So, if the Senate Democrats have done their math correctly, this bill should reduce the deficit by at least $300 billion over the next ten years.
But should we take the Inflation Reduction Act at face value?
Let’s look at what’s in the bill, why it’s called “Inflation Reduction,” and how we should plan for the future if it passes.
If you want to read this 730-page monster of a bill, you can do so here. Alternatively, if you would prefer the 1-page summary issued by the Senate Democrats, you can find it here. There is a more detailed, but at 37 pages much more readable, summary of the tax provisions outlined by the Congressional Research Service here.
Democrats claim that much of the bill’s income will come from adding a 15% corporate minimum tax to corporations posting an average of at least $1 billion per year for the past three years. It’s well known that many large corporations pay less than 10% (and some less than 5%).
The Washington Post had this article with graphics showing the effective tax rates on very large firms over the past three years, and indeed, most of them currently pay well below 15%. In theory, this 15% corporate minimum tax should bring in money.
In reality? Color me skeptical. Just reflect for a moment on the fact that the actual bill is 730 pages long. Are there carve-outs and exemptions? Oh yes.
And can corporations turning more than $1 billion per year in profits afford excellent lawyers and accountants?
Most definitely. I’m sure that corporations will have slightly increased taxes, thanks to this bill. But will the federal government get its estimated $313 billion? I’m not holding my breath.
The next biggest source of income should come from prescription drug pricing reform.
Pharmaceutical companies will be expected to enter into pricing agreements with the federal government. If they cannot agree on a price, then pharmaceutical companies will have to pay an excise tax of between 185.7% and 1900%.
For example, if the government wants a company to charge $5 for a drug, but the company insists it costs $10, they may actually have to charge $200 and then give that remaining $190 to the government as the excise fee.
Does this sound ridiculous?
It’s supposed to. A 1900% excise fee is really a gun to the head. The federal government will be setting prices for certain drugs beginning in 2026.
That’s what this is.
Proponents claim that these drug negotiations will lower the amount of money paid by Medicare to pharmaceutical companies, thus saving the federal government an estimated $288 billion.
Will it?
Who knows. Again, pharmaceutical companies can afford lots of lawyers, and a 730-page bill contains lots of wiggle room. This is just where Senate Democrats claim their numbers come from.
The next large source of income is the one that should be most concerning for the average citizen.
The federal government plans to beef up IRS enforcement by increasing its budget to $80 billion (it’s currently $12.6 billion) and hiring approximately 87,000 new employees. Congress estimates that this will bring in another $124 billion.
Naturally, Treasury Department officials claim that they probably won’t bother auditing households earning less than $400,000. This is baloney; we all know who gets audited.
I’ve been audited. I got audited when I was 26 years old. My then-husband had been staying at home with our infant, and I had been working full-time when our first child was born. I was filing our taxes at the time, and the IRS claimed I’d miscalculated some of my maternity benefits. We were kids with an annual income of $30,000, and we got audited.
Now, because I’m a stickler for details, at the time the actual audit took place, my then-husband had found a job, and I had just quit my job because my second child was about to be born, I had time to comb through the documents myself. I found that the IRS had made the mistake. I handled the audit, I actually got money back from the feds, but that’s beside the point. The point is that, despite claims to the contrary, audits do not necessarily target high earners.
I found out later that my experience in getting audited was not unique.
Two major features of our little family red-flagged the IRS. One, which most small business owners already know, was that I filed my taxes myself. We were so broke at the time, and I thought I could save money by doing our taxes.
The second thing that set off the IRS’s alarm bells was that we were claiming the Earned Income Tax Credit (EITC). I didn’t know this back then, but the IRS also prioritizes auditing anyone claiming EITC. Claims from the government that audits really only target high earners are demonstrably false.
House Republicans just released an analysis based on recent audit rates and tax filing data that confirms this. Based on previous audit rates, Americans earning less than $75,000 per year will receive 60% of the increased audits. Why?
Because people in that income bracket typically don’t have the resources to argue, they just pay up.
And most disturbing of all, the IRS is preparing to use force to collect what it wants. Think this is crazy conspiracy-theory stuff?
Look at the job posting on the IRS’s website.
