OPINION: Let’s be honest about the $740B US Inflation Reduction Act

Tom Bracken//September 9, 2022

OPINION: Let’s be honest about the $740B US Inflation Reduction Act

Tom Bracken//September 9, 2022

Politicians in New Jersey and around the country are working overtime to sell the benefits of the $740 billion Inflation Reduction Act that President Joseph Biden recently signed. They are calling it a signature achievement for his administration.

Indeed there are benefits: subsidies for many Americans who buy health insurance on the individual market; $2,000 cap on out-of-pocket costs to Medicare recipients; lower costs of some medications for older adults; and big investments to combat climate change, such as clean energy tax credits for consumers and manufacturers.

But, as we all know, no legislation is perfect and the bad must be evaluated along with the good, especially when it comes to the impact on New Jersey and its residents.

So let’s look at how this bill is being paid for.

Tom Bracken, president and CEO, New Jersey Chamber of Commerce.

One of the biggest revenue-raisers in the law is a new 15% minimum tax on corporations that earn more than $1 billion in annual profits. Raising taxes on big companies is a populist maneuver, but it backfires.

Companies will do what they always do when taxes rise: Reduce investments, cut jobs and raise prices to maintain profit margins. That’s right: Raise prices. That’s ironic since this bill is dubbed the Inflation Reduction Act.

There are not many billion-dollar companies in the U.S. that are affected by this 15% minimum tax, but a large contingent of them are headquartered here in New Jersey.

As a result, New Jersey will feel disproportionate pain from this federal legislation.

This is reminiscent of the federal government’s overhaul of the tax code back in 2018. Congress penalized high-property-value states like New Jersey by capping the amount that federal income tax payers can write off through a state and local tax (SALT) deduction.

Under that change, federal tax filers can now deduct no more than $10,000 per year in those taxes. Members of the New Jersey congressional delegation fought to add a provision to the Inflation Reduction Act that would have removed the SALT cap and provided New Jersey residents relief.

That provision did not make it into the law.

But that’s not all.

There are serious negative impacts of this legislation related to health care — one of New Jersey’s largest and most important economic sectors.

The Inflation Reduction Act allows the federal government to dictate prices on certain medications, which experts in the pharmaceutical industry predict will create significant disincentives for innovation and future research & development.

According to BioNJ, the drug price-setting provisions will reduce revenue for drug makers and reduce by 20% the important drug research & development that is the foundation for breakthrough treatments. A BioNJ analysis projects 135 fewer new cancer drug approvals by 2039.

BioNJ is estimating pharmaceutical-related job losses in New Jersey alone will amount to 43,000 due to this bill.

Transparency in legislation is vitally important.

The positive and negative aspects of this particular law need to be clearly articulated in order for New Jerseyans to better understand its impact on them and on the state.

Tom Bracken is president and CEO of the New Jersey Chamber of Commerce, headquartered in Trenton.