The Joes’ Green Machine

The Inflation Reduction Act of 2022, like the American Civil Liberties Union or the People’s Republic of China, doesn’t quite live up to its name.

Senate Democrats will push a reduced version of their multitrillion-dollar Build Back Better framework. This could hand progressives a legislative win ahead of the midterms, and help achieve long-sought tax and climate reforms.

The bill calls for a nearly $370 billion investment in climate-related projects in the coming decade, with subsidies for solar and wind and proposed tax credits for electric vehicles. While progressives have resisted efforts to expand domestic oil production even as gas approached $8 a gallon in parts of the country, the Democrat-drafted summary of the bill touts the “over $60 billion” it allocates “to on-shore clean energy manufacturing in the U.S. across the full supply chain of clean energy and transportation technologies. “

Senate Democrats claim the massive investment in green energy will curb U.S. carbon emissions by 40 percent by 2040, and that the pay-fors–narrowing the carried-interest loophole, allowing Medicaid to negotiate drug prices, establishing a 15 percent corporate minimum tax, and expanding IRS enforcement–will actually reduce the deficit.

But with the unemployment rate at 9.2 percent, and an economy in severe recession, it’s unlikely that the bill will fulfill its promise. The Wall Street Journal noted that the disinflationary effects of the bill’s proposed tax hikes won’t kick in until the tail end of the decade. No matter what the benefits of this policy, a higher corporate tax will reduce supply and increase prices. About half of the new proposed taxes will be paid by manufacturers, further slashing supply. It doesn’t take a supply-sider or economist to see that cutting production during a period of high inflation is not a good strategy.

Joe Manchin gave unexpected support to the bill, having previously stalled previous iterations on the Build Back better agenda. Manchin announced his support last Wednesday along with Chuck Schumer, and two of the bill’s provisions–investments in carbon-capture technology and a requirement that the federal government open certain public lands for drilling–reportedly reflect Manchin’s influence in the drafting process.

Since these reforms are being advanced through the budget reconciliation process, Senate Democrats only need 50 votes from their caucus, plus a tie-breaking vote from Kamala Harris, to get the bill to Biden’s desk. The remaining question mark is Kyrsten Sinema, who hasn’t addressed the bill publicly despite her having reportedly influenced the prescription-drug-reform framework in its final text.

Sinema has a reputation for being a strong supporter of private equity. Democrats fear she will resist the narrowing of carried-interest loopholes in the bill. Manchin said that he was “not ready to lose” the tax increase, however, if Sinema doesn’t budge then Democrats might be open to striking the entire provision. According to estimates by the Joint Committee on Taxation, less than 2 percent is expected from taxes on investment income.

It is noteworthy that, of all the agenda items in the original $2.2 trillion Build Back Better legislation–government-subsidized childcare, so women can return to work while public employees teach their children about sodomy; universal pre-kindergarten, to achieve the same purpose; increasing the State and Local Tax deduction, to cut taxes for wealthy progressives; zoning-reform grants, to destroy small towns and suburbs–addressing climate change is featured most prominently in this last-ditch version of the bill. This bill reflects both the value of climate change to the progressive coalition as well as its potential utility in achieving other progressive goals.

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Climate unites the disparate factions within the Democratic Party that otherwise have different priorities and, in some cases, actively dislike each other. For one, it appeals to young progressives, who are among the Democratic constituencies least satisfied with the Biden administration; only 57 percent of Democratic voters under 30 support Biden’s performance, in part because of his failure to “act” on climate change. It also lends itself to racial bean-counting and “equity” audits; the bill plays on the “environmental justice” meme, that environmental harms are disproportionately borne by “communities of color,” and appropriates more than $30 million to track “disproportionate negative environmental harms and climate impacts” and to “track disproportionate burdens. “

This kind of climate action expands regulatory authority and improves career opportunities for graduates in soft science. This punishes fossil-fuel executives and coal workers as well as other enemies to the progressive agenda. It destroys communities and conservative cities that depend on fossil fuel production for their livelihoods and employment. It punishes and rewards good friends.

The Inflation Reduction Act will not do the job its name suggests. It may actually do the reverse in the short-term. Its primary function may be to placate the Democratic coalition’s most progressive members. This is a significant achievement for an administration that has lost support from its base.