Grassley Op-Ed: Reconciliation Bill Will Raise Taxes, Fuel Economic Uncertainty

When Democrats passed their first partisan $1.9 trillion reconciliation bill early last year, even liberal economists warned it would trigger inflation. Prices at gas stations and grocery stores have climbed ever since. The average household in my state of Iowa has seen its monthly living expenses increase by $669 since January 2021. Iowa State University released a report showing inflation has caused the equivalent of a 33% cut to rural disposable incomes. Unfortunately, all that the administration and the Democratic majority in Congress have offered as solutions are more spending and tax hikes.

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This latest tax-and-spending spree doesn’t stop at just providing carve-outs for certain tax credits; it also doubles down on corporate tax subsidies for favored industries to the tune of $270 billion. Coupled with a new provision that allows green-energy developers to sell their credits to others, a host of different businesses and industries will be able to use this new loophole to pay little or no tax. This could include financial institutions, private equity firms, tech firms, and wealthy private investors. Democrats’ message to the business community is clear: If you’re a large, Democrat-aligned green industry you have nothing to worry about. Paying your fair share of taxes is optional. But if you’re a domestic textile or electronics manufacturer, prepare to be taxed into submission.

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Despite President Joe Biden repeatedly promising not to raise taxes on anyone earning less than $400,000, JCT confirms their proposal includes a nearly $17 billion tax hike on families and individuals making less than $200,000 in 2023. Worse yet, their analysis shows Democrats’ tax hikes hit families and workers across every income group—including those making as little as $10,000 a year.

Simply put, the Democrats’ bill broadly targets Americans of all incomes for a tax hike while providing tax benefits to a privileged few—such as helping wealthy Americans purchase an $80,000 electric SUV.

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Moreover, targeting massive tax hikes at manufacturers will exacerbate surging inflation. The basic economic definition of inflation is too many dollars chasing too few goods. Tax hikes will curtail business investments that are necessary to increase the supply of goods to meet consumer demand. Again, this is underscored by an analysis from the Wharton School of the University of Pennsylvania, which shows Democrats’ proposal will do nothing to bring down inflation and is more likely to make inflation worse in the near term. Even a Moody’s analysis, which has generous assumptions toward Democrats’ policies, found this bill is misnamed and misaimed, projecting only a mere 0.33% inflation reduction—nine years from now.

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Democrats are gambling with an economy in recession, falling real wages and 40-year high inflation by imposing a novel new tax on manufacturers without fully understanding how it works and without knowing the impact their overall tax hikes will have on workers and families. I urge my Democratic colleagues to rethink this approach. Now is not the time to gamble with our fragile economy.

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