The Negative Economic Effects of the Inflation Reduction Act of 2022

The Inflation Reduction Act contains multiple negative incentives on work and investment that will have substantial negative effects on the U.S. economy. These negative effects include 1) the reduced incentives for businesses to invest because of the corporate tax increase and the increased tax rate on certain investments (carried interest); 2) the negative effects on work due to the expansions in health care subsidies under the Affordable Care Act – subsidies not tied to working; 3) the negative impact on new drug development due to new federal price controls on the pharmaceutical industry.           

The impact of these policies over the next ten years are as follows:

• Employment will be reduced by 900,000
• Annual GDP will be reduced by 1.2%
• Average Household income will fall by roughly $1,200
• The rate of inflation and the federal budget deficit are both likely to rise, not fall