Timothy Birdnow

Even the British understand the insane "Inflation Reduction Act" is going to crash America's economy.

https://www.telegraph.co.uk/business/2022/08/08/joe-biden-crash-world-economy/?fbclid=IwAR1vgBNiVjEKVy4Y4Am5E3U_SSTPl5fxGOK7HDMFoOv6D_f7zW2RD7rcMh0

Instead, inflation wassparked by Biden and the Fed: the President’s wild spending, doling out $2,000 cheques to everyone, and the Fed’s willingness to finance it with freshly printed money. If the government pours another $739bn of stimulus into an economy already at full employment and with inflation running rampant, the Fed won’t have any choice but to raise interest rates more aggressively – or else let prices run completely out of control.

The second problem is Biden’s new plan imposes a huge new round of taxes on business. The new "minimum tax” is actually a disguised increase, since it will be imposed on companies regardless of standard deductions for investment, R&D or any other mainstream expenses or reliefs.

On top of that, Biden’s plan imposes a new 1pc levy on share buybacks, a measure the American Left has for years campaigned for. You can argue for or against it – in fact, with high corporate taxes, buybacks are an efficient way of returning money to shareholders – but there is no question it will take more money off companies and cause huge damage to Wall Street, which relies on companies to put cash back into the market.

Add it all up, and the new Inflation Reduction Act imposes a huge increase in corporate taxes. The result? Investment will be damaged, the supply side of the economy will shrink, and that will make inflation even worse.

Finally, despite claiming to reduce the deficit, the plan will send debt soaring upwards. As Rishi Sunak would have discovered if he had remained as chancellor, increasing corporate taxes sounds easy but the money generally does not materialise. Companies work around them or go elsewhere.

Biden will unleash the spending, but the planned revenues will never turn up, and the deficit will rise and rise. The US debt-to-GDP ratio has already hit an alarming 137pc of GDP, and may start to get towards Italian levels (currently 148pc of GDP). With the world’s reserve currency, the US can probably get away with that. But there is no point in pretending it will control inflation – that is not what debt does.

Posted by: Timothy Birdnow at 10:07 AM | Comments (7) | Add Comment
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