The Inflation Reduction Act may go down as one of the greatest
confidence tricks on taxpayers in history. Democrats used
accounting gimmicks to claim the partisan law would reduce the
budget deficit. But now a Goldman Sachs report projects its myriad green subsidies will cost $1.2 trillion—more than three times what the law’s supporters claimed.
The Congressional Budget Office forecast that the IRA’s energy
and climate provisions would cost $391 billion between 2022 and
2031, but this appears to be a huge under-estimate. One reason is
companies are rushing to cash in on tax credits that aren’t capped.
The Biden Administration is also loosely interpreting conditions for the credits.
By Goldman’s estimate, the IRA tax credits will cost tens to
hundreds of billions more than CBO estimated over 10 years. The
forecast misses include electric vehicles (difference: $379 billion), green energy manufacturing ($156 billion), renewable electricity production ($82 billion), energy efficiency ($42 billion), hydrogen ($36 billion), biofuels ($34 billion) and carbon capture ($31 billion).
Goldman says the difference in the EV credit estimates owes to its projection that more vehicles will meet the law’s “self-sufficiency” mineral and battery material conditions for the partial $3,750 consumer credit and full $7,500 credit. But even Goldman’s estimate for the EV credit could be low if Treasury loosely interprets the credit conditions, which is what auto makers are lobbying for.
Auto makers are also racing to take advantage of a tax credit for locally manufactured battery cells and modules by setting up plants in the U.S. Similar to Goldman’s estimate, an analysis last month by Mercatus Center fellow Christine McDaniel projected
that the tax credit for battery production could cost up to 196.5
billion.
Ford’s Michigan plant with Chinese battery maker CATL alone
could cost $1.5 billion annually in credits. Goldman estimates the tax credit could shave the cost of battery production by 35% to 42%, though EVs would still cost 17% more than vehicles with internal combustion engines. While tax credits will improve auto maker EV margins, it’s not clear whether they will make EVs profitable.
Goldman predicts the IRA will “drive” $3 trillion in climate
investments—that is, reallocate $3 trillion in capital across the
economy. Oil and gas companies will spend less on increasing
production and more on developing carbon capture technologies, hydrogen and biofuels that are profitable only with the IRA’s rich tax credits. Expect energy prices to rise.
Goldman says green subsidies will benefit companies across the
economy—from aluminum manufacturers to agriculture producers.
This will make it politically more difficult for Republicans to roll back the subsidies if they gain control of the White House and Congress. Subsidies will also be “deployed meaningfully” in states like Texas with large GOP Congressional caucuses, Goldman notes.
Eliminating the tax credits, Goldman adds, would constitute an
“effective tax increase,” which Republicans may be loath to vote
for. Florida Gov. Ron DeSantis last year vetoed a bill that would have scaled back rooftop solar subsidies after the solar lobby denounced it as a “tax.” Will Republicans have the courage to claw back the green handouts going to their business friends?
Democrats have created an enormous new corporate entitlement
whose costs will increase on autopilot and blow up the deficit
while raising energy prices for average Americans. Congratulations, Sen. Manchin.
https://www.wsj.com/articles/inflati...eport-5623cd29
- berryberry
- 03-26-2023, 11:50 PM