How Inflation Reduction Act Will Impact Businesses | Squawkbox

[Applause] [Music] Senate Democrats narrowly passing that sweeping climate and economic package over the weekend, putting the president and his party now on the cusp of what has been a big legislative victory just three months before the crucial November midterm elections. Join us right now to discuss what's in the bill and what it means for business: former representative Donna Edwards is with us of Maryland and Kevin O'Leary, investor and, of course, venture capitalist CNBC contributor.

Good morning, uh, to both of you. This is a seismic, uh, piece of legislation; it has huge implications, uh, for business, uh, and the climate. I'm gonna go to Kevin because I want to start not on a negative side, but I know that you have problems with this bill, and I want you to spell out what they are so that we can have a debate about it.

Kevin: Well, let's start with the fact it's a very partisan bill. There's no agreement on any of these policies. We know that with certainty by looking at the vote number two, and I understand everybody's having fun with this naming it anti-inflation: it's a joke. This is going to be very inflationary almost immediately because we're printing billions of dollars, so it's not going to help there at all. And it's sort of a 'Build Back Better' inflation bill because it has some derivatives of the initial big vision.

So you've got a situation, and I'm not into politics; I'm into policy. I'm an investor; I'm trying to figure out what happens next should this pass and what does it mean to me as an investor. What do I—what do I do with this policy? And so I ask myself, well, nobody's happy. So if I think about what's going to occur in the midterms, if the idea here was to get this bill driven through to show accomplishment of this administration—and again, I'm bipartisan on this because I know with certainty any administration loses momentum in midterms—so it's important that this administration got something done. But is this going to solve inflation?

Inflation right now is around the voters, around food and energy. Energy has rolled over a bit; that's good, and of course, anything can happen until November 8th. But the rest of this bill—highly inflationary—ain't going to help. Going to be lots of unhappy people in various close races, whether that be Senate or otherwise. I think what occurs—and again this is speculation on my part—but I'm going to invest on this premise: this is going to be the last legislation this administration ever gets to put through after November 8.

One of the reasons Pelosi went to Taiwan, which she knows, and she's going to be a very successful politician, it's over. She's not going to be Speaker after this midterm election, and she made her move, and I applaud her for it; it was very gutsy. But bottom line is this: this is the last chance for romance on policy, and then it's total gridlock, and that's a good thing.

Donna Edwards: What do you say?

Well, I think Kevin has a lot of wishful thinking there. Um, this is a big win for the president and for Biden, and I think, as you described, it comes on the heels of several really big, uh, policy victories over this last month. On top of that, adding, you know, jobs into the economy which, um, is outpacing anything that we've seen.

And so what the bill does is it provides consumers with something real and something tangible. If they want to add a new heat pump like I do, then they'll get a tax credit for it. These credits will extend over the course of about 10 years, and so it's not like putting all $370 billion into the economy right now. For business, it includes things like manufacturing credits to incentivize, uh, domestic manufacturing, particularly on high technology, which is what we need to do to wean ourselves off of China as a resource. Again, spread out over 10 years: it's the largest investment in the green economy that we've ever had, uh, particularly when it comes to electric vehicles, um, to the previous bill, making sure that we have, um, an infrastructure that supports that.

This is a sweeping victory for the president and, uh, for Democrats in Congress, and it's something that they'll be able to run on.

Brian Sullivan: Let me just come back to you before we go back to Kevin for a second, though. What do you think the long-term implications are going to be on both the corporate minimum tax? Do you think that there's going to be a long-term or short-term implication in terms of jobs there?

But bottom line, Andrew, on this is: does it make the United States of America more competitive in the G20 or less competitive?

Kevin: There is no question to that outcome: less competitive. The whole idea about corporate taxes is corporations create jobs for people in America. 65 percent of jobs are created by small business. And look, whether you're a billion-dollar income business or you're not, the more you tax, the more you suck out of the system; the less jobs are created; the less competitive you are. This is a very bad policy for corporate competitiveness, and you really want to stay in the middle of the pack of the G20 and create a corporate— in terms of corporate tax where we are right now—this slowly grinds it up.

We ran around the world telling everybody 15 was a great idea; nobody followed us. We did it to ourselves; we hurt ourselves. It's a self-inflicted wound: bad policy.

Donna Edwards: Well, hey, it's Brian Sullivan. I mean, listen, it is maybe it's bad policy; maybe it's not, we're going to find out in a couple of years because it looks like some of the Medicare pricing provisions don't actually begin until the year 2026, so that's four years out. So it may reduce some inflation, but then not this inflation. But how important is it for the Democrats to just have something to sell to the American people with a, by the way, a catchy name?

Well, look, I don't think—I don't think Democrats want to just have anything. I mean, these are significant, uh, policy improvements, and you talked about the Medicare, uh, spanning over, you know, the next four years. Look, it took us some time to implement the Affordable Care Act, and people embraced it.

Um, I think that these Medicare provisions are particularly important for our seniors who need to have, you know, lower cost money into their pockets and will last for the long term. And so the idea that it's not injected into the economy or isn't done right now, we're playing the long game here, and the long game suggests that we have to lower these prescription drug costs.

Um, it doesn't disincentivize, uh, investing into new drugs and manufacturing new drugs. I think it's a really strong, it's a strong provision; it's a strong bill, and those who are arguing against it, and especially against corporate tax provisions, are not in the mainstream at all. Small businesses already probably pay, uh, that on average anyway; it's the really big guys who get away with paying nothing, and this puts a cap on that.

