According to the WSJ, the proposed “Inflation Reduction Act” will lead to higher taxes on business investment:

Start with the 15% minimum tax on corporate book income over $1 billion, which Democrats claim will raise $313 billion through 2031. This new alternative minimum tax will slam businesses whose taxable income is lower than the profits on their financial statements owing to the likes of investment expensing, tax credits and business deductions.

Many companies pay less than the 21% corporate tax rate because they can expense investments under the tax code up-front. Hence, the new tax will increase the cost of business investment

The media often report this sort of policy change as representing higher taxes on “the rich.”  But investment is a key factor in boosting productivity, which is what ultimately determines the living standards of ordinary workers.  Taxes on investment have the effect of taxing future consumption at higher rates than current consumption, which reduces saving and investment and slows economic growth.

I am trying to get up to speed on the rest of the bill.  Price controls on the purchase of drugs by Medicare might be beneficial in reducing federal spending, or they might be detrimental in slowing the development of new drugs.  More money on IRS enforcement might be beneficial in terms of reducing tax fraud, or it might be costly by adding to the number of aggravating tax audits.  Environmental provisions might help to reduce global warming, or they might lead to wasteful pork barrel spending.  In almost every case, better alternatives were available.  Tax code simplification would make existing IRS resources go much further.  A carbon tax is superior to a complex mixture of subsidies.  I understand that the actual bill was the option that was politically feasible, but it is still disappointing to see so many missed opportunities.  (I suspect the next GOP administration will restore expensing of investment.)

On the brighter side, the carried interest loophole that benefits rich hedge fund managers was somewhat reduced in size.  I’ve never understood the rationale for that tax loophole.  And Senator Manchin suggests that there are vague promises to reduce regulatory barriers to new projects in areas like energy and infrastructure.  I’m not optimistic that this will be a game changer, but it’s certainly a hugely important issue.  Thus it’s nice to see an indication of at least some movement on that front.

I don’t know enough to have a firm view on the overall bill.  My instincts are usually to be skeptical of change, as almost everything Congress does seems to make things worse.  The same issue of the WSJ has an article pointing out that it’s the 20th anniversary of Sarbanes-Oxley, which was supposed to fix accounting fraud.  It seems to have done more harm than good:

A 2009 study by the Securities and Exchange Commission found that smaller public companies have cost burdens more than seven times those of large ones.

The disproportionate burden on small and midsize companies has spurred bipartisan criticism of Sarbanes-Oxley. As the Obama administration council noted: “Regulations aimed at protecting the public from the misrepresentations of a small number of large companies have unintentionally placed significant burdens on the large number of smaller companies.”

There’s always so much optimism when Congress does something big and complex, and then years later there is disappointment over the results. I recall when “environmental impact statements” were seen as something that would help the environment.  Today, they are widely used to block projects creating clean energy or housing and transportation projects that reduce urban sprawl.

Senator Manchin gets a lot of criticism from progressives for being an “obstructionist.”  Ironically, he may have saved the Democrats from electoral disaster this fall by refusing to go along with a far more massive spending proposal last October, before the scale of the inflation problem was fully recognized.

PS.  Progressives sometimes taunt the GOP for “defunding the tax police”, due to the GOP cutting spending on the enforcement of tax laws.  I’ve seen conservatives respond that the IRS often hassles small business owners with intrusive audits.  I’ve also seen progressives argue that big city cops hassle young black men with stop and frisk policies.  It’s worth thinking about how different people focus on different types of government abuse.  Might their focus have something to do with which party each victim is likely to vote for?  What type of victims do you tend to focus on?  How does that shape your political views?

I’m a utilitarian, so I favor funding all types of police as long as the extra resources produce greater benefits that exceed costs.  Unfortunately, in the real world it’s hard to know what level of spending is optimal.  In my view, the best way to reduce government abuse is to have fewer laws (especially regarding drugs), fewer regulations, and a less complex tax code.