On August 11, the job posting said they wanted people “willing to use deadly force.” You can see the screenshot of it here. As of August 12, the website simply says, “be willing and able to participate in arrests, execution of search warrants, and other dangerous assignments.” Either way, they are preparing to collect money forcefully. Why else would they have so much ammo?
I would never encourage anyone to cheat on taxes. In theory, correct enforcement of existing laws sounds like a good thing.
But I am skeptical of the claims about how this IRS on steroids will get the truly rich to pay their share. My gut says that those who can afford armies of lawyers will be alright. Everyone else will need to be meticulous in their paperwork because scrutiny is about to go through the roof.
More than scrutiny, I think harassment may go through the roof, even if it’s unintended. The IRS makes mistakes. I know this from experience.
I’m sure plenty of people are thinking, “Well, if you don’t have anything to hide, you don’t need to worry about it.”
That’s childish, and it doesn’t hold up against actual experience. Even if the IRS only had the best interests of the country at heart, they are still human beings that make mistakes. All of us need to bear this in mind moving forward.
And last but not least.
Finally, the Senate estimates that they will gain another $14 billion in revenue from closing loopholes related to stock buybacks.
So, that’s where the federal government expects it will collect money as part of “Inflation Reduction.”
Where will it go?
Some will go to families for health insurance. In 2021 and 2022, the American Rescue Plan Act expanded eligibility for families to receive health insurance subsidies. This was supposed to be an emergency provision expiring at the end of 2022, but instead, it’s being extended through 2025.
And then there will be a lot of subsidies available for so-called “green” energy projects. These will be available both at the industry level and also to homeowners who want to do things like buy electric cars, put solar panels on their roofs, and so on.
What does all this have to do with reducing inflation?
Inflation is the rise in the cost of goods and services; it is the corresponding loss in the purchasing power of money. The U.S. printed $5.2 trillion extra dollars in 2020 for Covid relief. This came on top of $4.5 trillion for quantitative easing and $3 trillion for infrastructure.
We have put huge amounts of paper money into the system. We can complain about supply problems, or war, or whatever. These things have all caused problems, to be sure. But the most basic, fundamental reason for inflation is that we printed trillions of dollars out of thin air, chasing roughly the same amount of goods as before. Of course, the dollars will be worth less. It just takes time for prices to shake out, and that’s exactly what’s happening.
Maybe we should call the bill the “Illusion of Inflation Reduction Act” because that seems to be really what the Senate Democrats are going for. They’re not addressing the core problems behind inflation because they can’t. You can’t release $13 trillion into the global monetary system and then suck it back in. But Congressional Democrats know they’re about to get clobbered in the midterms because people are miserable, and this is them throwing a bone to constituents, trying to do something that they think will, if not ease actual inflation, at least make people feel it less.
(Want to be able to eat despite inflation? Check out our free QUICKSTART Guide to building a 3-layer food storage system.)
Personally, I am very skeptical about the Senate Democrats’ assertions about how they will collect more money from large corporations.
Historically, the federal government has collected more revenue when they’ve simplified the tax code, not made it more complicated. This new bill adds more complications.
And yes, American families are struggling and need help, but the nature of the deductions in this bill is not aimed at the correct demographic. The people struggling in the U.S. are the working poor paying for gas with their credit cards and living in cars, not upper-middle-income people wanting to give their homes “green” upgrades. I find subsidies for home improvements particularly annoying because it’s essentially a tax break for people that can already afford to remodel their homes. The working poor probably aren’t considering buying a $50,000 electric car. Those $7500 rebates don’t help them. They’re only helping certain kinds of energy companies and the upper-middle-income consumers who can afford large purchases.
I don’t know if this oversight is due to stupidity, malice, or some combination thereof.
I can’t help but think of Orwell’s world in 1984, where there is the Inner Party, comprising something like 1% of the population; the Outer Party, comprising something like 15% of the population; and then the proles. The Inner Party makes all the real decisions; the Outer Party is the equivalent of our working professionals, who participate in the lies but are also subject to the most intense efforts at mind control; the proles are considered barely human and largely ignored but kept ignorant and impoverished.
Anyway, this round of Democratic “help” in the form of credits for home remodeling and expanded insurance coverage really seems aimed at helping our own relatively well-off Outer Party, not our desperate proles.
So, is there any way to prepare for this?
