The "Inflation Reduction Act of 2022" Will Make Inflation Worse
This law imposes new taxes on energy and increases deficit spending which is why I was one of 369 Concerned Economists that signed a letter to Congress opposing the bill
Perhaps you have heard the economist’s adage, “if you want less of something, tax it.” Well, less energy at higher costs will be the actual effect of the bill that passed the House of Representatives Friday, August 12, 2022, laughably titled the “Inflation Reduction Act.”
In truth, it should be called the “Eliminate Conventional Fuels and Make Inflation Worse Act” because it taxes conventional energy and massively subsidizes so-called “green” energy with more deficit spending. Since energy is a significant component of every aspect of modern life, this bill will increase the cost of everything and worsen inflation, precisely the opposite of its official title.
Provisions of the bill that have received little attention are the taxes on energy include:
A Massive Tax on Energy Companies. Section 13601, called the Hazardous Substance Superfund Financing Rate, is a tax on crude oil and imported petroleum products of 16.4 cents per barrel, indexed to inflation. This provision imposes $11.7 billion in new costs on U.S. energy producers.
A Minimum Book Tax on companies, including energy companies. This is a new 15% minimum tax on adjusted financial statement income for corporations with over $1 billion in revenue. A poorly designed tax policy will increase taxes on the already highly taxed oil and gas industry, introduce even more tax and financial complexity, and drastically increase compliance costs for American businesses.
Taxes on natural gas. Section 60113 creates a so-called Methane Emissions Reduction Program that imposes a new natural gas tax on U.S. oil and natural gas companies. The fee starts at $900 per ton of methane emitted in 2024 and escalates to $1,500 per ton in 2026. This provision will impose new costs of more than $6 billion on U.S. energy companies and, in effect, eliminate natural gas production. The Act also sets a new royalty on all extracted methane. Expanding the scope of existing royalties for such emissions, on top of the natural gas tax, would add even more costs to production when the U.S. needs more energy supply, not less. This legislation applies new charges on top of further expenses, which will be counterproductive to the shared goal of providing additional energy to meet demand while driving down emissions.
Other new Ways to Hike Costs on American Energy Producers. Section 50262) increases costs through several federal onshore oil and natural gas provisions. The Act’s provisions double rental fees on onshore leases, impose a new fee to nominate acreage to be leased, and increase onshore royalty rates to 16 2/3% from 12.5%.
All these costs are on top of the almost $100 per barrel price of oil cost that is currently destabilizing the world’s economies. If you thought your gas and heating/cooling bills were already high, wait until this bill kicks in.
The negative impacts of this bill on energy and the economy prompted me to be one of the 369 signers of the Concerned Economists letter sent to Senate and House leaders (attached). The letter didn’t stop the passage of the bill but does an excellent job of laying out the negative impacts of the bill, which hopefully can be addressed in future legislation to deal with its damage to the U.S. economy.
