This week I’ve had the pleasure (insert sarcasm) of reading H.R. 5376 also known as the Inflation Reduction Act of 2022. Candidly, I did get bored a few times and sped through some of the repetitious sections. The big questions are these:
- Will this reduce inflation?
- Will this increase taxes?
- Will this lower medical costs?
Simply, the answer is no, probably, and yes and no. You’ve got to love ambiguity. Below is a quick response to these questions. For a more comprehensive answer see my article in (fill in):
First, will this reduce inflation. No. You can’t fight inflation by spending more money.
The inflation reduction measures in this bill are mostly tax credits for “clean” purchases or incentives for “clean” energy creation. In other words, subsidies. The problem with this is that “clean” energy isn’t cheaper, isn’t forecasted to be cheaper than current sources, and tax credits do lead to short-term price decreases, but they also lead to long-term price increases.
Can we kill inflation with more spending? Again, no. Let’s relate this in a way we all can understand. If you’re teenage child kept missing their 12am curfew by 10-15 minutes, then would you change their curfew to 12:30am to increase compliance? No…we all know this would lead to 12:40-12:45am return home times. Again, you can’t fight inflation with more spending, just like you can’t fight tardy teenager return times by giving them more time.
When asked, even Senator Sander’s said this “will have a minimal impact on inflation.” Remember politicians tend to inflate the positives. Translation, this will not lower inflation.
Second, with this increase taxes? Probably.
President Biden has promised, and the media has overwhelmingly accepted as fact, the notion this won’t increase taxes on anyone making less than $400,000. However, unlike most people, I actually read the bill. It doesn’t say this. Here’s what it actually says (page 43):
“Nothing in this section is INTENDED on any taxpayer or small business with a taxable income below $400,000. Further, nothing in this section is intended to increase taxes on any taxpayer not in the top 1 percent.” (emphasis added)
In other words, they don’t intend to raise your taxes, but it might happen. So, who will the newly minted 87,000 IRS agents target? You shouldn’t assume it will be the wealthy.
In 2020, Janet Holzblatt, with the Tax Policy Center stated audits on higher taxpayers “yield more revenue per audit,” but have a “smaller return on investment,” in comparison to simpler returns since audits on high taxpayers “take longer and are conducted by more specialized, higher-paid revenue agents.”
Sunita Lough, the IRS Deputy Commissioner for Services and Enforcement says as much. On the IRS’ website she states, audits on higher-income taxpayers “routinely take years to resolve,” and are handled by the highest “trained and experienced IRS agents.” By definition, newly hired IRS agents will not be the most experienced agents. Who will they be deployed on?
In my opinion, they’ll go after the small business owners. Anyone claiming the vehicle, travel, meal, depreciation, or use of home office deductions should take warning. Auditing these returns will align well with the skillset of the IRS’ soon to be built enforcement army.
One more point, when looking at IRS data, taxpayers earning between $100,000 and $200,000 are audited 95% less than the highest earners. Hmm… who will the IRS audit more… you decide.
Third, will this lower medical costs. Yes and no.
If you’re on Medicare, then yes, but not by as much as you’d hope. For Medicare and Medicaid recipients:
- Prices for some drugs will be determined and capped (insulin at $35).
- This will ONLY apply to 10 drugs starting in 2026 and 20 by 2029.
- Annual out of pocket costs will be capped to $2,000 per person.
If you’re not on Medicare or Medicaid, then the answer is no. I suspect, like in the past, the drug manufacturers and healthcare providers will make up the lost profits by charging non-Medicare and Medicaid recipients more.
Interestingly, in the long run, this could be a strategy to make Medicare for all more attractive, but that’s a story for a different day.
In short, this isn’t likely to help with the inflated costs we’re all feeling. Business owners and anyone not taking a standard deduction should be very careful. On the positive side, we’ve helped prepare you for this event. This is why we review every client’s tax returns when they become a client and request a copy during each annual review. We’ve identified 100s of error, red flags, and discrepancies that increase audit risks.
We’ve built your retirement plan to handle inflation, unexpected risks, and taxes. Unfortunately, this standard isn’t met with most financial firms, and that’s why so many retirees or soon to be are worried.
Yours Truly,
Michael Jay Markey, Jr.
Hopefully this message alleviated any concerns you had about these uncertain times. If not, please feel free to schedule a call with myself or Dale.
Michael Jay Markey Jr., MRFC, BFA
Financial Speaker, Author, and Show Host
Investment Advisor Representative & Insurance Representative
MDRT Top of the Table Member
RADIO: Fireproof Your Finances
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AUTHOR: Fireproof Your Retirement, 2014,; and “Seriously Ramsey” The Register
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