I think this bill is mostly yet another vehicle to distribute money to favored industries while decreasing the quality of life for the rest of us. So, a lot of the standard preparedness advice about planning for disruptions in food and energy will still apply. If your income is anything more complex than “here’s my paycheck from a giant firm,” I would seriously consider getting an accountant if you can at all afford it.
If you really can’t, keep everything organized. I was able to argue with IRS when I got audited because I had kept my W-2s and bank statements from the past five years. I was able to provide documentation. Get yourself a file cabinet (you can probably find one at a thrift store), and organize banking and tax info by year. If you have receipts to keep track of, put them into labeled envelopes paper-clipped into your annual tax folder.
And finally, just try to find something you enjoy. There is so much to worry about; make plans to the best of your ability, and then, knowing you’ve done what you can, do your best to find some enjoyment in life. Chronically miserable, anxious people make far more mistakes. Maybe all you can do is sit around a fire in your grill with a few beers and some good friends, but if it takes off some stress, go for it.
What are your thoughts on the Inflation Reduction Act?
Do you think this bill will help the average American? Do you think it will legitimately decrease inflation? Or do you think it’s another “creatively” named piece of legislation that means exactly the opposite of its title? (Patriot Act, anyone?) Let’s hear your thoughts in the comments.
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About Marie Hawthorne
A lover of novels and cultivator of superb apple pie recipes, Marie spends her free time writing about the world around her.
These laws will all eventually be aimed at the Christian for the harlot and the UN beast she rides hate us:
https://sumofthyword.com/2021/01/07/mystery-babylon-the-great-and-her-beast/
You are mislead.
Mystery Babylon is a city, not a Nation. One that sits on 7 mountains. Which is only Jerusalem. Many versions slant the translation to say “hills” to point one towards Rome, But there is another more common Greek word for hills, where as this word is normally translated as
meaning mountains, as in Mathew 24:16 , Luke 21:21, etc.
It is “The” Great city, not just “A” Great city. The only “Great city” the Hebrews considered Great, was Jerusalem. Jerusalem is the only city that fulfils the statement about this Babylon; as the one where the OT prophets were murdered, as well as NT Saints. No where else in the world can claim that dishonor. There are many more qualifications of that “great City”, only Jerusalem fits them all.
Those who would be Preppers, should be as diligent in researching that subject, as one should be in researching Biblical subjects. Do not take things at face value, for there are many who will mislead you. Some out of ignorance or laziness, but some willfully do so. So be very careful, the world is an evil place filled with deceivers. No matter how good a case they seem to make for their cause. It will only get worse after SHTF.
As usual,with this bill it only helps the top 1%.They will be passing the cost down to the people.The people will be bent over to take it up the backside.Be prepared to pay astronomical prices for everything.
You are correct that companies usually pass costs to customers. The only thing that ever changes that is when the government intervenes by giving them money.
Since what’s driving up prices is mostly energy costs, it would make sense to me to give money to energy companies so they don’t pass all of their costs to customers, while raising taxes on other companies that provide things that are less needed. But I’m probably too naive.
First, inflation causes people to end up in higher tax brackets as wages increase to offset higher prices. Second, 22 million illegals with some form or another of government subsidy are queued up to get the same food stuff as the rest of us; further driving the inflation engine with our own tax money. There is no good or peaceful way out of this spiral.
Bingo! The comparisons to 1984 are apt. Very apt.
Are Democrats doing this because they’re stupid. No. They’re doing it because they’re greedy and evil. I’m expecting the resident dems who read Organic Prepper to come crawling out of the woodwork on this one.
I’m not sure I would call myself a resident dem, but I probably don’t fit the “average” demographic here, so I’ll speak up. I’ve been a reader here for a long time. I do not ascribe to or pay any homage, or owe any loyalty at all, to either political party–both dem and gop elites are all deceptive evil, greedy, pieces of garbage (and they all sleep & golf together and donate to each other’s campaigns, and the parties conspire together to keep 3rd party candidates from ever being allowed into debates or to ever gain any traction). I’m so far “left” I swing back “right” in many areas. That’s probably why I get along well with both progressives/ leftists and libertarians alike (If you’ve ever spent any time in Humboldt in CA, you’ll know what I mean). All that said— yes agreed. This “inflation reduction” bill is bs. They are absolutely greedy and evil. They all are. The entire goal is to keep us at each other’s throats so that they as a social class (the 1%) retain power at all costs. And yes, I agree that the comparisons to 1984 are extremely apt. Another example would be be them flip flopping between which country they are at war with… and to me, the related example here is the insanity of the constant propaganda keeping democrats and republicans at each other’s throats. The constant fearmongerimg from both parties is along the same thread. They keep us fighting each other and terrorize the vast majority of people in the country into a state of constant cognitive dissonance and doublethink, so that we the proles are too tired, exhausted, and scared to ever wake up en masse as to who the real villains are.
