Larry Kudlow: The Schumer reconciliation bill would stop the surge in business investment

Save America. Kill the bill. The bill, of course, is the Schumer-Manchin reconciliation project. Killing him will not be easy, but we will continue to do our best for political reasons.

The more we learn about this bill, the less everyone seems to like it. According to the Penn-Wharton budget model, the “Inflation Reduction Act” does not appear to have much reduction in inflation.

It is not a supply-side model, but its results suggest that the impact on inflation is statistically indistinguishable from zero. Let me just say that there is never any automatic link between budget deficit and inflation anyway. So, I never bought that topic to begin with.

The main cause of inflation is overly easy money and overly excessive federal spending has also contributed in this current cycle, but one of the economy’s killers besides skyrocketing inflation is Biden’s regulatory strangulation of the economy. it starts with fossil fuels, but continues through virtually all business and industry.

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Speech by President Biden

President Joe Biden addresses the 76th session of the United Nations General Assembly on September 21, 2021 in New York City. (Photo by Timothy A. Clary-Pool / Getty Images / Getty Images)

Biden slapped $ 200 billion in regulatory costs in its first year alone. It’s more important than a bunch of bogus accounting gimmicks designed to reduce the budget deficit for a couple of years.

If we take a look at the reconciliation, there is a $ 739 billion tax increase and $ 433 billion spending, but Obamacare’s spending is only marked for three years. In 10 years it will be over $ 200 billion, so we will wipe out about $ 150 billion in so-called deficit reduction and the idea that we will give the IRS another $ 80 billion that will generate another $ 124 billion in tax revenue. that game gets retried over and over, and fails over and over, and it’s just another bogus nonsense.

In addition, energy loans and loan guarantees are classified as interest-bearing assets that generate a lot of money. Good luck. Remember Solyndra? Or how did those student loans work? But the biggest thing is that the deficit-reducing crowd forgot to add the $ 280 billion CHIPS + account that had no payments.

I’m sure it’s just an oversight, but suddenly, when you count the stock in Congress last week, there’s nearly $ 900 billion in spending versus $ 740 billion in revenue, which sounds like a deficit to me.

Feel free to check my calculations, but more important is the idea that spending 100% business investment is a tax loophole. It is not. The reason taxable income is less than accounting income for companies is that you can legally deduct, intentionally, in 2017 Trump tax cuts, to allow for immediate bonus deductions for new plant, equipment, technology, etc.

This was done to make America more competitive, to purposely increase productivity, real wages and typical household incomes, along with reducing the tax rate from 35% to 21%.

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Those were the two pillars of the supply-side corporate tax cut, and it worked. Median income has skyrocketed. Unemployment has collapsed. Poverty has fallen. Inequality decreased and there was no inflation and the abstraction from the closing of the pandemic paid off when the Laffer curve began.

The Schumer reconciliation bill would halt the surge in business investment. Big mistake! And, since 70% of the corporate tax burden is borne by blue-collar workers, inserting an alternative minimum tax of 15% on book income will lead to general tax increases.

According to the mixed commission for taxation, which is not friends with suppliers, 50% of the minimum tax burden would go to producers. By the way, today’s ISM report for the manufacturing sector has dropped to its lowest level since June 2020, but then, to varying degrees, every other sector will take on tax hikes, including a 7.2% tax hike. on coal and a $ 25 billion tax hike on oil, and fossil fuels in general and — you understand that — there’s a spin-off for the Green New Deal tax credits. There is a shock!

There is also a cut for a refundable semiconductor tax credit, although the chip industry will be hit hard by the minimum corporation tax of 15%. What one hand gives, the other hand takes away.

Some other curiosities, also from the Joint Committee on Taxation: People earning less than $ 10,000 a year will be the hardest hit with a 3.1% tax increase. People between $ 20,000 and $ 30,000 will get a 1.1% tax increase. People under $ 100,000 will receive a $ 6 billion tax increase. People earning less than $ 200,000 annually will have a $ 17 billion tax increase.

So pretty much everyone gets a tax increase. What a joy! Just like Christmas in August. Fantastic stuff.

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Here’s a multiple choice question: This tax increase will do the economy A) more growing or B) more recessive? If you answered B, you win the lottery. Follow-up question: Will approximately $ 900 billion of additional spending generate: A) higher inflation or B) lower inflation? If you answered B, you also win the lottery.

But after tax, after-inflation base, lotteries are no longer worth what they used to be. For God’s sake, save America, kill the bill.

This article is adapted from Larry Kudlow’s opening commentary on the August 1, 2022 edition of “Kudlow”.

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