Early in my trading career, a Wall Street veteran advised me to “never let perfection be the enemy of good”.
Senate Majority Leader Chuck Schumer may have had similar advice in mind as he relentlessly persuaded his 49 Democratic colleagues to pass the Inflation Reduction Act, which emerged not only It’s a good bill, but it’s also a great bill, as President Biden has described. when he signed it on Tuesday.
However, without the trouble of a fickle Democratic senator and a significant political misjudgment by the Biden administration, we would have had an even more consequential package.
The stubborn Democrat was, in the end, not Joe Manchin of West Virginia — who fought so hard for his beliefs and his constituents during the signing process — but Arizona freshman Kyrsten Sinema. , who is proud of a quirky individualism seemed to follow the pattern of one of her predecessors, the famous Republican John McCain.
While many of Mr Manchin’s changes have improved the bill – for example by shifting it from raising the deficit to reducing it – Sinema’s demands alone have significantly weakened the tax portion of the law. fruit.
Do not increase the corporate income tax rate too low. No refunds in deductions are too generous for businesses. No increase in income taxes or capital gains paid by the rich.
Wealthy individuals who escaped were essentially unaffected by the new law. Ms. Sinema even opposes the closure carry-on interest gapthrough which many private equity executives and some hedge fund managers pay a tax of only 23.8% on the gains made on their investors’ equity.
Here’s how Ms. Sinema’s logic got tangled up: As a member of the House, Ms. Sinema voted against Donald Trump’s signature Tax cuts of $1.9 trillion of 2017, whose interests lie mainly in wealthy businesses and individuals. That doesn’t stop her from insisting that the Inflation Reduction Act doesn’t reverse any of those changes.
As a result, Mr. Schumer and other architects of the IRA were forced to use a new method of taxing the profits of large corporations – evaluating them on a single-company basis. reported income according to generally accepted accounting principles (known as GAAP) rather than based on calculations prescribed by the tax code.
In addition to adding complexity, this change creates the possibility for companies to manipulate their tax obligations by modifying accounting methods that the Internal Revenue Service would not be able to oversee.
Ms. Sinema also stressed that some elements of the new 15% corporate tax on “book” profits will be rolled back – including some that will be private equity is adversely affected — thus creating a revenue loophole that Democratic leaders have largely picked up by adding a new 1% tax on companies that buy back shares.
Fortunately, that number probably isn’t large enough to deter many stock buybacks, but it’s still a step in the wrong direction.
Contrary to public impression, share buybacks can be a positive for the economy; companies have a responsibility to buy their own shares when they are not intended to use their capital effectively. Stock owners who resell their shares can take that money and put it into other, more attractive investments that help grow the economy.
Meanwhile, on the ledger spending side, we lost the opportunity to enact many other worthy initiatives, like continuing the expanded child tax credit; tuition-free community colleges; parental leave and an additional income tax credit.
That was due to a consequential misjudgment by the Biden administration. Believing his election constitutes a mandate for major change, Mr. Biden took office with a series of plans, estimating a total of $6.4 trillion in new spending.
The first of his three planned packages, the almost completely unfunded $1.9 trillion American Rescue Plan, is primarily designed to combat the economic impacts of the pandemic. prolonged economic impact of Covid through proposals that include more stimulus testing for individuals and more aid to states and localities, which has demonstrated unnecessary.
Passed in a partisan vote, the provisions essentially increased the nation’s budget deficit and added burning inflation has become a major challenge for Democrats.
For legislative strategic reasons, the other two presidential packages were combined into one 3.5 trillion dollars giants, that quickly met resistance from moderate Democrats concerned about the potential impact on the deficit and inflation.
Imagine if the Biden administration began its term by promoting its more deserving proposals that would support long-term economic stability rather than excess and inflationary American Rescue Plan. Even Mr Manchin, who voted for that plan and who willingly supported it last summer $1.5 trillion packagemay have arrived on the ship.
Instead, we get about $500 billion in new spending and tax breaks (along with about $300 billion in deficit reduction vs. next decade).
With Mr Biden’s popularity low and Democrats expected to lose control of at least the House in November, we’ve blown away the chance for major transformational legislation. than.
It was an opportunity of extraordinary scale missed.