Brian Sullivan: I don't think anybody's going to argue against it, Donna, cause it's going to pass. So, it is here, and, you know, if you didn't like it, too bad, right? You'll get none and like it because you're going to have to deal with it. But I think the counterargument would be, well, you're going to cap these prices for seniors, which means then the industry is just going to raise prices for everybody else, so it's going to be extremely inflationary for private insurers because you're gonna have price controls on the Medicare side.

Donna Edwards: I don't know if that's gonna happen, but that's where some of the criticism has come.

Yeah, I don't—I don't know about that. I mean, I think that what will happen is it actually could, um, serve the, you know, the purpose of decreasing those prices. Look, the Veterans Administration —the largest health care system in the country—already negotiates prices for veterans. This would add a new, uh, you know, sort of pricing and negotiation for, uh, for seniors, and I think that there will be demand down the line, downstream, um, to negotiate prices overall. I mean, it's ridiculous: insulin drugs that people use—drugs that have been on the market for decades and decades—um, increased prices for Americans, where abroad they're paying a fraction of those costs.

Hey, uh, Donna, I want to get your view on this, and Kevin as well. Senator Sinema on, on carried interest: what happened here? She's from a state that does not have a huge private equity or even real estate, uh, business. She gets a lot of money from the private equity industries, though she has not been public about why she wants to keep carried interest. It seems to be a relatively bipartisan issue in that President Biden and former President Trump both wanted to get rid of carried interest. How is this industry so powerful?

Donna Edwards: Well, I know it's not that it's so powerful on Capitol Hill, um, lobbying, and they've been successful thus far. It's unfortunate that Senator Sinema, in order to get her support for this sweeping, um, climate legislation, traded on, uh, on carried interest, and so that's going to see another day.

But I don't know why she's carrying their water; she's going to have to explain that to the voters of Arizona.

Kevin: What were you saying?

Bottom line is this: what is the most successful private equity sector in the United States in terms of what it does for business? It is the most successful on earth. Why mess with it? Why change it? Why change anything? The economy is on fire. Half the provisions in this bill are unnecessary and only inflationary, including things like giving tax credits to EV cars right now when you can't even buy one. If that's not inflationary, that heat pump you're getting for free—that's just missionary.

If you're against corporate welfare and you're against this sort of industrial policy, why have an industrial policy which benefits you personally? It, of course, it does; I'm admitting—I’m being transparent. But you're telling me a sector that I compete with, let's say chips, gets free money, and I'm a taxpayer paying for it. That's another incentive. The incentives drive the economy; the incentives in private equity have driven the most successful private equity sectors.

These incentives don't change the returns; these incentives don't change the returns. They were—they changed the returns and how much money people like you get to pocket.

Andrew: I take risk; that's what I do. If you want to take risks with your own money, God bless you, and pay capital gains on it. But if you can take risks with other people's money, why should you be getting capital gains rates on that money?

Kevin: Because I manage that money, and people trust me to manage it, and that's why they do.

Donna Edwards: Oh my goodness, there's no legitimate argument for carried interest. Uh, the loophole—there is no legitimate argument for it, and Kevin can try to make that, um, but it's not real. And the fact that the industry has been able to, um, keep up their lobbying successfully on this—

Kevin: What about millions of jobs? I mean, you're making money off of money that's not even yours.

Donna Edwards: Wait a second; we've created millions of jobs in this country. We fix broken companies every day. We look all around the world for opportunities to attract capital to America, to invest it here. How many politicians actually create jobs? When this sector gets attacked, I get offended because we do really hard work to build our economy, and we've done 65.

Kevin: A week ago, you said you didn't want money to go to the chips because you didn't want corporate welfare for that group, and you said, look how profitable they already are. Look how profitable the private equity issue: this is the wealthiest industry in the country in terms of the people on an individual basis.

Andrew: When, in America, do we punish success? When did we start doing that? When do we disincentivize risk of capital? Why are you attacking—

Kevin: —not because it's not your capital.

Andrew: Asking you to, uh, to pay a fair share is not a punishment, Kevin, no matter how you try to characterize it.

Kevin: Do not assume that raising taxes reduces deficit. All it does is crush economic activity; that's been proven out many, many times.

Andrew: We'll let this thing play out, but when there's bad policy, there's bad policy.

Can I be a referee here—can I be a referee here a little bit? Just jump in. Uh, Donna, I want to ask you this: let's talk about taxes, but let's talk about taxes for the individual part of this bill. Is they're going to double funding, more than double funding for everybody's favorite agency, the IRS? I happen to love the IRS, and I hope I just embraced them someday. But here's the thing: they're going to increase: part of the revenue projections are increased audits. Donna, I mean those audits are going to have to come on the middle class and upper middle class because there's not enough rich people to make much difference with these audits. So, I mean, to say it's not going to raise taxes is technically accurate, but isn't it a little bit disingenuous if somebody making 100 grand now starts getting audited every five years?

Donna Edwards: Well, first of all, I don't think that's going to happen. We have to recognize what is going to happen—that's what they're saying. The IRS has been neutered over these last decade, and I think that putting money back into enforcement—making sure that people pay what they owe and that they're not cheating, uh, the system is important for all of us, and nobody should get away with that.

So I don't think it's going to mean increased audits for the middle class, but it is going to mean, uh, that, you know, what happens is you try to make sure that you have systems in place so that people follow the rules and don't require audits, and I think this is going to make more people follow the rules.

Kevin: I think there's a big issue there because 65% of the economy are family businesses. You're now empowering the IRS to chase the majority of those families who are the essence and the backbone of our economy, and the assumption that they're all cheating is ridiculous. Most people want to pay their taxes.

Look, I'm not against having more efficiency in the IRS, but giving them $80 billion to chase people that are actually the backbone of the economy doesn't sound like good policy to me either.

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