Tuesday, July 18, 2023

The Cost of The Inflation Reduction Act Has Inflated To Almost $1 Trillion

I did not see this when it was news.

From Reuters, June 16:

Analysis: Biden's IRA climate bill won't cut deficit as expected

When President Joe Biden signed his signature Inflation Reduction Act last August, he hailed the collection of green energy tax credits as a major victory for climate change, and flagged “another win” for the American people: cutting the deficit.

"We’re cutting the deficit to fight inflation by having the wealthy and big corporations pay part of their fair share," Biden said, while signing the bill. The White House estimated, and independent budget analysts agreed, it could cut the deficit by $300 billion over the next decade.

The tax credits have been massively popular with companies, spurring new investments and boosting job growth, environmental benefits -- and the price tag. But the "pay-fors" to fund these credits face political and legal headwinds, fueling doubts about whether Biden's promise on deficits will ever materialize.

“Originally, this was supposed to be a deficit reducer, but now it has flipped. Instead of reducing the debt, it will add to it,” said Kent Smetters, the faculty director of the Penn Wharton Budget Model, which scrutinizes federal spending.

The bill will add $750 billion to the nation’s deficit over ten years, according to Smetters.

The Biden administration says that scenario is too bleak, but a White House official acknowledged that reductions to the deficit could take longer than estimated.

Congressional researchers had estimated the legislation would have an immediate deficit reduction this year but would then add to the deficit until after year five, when reductions would ramp up significantly.

“I think we can say with pretty good certainty that this is the bill overall is going to be deficit reducing in the long run," a White House official said. "It may not start hitting the deficit until year eight or nine, not year four or five."

White House officials say revenue will outpace original congressional estimates, and they point to the millions of jobs the IRA is expected to create. Ultimately, it will fulfill its promise of tackling climate change while cutting the deficit, officials say.

The issue is a key one for Biden and his fellow Democrats, who plan to argue he should be reelected in 2024 in part for balancing key policy goals with being good stewards of the nation's finances. U.S. employment is booming, inflation is declining but voters are not confident about Biden or the economy.

Democrats underestimated the cost of the tax credits by as much as 300%, thanks to generous rulemaking and greater demand, analysts at Goldman Sachs, Credit Suisse and the budget model by University of Pennsylvania’s Wharton Business School say. Most of the credits are uncapped, meaning they can swell even higher....


Wharton is going to get blackballed by the O'Biden-Harris administration if they keep this up. They also released a study showing that the cost of the Admin's student loan forgiveness would be in the four-comma club as well:

Turley: "Wharton Study: Biden Tuition Debt Forgiveness Could Cost $1 Trillion"
This is the high end of the range Wharton was referencing just last week: Penn Wharton: "Forgiving Student Loans: Budgetary Costs and Distributional Impact".

I did catch the comments from the subsidy czar in May: 

Increased green tax-credit costs are a sign of success, White House's Podesta says

Which, when I saw it again this morning reminded me of a sales guy who, whenever I raised an objection to whatever he was pitching would say "That's they beauty of it." I finally asked him why he would say that and he told me "It's the all purpose turnaround. I say it, it stops my client's thoughts for a couple seconds and gives me time to figure out what I want to say next."

I used a variation of it earlier today in the introduction to "News You Can Use: "ESG' in US finance job titles comes with 20% pay premium'".

HT on the IRA cost increase, OilPrice via ZeroHedge: 

Countries Wage War Over Clean Energy Subsidies