Joe Manchin’s Economy-Wrecking Inflation and Tax Increase Act

Last week, the day before the latest GDP data release showed the US economy tipped into recession in the first half of 2022, Senators Joe Manchin and Chuck Schumer announced a deal on a legislative package to be passed through the budget reconciliation process. That process allows the Senate to pass certain types of legislation with a simple majority vote, meaning that Democrats alone can pass partisan priorities. This deal represents an about-face from Manchin, given that just a couple of weeks ago he had pronounced any reconciliation bill on hold until the July inflation statistics were released. No one knows what prompted Manchin to suddenly stop caring about inflation, but just because Manchin may be done with inflation doesn’t mean that inflation is done with him, or with the American economy. 

The reconciliation deal is a collection of tax increases and subsidies for various special interests that will not reduce inflation, despite being titled the “Inflation Reduction Act.” Indeed, according to Manchin’s own preferred academic modelers at Wharton, the legislation will slightly increase inflation over the next several years. That should be obvious, given that the legislation would spend several hundred billion new dollars of federal money, adding to the inflationary pressure driven by the 2021 spending binge. Manchin claims that the tax increases in the legislation will offset that inflationary pressure, but the legislation mainly increases corporate taxes and taxes on energy production. Does he think that corporations will not pass on those tax increases to consumers in the form of higher prices? Does he think increasing taxes on energy will not increase the cost of energy? The reconciliation deal is practically designed to increase inflation.

The timing of the announcement of the deal was quite on the nose as well. The following day, GDP figures for the second quarter were released showing a contraction of 0.9%, which combined with the first quarter decline of 1.6% shows the US economy in a recession. In the teeth of this recession, Manchin and his fellow Democrats are proposing a massive tax hike. If someone wrote this in a movie script no one would believe it. Joe Manchin’s “cure” for an economy in recession with the highest inflation in a generation is spending more and increasing taxes.

The energy taxes included in the package are especially foolish at a time when even the Biden White House, which has vowed to end oil and gas use, is begging for more domestic production in the face of high energy prices. The legislation would impose a new tax on methane, it would increase taxes on oil and gas production on federal lands, increases taxes on coal production, and reimposes a long-expired environmental tax on oil production. Every one of those tax increases will be passed on to consumers, and not just in the form of higher prices at the pump or costlier electricity bills. Everything in this country moved by trucks, running on more expensive diesel, will cost more. Groceries, clothing, appliances, and even Amazon deliveries — all more expensive.

So this legislation is not an “inflation reduction act,” it is a good old-fashioned tax-and-spend bill. The legislation is an inflation-increasing act. In good economic times, it would be a harmful policy. But in today’s uncertain economy, with simultaneous recession and inflation harking back to the worst of the 1970’s stagflation, this legislation is downright dangerous. Raising taxes on businesses when they have already been forced to increase prices because of inflation. Raising taxes on energy in the middle of a global energy crisis. Increasing government spending on top of the trillions of dollars in overspending already forced into an inflationary economy. It’s as if the legislation is designed to turn a struggling economy into a crashing economy.

The Joe Manchin of three weeks ago was right: inflation is a big problem, and new federal spending should be contingent on inflation easing. Maybe this week’s Joe Manchin should take his own advice. Increasing taxes on energy is perhaps the worst possible policy action that could be taken in this economic climate, not to mention the current global geopolitical situation with Russia’s ongoing war. But sure, this legislation includes subsidies for electric vehicles, which definitely will make up for rocketing inflation and economic collapse. Just trust Joe, not your lying eyes.