It would be interesting if you would define what you consider “far left”. And how you can swing back “right” in many areas.
Left and right on the political scale are mutually exclusive. For example Adolf Hitler and Joseph Stalin are both far left because they both believed in authoritarian types of governments. A strong centralized government with tight controls on everything people can say, do and own. The communists outright declared collective ownership of all products and services. Under the Nazis people retained nominal ownership of their property and businesses. But their ownership was more of an illusion because under the Nazis everyone under their rule only existed to serve the state.
The goal of the democrats along with their puppet masters the globalists is a far left dystopian society where Klaus Schwab the leader of the World Economic Forum/Globalist headquarters says “You will own nothing and you will be happy.”
If you own nothing then the government owns everything and you have a government with tight controls on everything people can say, do and own. In other words a far left government running your life. Step out of line and the puppet masters who control everything will make you regret it. Power corrupts and absolute power corrupts absolutely. Bottom line they want full blown communism. A dictatorship of the globalists.
Far right politically is the opposite of the far left. People on the right believe in self determination an individual rights. They believe that “Governments are instituted among Men, deriving their just Powers from the Consent of the Governed”. The key issue defining the right is that people are ultimately the rulers. Not the government.
Libertarianism is about as far right as you can get. They believe in individual rights and free markets and freedom of government interference in people’s lives.
Defining far left and far right in terms of taxes, racism, nationalism or government help for the poor is a superficial and useless definition.
As you pointed out in the article – the problem, and THE thing causing inflation is TOO MUCH money in the system. The idea that you can fight inflation by printing MORE money is absurd. This could be compared to pouring a pail of water on a drowning man to “help” him. Anybody that actually believes this stupidity mike actually be to stupid to remember to breathe.
As a friend keeps reminding me, “We’re overdue for an asteroid! We deserve it.”
Absurd, is the word describing the Biden Administration, the CDC the FDA, the FBI, the DOJ, the DofE,
It’s time for Joe Manchin to go. He always votes with the DevilRATS and has done nothing for the people of West Virgina except to bankrupt their small businesses and allow the coal industry to go under. A vote for Manchin is a vote that you hate God and sold your soul to satan of this world
You don’t give Democrats enough credit for being devious. The purpose of the IRS agents is to shut down gun manufacturers and dealers, to go after political opponents, to go after Trump supporters, and to go after conservative media.
For hundreds of years the concept of a central bank (out of legal accountability reach by the population) being able to counterfeit a nation’s money supply in order to steal more and more purchasing power from the population (beyond what published tax rates would generate) … has funded the ever greedy spending obsessions of largely unaccountable governments. That lesson was learned by England after one of their kings was beheaded for jacking up the posted tax rate to fund one of his favorite wars — and the torches and pitchforks crowd took great offense at such theft of their money.
So in the 1690s the Bank of England was created as an unaccountable central bank which could counterfeit their money supply to fund government’s obsessions without the vast majority of the population understanding the subterfuge. Although it was not mentioned in our Declaration of Independence, the fight over who would control the money supply for the Americas was very much another motivator for our revolution.
After our revolution, memories of those hard times were very fresh and so our 1792 Coinage Act specified the death penalty for making American coinage out of anything but precious metals.
The first two attempts to establish a US national bank were fortunately shot down — the second one by Andrew Jackson. Unfortunately the third attempt was successful for secret British money bought our 1912 election for socialist Woodrow Wilson who the British knew they could rely on to sign off on “our” Federal Reserve, “our” income tax, America‘s participation on the British side of the coming European civil war, and “our” stripping every US state of its right to appoint US senators by turning such selection into a high dollar campaign money auction among oligarchs.
The result of that first major use of the “Fed” counterfeiting was to jack up prices by the end of WW1 by about 15% — immediately followed by a predictable financial crash.
