Inflation Reduction Act–Will Do The Exact Opposite

 

 

Peter Schiff: The ‘Inflation Reduction Act’ Will Do The Exact Opposite

BY TYLER DURDEN

TUESDAY, AUG 02, 2022 – 10:20 AM

 

Congress passed a bill to prop up the US semiconductor industry last week and is now considering a new spending plan dubbed the “Inflation Reduction Act.” On his podcast, Peter Schiff talked about the Democrats’ legislative agenda and concluded that the “Inflation Reduction Act” will do the exact opposite.

The bill doesn’t do anything except spend more money. The only act that the government could pass to reduce inflation would be to reduce government spending. They need to cut government spending. That is not what this act is doing.

 

Last Thursday, the House passed the Chips Act, a law that will subsidize the domestic computer chip industry by handing out roughly $52 billion in government subsidies for the US production of semiconductors. Peter called the bill “completely unconstitutional.”

 

There is nothing in the US Constitution that authorized the US government to pick winners and losers, and to decide to invest taxpayer money in particular businesses and hand over that money to industries like the computer chip industry.”

 

Politicians call this kind of handout “an investment.” Peter said he doesn’t see how you can call it that.

 

There’s no return to the taxpayer. It’s simply a grant. The US government is giving $50 billion to private companies.”

 

It’s really just another example of government central planning. And it never works. As Peter said, capital needs to be allocated in the private sector.

 

If computer chips are viable, which of course they are, and if they’re necessary, then there will be a profit associated with producing those chips. And because private investors are incentivized by profits to make investments, there will be private sector investment in this industry if that is, in fact, what the country needs. And so the government needs to stay out of it. This is not an example of capitalism. This is an example of socialism. And this is going to fail.”

 

And of course, the federal government doesn’t have $50 billion. It is going to have to borrow it. It is going to have to run larger deficits. How are these deficits going to be financed? Well, they’re likely going to be financed by the Fed through the printing of money. Even though the Fed is still claiming it is going to shrink its balance sheet, it’s going to end up expanding its balance sheet. But even if the Fed doesn’t finance the deficits, they have to be financed somehow, which means other private sector investment is going to get crowded out to make this government investment possible.”

 

If the government is crowding out other private investments, it should be clear that this government program is not the best use for that money. The highest and best use would be a function of the free market.

 

So, if the free market doesn’t want to do something, but politicians want to force it to happen anyway, it’s because it’s not the best use of the capital.”

 

At a time the government should be cutting spending to reduce deficits and help fight raging inflation, it is doing the exact opposite.

 

Peter Schiff called the “Inflation Reduction Act” the most ironic of all. He also noted that there should be a law requiring “truth in legislating.”

 

Whenever they title a bill something, the opposite is achieved. For example, if they pass the ‘Tax Simplification Act,’ it means taxes are going to get a lot more complicated. They passed the ‘Patriot Act.’ It was probably one of the most unpatriotic pieces of legislation ever passed. The same will hold true for the ‘Inflation Reduction Act.’ The Inflation Reduction Act will increase inflation.” Why?

 

 

The proposed spending bill does include tax increases on corporations and closes some other tax “loopholes.” But even if the tax hikes lowered deficits – which they won’t – taxes on corporations limit supply, not demand.

 

They result in less capital investment and reduce the supply of goods or services available to buy. That puts more upward pressure on prices. The only way that the government can fight inflation with tax hikes is if those tax hikes are targeted on the middle class. Because the tax hikes have to reduce demand, not supply. The way you reduce demand is you increase taxes on the people who would have spent the money on consumer goods and services.”

 

When you tax the rich, it doesn’t tend to significantly alter their spending. It reduces their saving and investing.

 

Peter said anybody who says the “Inflation Reduction Act” will reduce inflation because it will reduce the budget deficit is wrong.

These tax hikes will have no effect on inflation other than to make it worse because they will limit supply.”

 

Peter said he isn’t advocating tax hikes on the middle class. He would prefer the government to fight inflation by cutting spending. But that’s not on the table. The only thing that the Democrats have put on the table is tax hikes. And I’m pointing out that the only tax hikes that will work in reducing inflation would be tax hikes on the middle class and the poor. But again, the best way to tackle inflation is through spending cuts.”

 

In this podcast, Peter also talked about the current recession that the government and Fed deny is upon us, the weak labor market, and the market reaction to the GDP news

 

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