President Biden’s signature climate law — the misleadingly named Inflation Reduction Act — must be Republicans’ top target for repeal in the upcoming legislative session. It represents the madness they campaigned against: the Washington establishment remaking America’s energy sector by shoveling tax dollars onto the inflation bonfire while advancing a social justice project that would make Greta Thunberg blush.
The Inflation Reduction Act’s energy and environment subsidies will cost taxpayers about $1.5 trillion over the next ten years and potentially $4 trillion by 2050. For every dollar of that they leave in place, Republicans are choosing to maintain the left’s misguided and inflationary energy policy instead of pursuing tax relief for all Americans. Repeal is the linchpin to responsibly extending and expanding the expiring 2017 Trump tax cuts.
Full repeal faces opposition from industry groups, environmentalists and even some Republicans. The law's architects learned from the military-industrial complex the lesson of the F-35 fighter jet: As long as you manufacture it in enough congressional districts, its funding never dries up. Similarly, Inflation Reduction Act subsidies are flowing far and wide, and industry lobbyists will be the first to cite the jobs created in Republican districts.
On the surface, the flood of taxpayer money into new projects across the country might look like manna from heaven. But that is only the visible part of the scheme. The money is coming from all of us, one paycheck’s federal withholding at a time, compounded by a big dash of inflation.
Since the original flurry of announced new manufacturing projects in the year after Biden’s industrial and climate policies were passed, the Financial Times reports that over 40 percent of them have been delayed, paused or canceled. At an estimated total cost of $4 trillion, the Inflation Reduction Act’s spending might have created more useful energy if the funds had been converted to one dollar bills and burned.
But burning through subsidy cash might be the name of the game. Politically connected corporations like NextEra Energy and First Solar, Inc. will receive billions of dollars at taxpayers’ expense. Other “successful” projects include over $1 billion of Biden subsidies going to Trina Solar, China’s largest solar manufacturer. This is corporate welfare disguised as climate policy.
Instead of benefiting workers, as is often claimed, subsidies line the pockets of corporate owners and executives. Most of the money is not flowing to blue-collar jobs in the heartland, it’s feeding a new industry of subsidy harvesters — accountants and lawyers working in offices in New York and D.C. By one estimate, each new Inflation Reduction Act job “created” costs taxpayers between $2 million and $7 million.
The Inflation Reduction Act’s subsidies misdirect private investment to politically favored sectors rather than promoting reliable, cost-effective energy sources. This encourages corporate leaders to seek government backing instead of driving true innovation and competitiveness — to engage in unproductive rent-seeking when America needs robust energy solutions to meet rising demand.
Repeal of all IRA energy subsidies — including those for ongoing projects—is necessary to signal that American energy markets will be driven by consumers, not centrally planned by Uncle Sam. Allowing any part of the Inflation Reduction Act's energy framework to remain in law is like stopping antibiotics after the first dose — partial repeal will only temporarily slow the infection.
As one supporter of the law recently wrote, “Clean energy is now big business, and influential companies stand to lose billions if the Inflation Reduction Act is repealed.” Congress should send a clear message: special interest groups deserve to lose the billions of taxpayers’ dollars they hoped to gain through their brazen lobbying.
If Congress genuinely wants to improve energy security, reliability and affordability, fully repealing the Inflation Reduction Act is the only viable solution. Any attempt to address it piecemeal perpetuates favoritism for well-connected businesses, regardless of who is in power.
Congress should make its top priority the repeal of the law's tax credits and other energy spending. This decisive action will restore market freedom, cut cronyism, and set a course for an energy policy that benefits all Americans — not just politically connected corporations with D.C. offices and meddlesome lobbyists.
Travis Fisher is the director of energy and environmental policy studies at the Cato Institute. Adam N. Michel is director of tax policy studies at Cato.