Today, financial charts showing the US dollar’s value displays that percentages of value in the high 90s represents the purchasing power of those dollars stolen by the central bank’s counterfeiting racket. One of the smallest examples was the 3 cent US postage stamp of WW2 vintage which just this year of 2022 has been raised to 58 cents. Much more painfully is the skyrocketing price of fuels — the result of a combination of a federal war on US fuels independence (pipeline shutdowns, eg) plus Fed counterfeiting in the trillions just in the last couple of years. Amazing how the mainstream media (deemed the presstitutes by Paul Craig Roberts) don’t dare to use the honest label of counterfeiting. That should tell you who they are either loyal to, or terrified of, or maybe both.
The point is that we have been stuck with a thoroughly dishonest money system ever since British-bought Woodrow Wilson signed off on the US version of the Bank of England for largely the same deceitful purposes. And the deep state pulling the strings on their puppet Dementia Biden is as greedy as any other in history that has always eventually destroyed the fiat money system they controlled.
–Lewis
The IRS (Idiot Robbery Service) needs to be armed. Who would have thought, huh?
Someone pointed out they will only go after people making more than $400,000 but they only make up 1% of taxpayers yet they need 87,000 more agents for them?
No, those agents are for the middle class.
Marie,
Share some apple pie recipes that you say you have?
Alexander Solzhenitsyn had the solution for the late night knock on the door and the busses headed for the gulag. His prescient words will be heeded by besieged citizens this time around. Tyranny always fails. People on both sides die needlessly. Look up the WWII pictures of Mussolini and his wife twisting in the wind. Here we go again, it never ends.
John and I were audited about 25 years ago. Like you, we weren’t in that $$$ tax bracket. Like you, I had all documentation and knew math. I received a letter thanking me for explaining and saying we didn’t owe anything. A few days later, I got another letter from the IRS claiming we owed them. I made a copy of both letters and mailed them back with a note, “Get your act together!” We never had any more problems with them. I continued to do our taxes, only asking a CPA for help with depreciation once. And I kept records for seven years.
Now that I’m retired, the inflation COL raises may push us seniors into paying taxes. Bring it on, boys! I STILL keep my records!
The IRS criminality increase is the main point of this thing. The dying cabal is desperate for excuses to attack “right-wing extremists.” The Left accuses Trumpists, Repubs, etc. of the kind of violence we actually see from Antifa. All those armed agents are intended to murder the opposition and provoke the idiots who think following the enemy’s script is the way to win. There are REAL solutions including CSPOA, foodforestabundance.com , “starve the Beast,” prepping, and visiting your county offices to find out how your counties voter rolls are handled and how your ballots are counted (forget the midterms if we don’t bother with that–it will be a Blue Wave). Those visits can be friendly and polite. It’s the eyes and the caring that will count.
Someone pointed out, an extra 80k IRS agents to go after the top 1%?
Read a few articles from third party think tanks. Some say this will impact small biz and the middle and lower class than the top 10%.
Another think tank said it will hit anyone making $200k or less.
We are in the wait and see mode, before making a judgment.
The green energy thing, seems to only apply to the upper middle class and higher. The base model Ford F-150 Lighting starts at $40K. That is with the “standard” range battery, or about 350mi range. You have to go up to the XLT to even get the option of the “extended” range battery. XLT with the “standard” battery: starts at $59k. With the “extended” range battery: starts at $80k.
Dunno about ya’ll, but even the base model would be a stretch for us.
What you also dont hear much about is how much battery range is affected by things like heat and cold.
Everything out of the mouth of the democrat party is a lie or in support of a lie. The best rule of thumb for democrats is believe the opposite of everything they say.
Government price controls on drugs will only create shortages. Raising taxes on corporations and people wealthy or poor helps no one except the army of useless bureaucrats and politicians in Washington. What will the government do with the additional tax revenue? That’s obvious. They will subsidize green companies that can’t survive in the real world without government handouts. Billions have been wasted and billions more will be wasted. Government investment is an oxymoron. Like pregnant man. He is a woman. 2 + 2 = 5
You are 100% right Marie Hawthorne. It is the “Illusion of Inflation Reduction Act” Your article is beautiful, well written and well researched. Thank You.
An example of doublespeak at its finest. Nice article. Thank you.