The massively bloated Inflation Reduction Act (IRA) is set to be voted on by the end of the week. With democratic holdouts like Manchin suddenly jumping onboard, there seems to be a chance the bill makes it through the Senate. However, with an agenda as diverse as the Village People’s iconic hit, Y.M.C.A., can the IRA really serve everyone at once?
We’ll dive deep into the few positives for oil and gas along with an absolute slew of additional initiatives on everything from prescription drugs to corporate taxation.
“Most Important Investment That We’ve Ever Made in Our Energy Security”
The Inflation Reduction Act attempts to be all things at once. According to Senate Democrats, the bill looks to invest around $300 billion in deficit reduction and an additional $369 billion across energy security and various climate change initiatives. That’s nearly $700 billion in planned federal spending with a bill whose very name suggests fiscal responsibility.
In stimulating growth, history shows us that tight monetary policy and pro-growth models in business and regulation are an effective one-two punch for a turnaround. While the Fed is tightening up what has been an artificially low rate environment for more than a decade, the Biden Administration is moving in a decidedly anti-growth model.
The IRA contains an absolute abundance of proposals for investments in the likes of:
- Electricity and transmission
- Energy-efficient buildings
- Agriculture and conservation
- Environmental overwatch
- Oil and gas reforms
In coal-friendly West Virginia, it seems that Manchin has finally capitulated to Biden, possibly based on the few crumbs for fossil fuels provided in the IRA. Still, in a bill touted as the most significant investment ever in energy security, there is precious little beyond continuing Biden’s advancement of his Green New Deal.
In a Presidency lacking very few positives or even memorable moments beyond buffoonery, the Administration seems desperate to have a peg on which to hang their hat, no matter the cost to the American public.
Act Will Raise Taxes on Lower and Middle Families
According to a report issued to the Senate Committee on Finance by the non-partisan group, the Joint Committee on Taxation, most of the costs associated with the Inflation Reduction Act will land squarely in the laps of households making less than $400,000. This is precisely the opposite of Biden’s promise not to raise taxes on those earning less than $400,000—“Nobody making under 400,000 bucks would have their taxes raised, period, bingo,” Biden said while campaigning on a CNBC interview. Worse, the IRA increases inflation and lowers income prospects for years to come based on its anti-growth and anti-business provisions. We’ll hit on the minimum tax for corporations later on, but the takeaway is that different industries will be disproportionately affected.
Take manufacturers, where the tax code is already stacked against them. According to the independent tax policy non-profit, Tax Foundation, the existing tax code is biased against manufacturers because it prevents deducting capital costs in the same manner as labor costs. Subsidies tend to be ineffective and tariffs usually weaken domestic industries in the global economy and further harm downstream industries.
In a nutshell, the already beaten down American manufacturing industry stands to face a brand new wave of difficulty from an Administration that seems hellbent on making it harder for lower-income families to live comfortably. While the Administration postures, there in black and white in the Senate’s Committee on Finance report, every American can see that this act is poised to raise their taxes.
Don’t Forget the Tax Credit for the Wealthy to Buy Electric Cars
The EV Tax Credit in section 13401 of the bill calls for a “$7,500 consumer tax credit for the purchase of new EVs”. Kelley Blue Book pegs the average transaction price for a new EV at more than $66,000. That’s about $18K more than the overall average for new vehicles which means EVs are predominantly in the “luxury” category.
Depending on your credit score, Forbes says you can expect a wide range of loan interest rates, with borrowers landing somewhere between 2.47% and 12.53%. With Edmunds reporting a whopping average loan term of 72 months, a $66,000 car loan at a medium 6% interest for 72 months would result in a total amount paid close to $79,000. According to the Census Bureau, that’s almost 20% more than the median American household income.
Pushing Americans to get EVs that represent more than most make in a year isn’t sound economic policy, it’s setting people up for potential financial ruin.
What Oil and Gas Stakeholders Should Watch For in
With everything from prescription drugs and healthcare premiums to clean energy and corporate taxation, it’s easy to get lost in the IRA’s sweeping agenda. However, there are four particular programs oil and gas stakeholders need to take into consideration:
- Methane Emissions Reduction Program – this imposes fees on excess methane emissions but also sets aside $850 million in grants to monitor and reduce methane.
- Royalty Program – increases the royalty rate from 12.5% to 16.6% for new onshore and offshore fossil fuel leases.
- Fossil Fuel Leasing – requires new oil and gas lease sales each year for 10 years before installing new solar/wind energy projects.
- Expedited Approval of Mountain Valley Pipeline – what possibly got Manchin’s sudden “reverse course” this would speed up the approval process for the Mountain Valley Pipeline in West Virginia.
Shale players should keep in mind that this Administration has unabashedly showcased its widespread disdain for the industry. From draining the Strategic Petroleum Reserve, snubbing oil executives during White House meetings, and holding new oil and gas leases ransom around the U.S., Biden is ignoring clean, safe, and viable energy security measures available today in exchange for creating a crisis that necessitates his continued, firm control.
Going After Our Nation’s Biggest Employers
“55 of the Fortune 500 companies paid no federal income tax in 2020,” Biden reminds Americans in remarks he made regarding passing the IRA. The fourth pillar Biden outlined was something he campaigned on—that big corporations aren’t paying their fair share in taxes. These comments show how out of touch this career politician is with the nature of doing business. Fact check—61% of Americans work for companies that employ 100 or more people. Each of these companies pays taxes at the federal, state, and local levels with each and every paycheck.
As an owner of a business, you’re hit with triple taxation on the same income. Whenever you pay yourself a salary, you’ll pay federal income tax as an “employee”, then social security, and medicare as both the employer and employee. The employer then gets to also pay federal unemployment tax (FUTA). Depending on your state, the employer also generally pays withholding and unemployment tax and may be responsible for state income tax. The fun part is even though the employer has paid all of these taxes, at the end of the year, they get to file a personal tax return and pay more on the same amount; hence, three different taxes on the same income. Biden’s big plan to spur the economy involves taxing even more.
Pray tell, where does a corporation go to pay tax liabilities? They hire less, they don’t invest in research and development, they cut back on marketing, they suspend pay raises, and they may need to raise prices on products and services just to stay alive. So who bears the brunt? The employee and American families who make less while desperately combating a new form of inflation with increased prices.
Adding asinine fuel to the fire, in a Bloomberg “Balance of Power” interview Tuesday afternoon, Senator Michael Bennet (D) from Colorado went so far as to call for a global minimum tax rate on corporations. So on a global scale, the IRA and a legion of democratic sycophants are seeking to drive growth into the ground and exercise complete American control of the global economic system. Excuse me, your privilege is showing.
However, if you’re a lifelong politician who barely worked anywhere else beyond what’s proven to be a quite lucrative political career, you simply wouldn’t understand.
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Tyler Reed began his career in the world of finance managing a portfolio of municipal bonds at the Bank of New York Mellon. Four years later, he led the Marketing and Business Development team at a high-profile civil engineering firm with a focus on energy development in federal, state, and local pursuits and picked up an Executive MBA from the University of Florida along the way. Following an entrepreneurial spirit, he founded a content writing agency servicing marketing agencies, PR firms, and enterprise accounts on a global scale. A sought-after television personality and featured writer in too many leading publications to list, his penchant for research delivers crisp and intelligent prose his audience continually craves.
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