One of the classic Washington political tricks is to recycle legislation under a new name. This explains how various schemes in the “Build Back Better” bill have found their way to the just-passed “Inflation Reduction Act.”
That is why an “inflation reduction” bill contains $200 billion in subsidies to the renewable energy industry, along with $80 billion dollars to the Internal Revenue Service to hire 87,000 new auditors, and a provision that will raise the cost of private health insurance through purported “cost reductions” for Medicare.
Peter and Eric pop this balloon on the most recent episode of The Drill Down.
When politicians talk about “building back better” or “reducing inflation,” very few Americans would think they mean hiring 87,000 new agents for the IRS. But $80 billion of “inflation reduction” money will be used to do just that. For reference, as Peter mentions, there are exactly 789 billionaires in the US. It is safe to say very few of these new agents will be going after the billionaires. According to news reports, those agents will be interested mainly in businesses that report less than $200,000 in annual revenue. Are you feeling “deflated” yet?
One group that might feel a little deflated is Big Pharma. A provision of the Inflation Reduction Act would give the Medicare program greater leverage to negotiate drug prices. This might sound great on the surface, but it means an estimated $250 billion in corporate revenue will be lost to the government’s powerful ability to set prices for certain high-cost prescription medications, and Big Pharma will have to make that money back from somewhere else. As Peter notes, the pharmaceutical companies will make that money back by increasing drug prices for Americans on private health insurance. Are you feeling deflated yet?
Peter then offers a prediction: “The costs of private health insurance will rise and consumers will be outraged by the high prices. Then the politicians will say, ‘we have the solution; give us even more power!’”
A Wall Street Journal opinion piece sums up the transfers of money this way:
“The so-called Inflation Reduction Act will be one of the greatest misallocations of federal resources in American history. The bill has many moving parts, but here’s a simple way to sum up its macroeconomic impact: It would transfer about a quarter of a trillion dollars from America’s pharmaceutical industry, which saves and extends lives, to the climate-change industrial complex, which makes energy more expensive.”
One of the authors of that article, Prof. Tomas J. Philipson of the University of Chicago, calculated that the bill’s price controls would slow the pharmaceutical industry’s research and development spending and its introduction of new life-saving drugs at a cost to Americans in lost years of life that is 30 times the toll from the COVID-19 pandemic so far.
This is a surprising defeat for Big Pharma, especially given what Peter says he was told privately by an unnamed Republican congressman during his last trip to the US Capitol: “Big Pharma owns this place.”
But Peter remains skeptical about Big Pharma’s fate. “We don’t know what promises have been made to them [Big Pharma] for help somewhere else.”
So, where will all this money go? The renewable energy industry.
As Eric points out, green energy industries have received about $200 billion in taxpayer funds over the past 40 years. That has ramped up in the last few years because of increasing alarm about climate change. At a stroke, the Inflation Reduction Act will spend nearly double that amount — $380 billion – to subsidize what today produces just 7% of American energy needs.
The problem with this, of course, is it does absolutely nothing to reduce inflation. Because green energy is such a small part of the American energy pie, renewable energy prices are not what is driving inflation. Gas prices are driving inflation. So, if you care so much about reducing inflation on Americans, why not do something about the gasoline market? The legislation does just the opposite.
Peter notes, “We have high gas prices in part because the ability to refine energy in the United States is limited and restricted. We haven’t built a new refinery in the United States since the late 1970s when Jimmy Carter was president.”
If you’re hoping that the massive transfers to renewable energy companies must somehow be good for the US economy, you should know as Peter and Eric showed on previous Drill Down episodes, that the country that makes most (between 80% and 90%) of the available, renewable energy technology is … China.
Peter closes by saying of Washington’s politicians, “They are mislabeling what they’re doing. This is not going to lead to a reduction of inflation. In all three areas – tax policy, energy policy, and the cost of medicines — average Americans are all going to end up footing the bill.”
The show’s producer chimed in with a suggestion: “We should have added an amendment… The new IRS agents will have to audit all elected officials and their families first.”