By Alice Seeley
This week, President Joe Biden signed the Inflation Reduction Act, a $437 billion measure, into law.
“With this law, the American people won, and the special interests lost,” President Biden stated. “This administration began amid a dark time in America … a once-in-a-century pandemic, devastating joblessness, clear and present threats to democracy and the rule of law, doubts about America’s future itself — and yet we’ve not wavered, we’ve not flinched, and we’ve not given in.”
The Inflation Reduction Act received support from every Democrat representative but no Republicans. The bill is a significantly reduced version of the $1.75 trillion Build Back Better plan that President Biden pushed for last year but failed when Sen. Joe Manchin (D-WV) revoked his support.
According to the Congressional Budget Office, this bill will reduce deficits by $305 billion through 2031. This includes an estimated $124 billion from IRS tax enforcement, the result of hiring 87,000 new IRS agents who will increase audits. Also included in the act is a 15% corporate minimum tax which the Joint Committee on Taxation believes will raise $222 billion. The bill will also reform prescription drug prices, which the Senate predicted will bring in around $265 billion.
Despite its name, many experts believe the Inflation Reduction Act will not reduce inflation. The Congressional Budget Office stated the bill will have “a negligible effect” on inflation in 2022, and in 2023 it could reduce inflation by 0.1% or increase it by 0.1%.
The University of Pennsylvania Wharton’s Budget Model forecasted that “the impact on inflation is statistically indistinguishable from zero.” The National Taxpayers Union Foundation agreed with these predictions, stating the Inflation Reduction Act is unlikely to meaningfully reduce inflation in the next few years.
Kent Smetters, director of the Penn Wharton Budget Model, believes the law’s health care subsidies could increase inflation. The legislation will spend $70 billion over a decade to extend tax credits to help 13 million Americans pay for health insurance under the Affordable Care Act. This will free up money for the recipients to spend elsewhere, which could increase inflation, according to Smetters.
In addition to not directly reducing inflation, the legislation does not address some of the major financial struggles consumers have today, such as the price of gas, food, and rent. Overall, the act’s impact on the average American will be very limited. The Rhodium Group estimated that by 2030, the bill would save American families a maximum of $112 a year.