Cramer: The Inflation Reduction Act is really a tax on companies and shareholders

If you hate global warming, you got a big win this weekend with the Inflation Reduction Act. But if you care about the stock market and inflation, then you got a big loss with the Spend Our Way to Oblivion Act, or SOWOA. In real life, I may be an environmentalist first. But in this other life that says I want to help people make money, this one really is SOWOA — as it’s called by my friend John Ellis, who runs the brilliant News Items newsletter. The bill is positively Orwellian. I am a huge fan of George Orwell, and while he really only gave us “1984” as an explanation for 2022, you might as well go read “Homage to Catalonia” to get a sense of the nihilistic nature of the Democrats who are actually proud of this bill. I say that because this is truly a bill of favors and of revenge, a bill against whatever the Republicans believe in. It’s as if there really is only one party and this one party is desperate to spend money we don’t have for nominally cleaning the environment until, perhaps, that party is thrown out of office on the cross of inflation. Now I know that elsewhere on the CNBC site there is terrific—and I mean it— praise for the bill as our most important piece of legislation to control climate change. And I am thrilled if that’s the case. But that’s not what you come to me for. Here is what you come to me for: On the surface, it is disastrous for many U.S. stocks. A tax on buybacks that truly does impact the way companies will address their capital, a 15% book tax which hurts companies with net operating losses and may have them raise capital, the Medicare negotiation with drug companies over price, plus all sorts of suspicious gifts to interests that are against the oil and gas lobby. It’s as if the Democrats took a look at what Republicans have given business and shareholders and taken it away from them. Now we know that ultimately that there will be less than meets the eye here. There will only be ten drugs that Medicare can negotiate prices down beginning in 2026. The market was taking care of many of the provisions against the energy companies. Gifts to electric vehicle makers were extended and there is an actual battery production credit for U.S. companies that will help Ford (F) and General Motors (GM). Watch that one, Ford wants it badly. The oil and gas companies were doing what the Democrats wanted. Now they will do it faster or with less of their own money. Farmers got the usual gifts—this time methane, which is actually a subsidy for oil companies that sell methane like Chevron (CVX) which has a pilot program for this. Maybe that gets paid for? I think so. In realty, the one thing it really does is to create precious environmental engineering jobs — or more likely, bid up the price of what these engineers are paid and that is precisely what we don’t want after Friday’s hot employment number. Some environmental advocacy groups are saying it could provide more than 500,000 jobs. That’s great, but we don’t have people to fill those positions, which is how you get the kind of wage inflation that burns the Federal Reserve’s efforts. It would have been better to say it’s a tax on companies and their shareholders, but less than is needed to cover new spending that the Democrats have been begging for all these years. The bill will most likely cause the S & P to fall. Will it cause the drug stocks to get clocked? The drug companies have always felt this Medicare gift was inviolate, so even if it is for show you will get sellers. I will take the other side of the trade on day two or three on Johnson & Johnson (JNJ), AbbVie (ABBV) or Eli Lilly (LLY) — all of which will be impacted in one way or for several years out. Let the dumb money out. I figure some strategist puts out a list or lists of the companies most hurt by the minimum tax and the tax on buybacks. I have seen some reports about what it might cost these companies, but they seem almost too subjective to rely on. Sadly for shareholders, Sen. Joe Manchin came close to getting a provision that would have streamlined the process of pipeline implementation and made it a possibility to get our natural gas to markets that currently use foreign—formerly Russian—oil, but that failed. The press says that’s next to come, but I don’t believe anything will be passed after this bill — especially something that helps oil and gas. But let’s get holistic here. This deal is a giveaway for anything that is not Republican and punishing to anything that is. It’s incredibly partisan and — like the Orwellian Spend our Way to Oblivion Act — it’s just one more obstacle to stopping the Fed’s tightening cycle. Now that commodity inflation has peaked, we have to contend with labor inflation, and this bill boosts that kind of inflation in an absurd and obscene way, creating jobs we have no ability to fill other than to take them from the private sector. That’s what’s really at stake. Every time Fed chair Jerome Powell seems to get a handle on inflation, the government throws him for a loop. This one is a true nightmare because of the title alone. There are good-hearted people all over the country who want the deficit lower and may actually believe the nomenclature. There are environmentalists who knew the market would have taken care of a lot of this. And there are shareholders who are just patsies, slaughtered by a party that is now so anti-capital as to make you believe that not only are there two countries when it comes to Roe v Wade and gun control, there are two when it comes to the stock market; a bull and a bear and the Democrats are bears who live in the North and the West and a couple of places in the Midwest. Now I really don’t want to write any of this. I hate politics. The market has politics, of course, and I am not condoning or condemning that. I am very pro anything that can slow global warming or reverse it. But I am really here to help you make money and suffice it to say my job—and your rewards—just got tougher again. It’s a recognition that the nation did, alas, go Democratic and what you see is what you got. Will the markets at all be smart about this? I figure that it’s enough to know that this bill raises wages when the Fed is worried about wage inflation, and whacks shareholders when we are worried about having been whacked. I would love to tell you everything will be greener and the deficit is being reduced, but I think there will be spots of green, and some areas that truly are going to be more green. Otherwise, it’s just a series of giant giveaways to companies that were already going to do what’s needed without federal funds anyway. One last word: Stock-owning Democrats should be as appalled as stock-owning Republicans because this bill alone could be worth 150 basis points of tightening. But perhaps the Democrats think that causing inflation is fine as long as it only boosts their interests and hurts others, mainly those of the Republicans, who own much more of the stock market than their party does. But Powell knows inflation knows no party. It’s just odious and pernicious even as I am sure this will knock off a percent or even two of greenhouse gas emissions. (Jim Cramer’s Charitable Trust is long ABBV, F, JNJ, LLY. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

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