In taking control of Congress in early 2021, Democrats considered the opportunity for a huge increase in public spending to rebuild the post-pandemic US economy. It took them almost 18 months to find an agreement. However, if the rise in inflation has forced the Democratic leaders to significantly revise their ambitions downwards, the various provisions of the Inflation Reduction Act remain largely unchanged from a time when inflation was the least of their concerns.
On April 28, 2021, Joe Biden stood before a joint session of Congress to propose “a once-in-a-generation investment in America.” The president has promised to “put engineers and construction workers to work to build more energy-efficient buildings and homes” and to reward “farmers who plant cover crops so they can reduce carbon dioxide in the air and get paid for it”. Biden pledged federal funds to guarantee affordable child care and four more years of public education for every American. He promised to give $7,200 to all households with two children under the age of six, in addition to paying “12 weeks of paid vacation and medical leave”. Biden called on Congress to “expand Medicare coverage benefits” and increase Obamacare subsidies.
The combined cost was estimated at about $7.5 trillion over the next decade, once budget gadgets are taken into account – just over $5,700 per American household per year. But Biden said he “wouldn’t impose any tax increases on people earning less than $400,000” because he believed the middle class was “paying enough already.” To cover the cost, it would be enough for “corporate America and the wealthiest 1% of Americans to just start paying their fair share.”
Moderate Democrats were already skeptical of this supposed fiscal math, and those concerns have been compounded by an overheated economy. While unemployment fell from 6.0% to 3.6%inflation went from 0.4% to 8.6%— a 40-year high. Realizing that voters had little appetite for hugely expensive proposals that would further inflate the deficit and inflation, the administration was forced to downsize from the original plan.
Bill is certainly in better shape for being a small fraction of its original size. The progressive 2021 wish list has been whittled down to a focus on health care and climate policy. While previous proposals to cap or tax US carbon emissions would have served to push industry overseas, the current proposal simply attempts to aid in the development of cleaner technologies. While Biden in 2020 promised to lowering the Medicare eligibility age to 60 and establishing a public option for all ages, the Inflation Reduction Act simply attempts to patch the cracks in existing coverage options.
Yet while the bulk of the law proposed last year to build back better was defeated, the sections of it that were incorporated into the law to cut inflation remain remarkably unchanged from a time when the he supposed objective was to fuel demand rather than reduce inflationary pressure.
Instead of revising the Obamacare regulations that more than doubled insurance premiums, the proposal just increases the share of premiums covered by subsidies – even if these subsidies are used to inflate additional underlying costs. Rather than act to reduce the growth of hospital costs, which are the main driver of health care spending, the legislation is reducing payments for newly developed drugs, even if drug development is the only element of health care. who reduces costs on the long term.
“Energy Security and Climate Change” sectionwhich represents the bulk of the bill expenses listed, was clearly not designed to reduce inflation. As economist Tyler Cowen has noted, significant new tax credits for the purchase of electric cars should drive up their price, as demand is already buoyant and production is severely constrained by supply. Tax credits given to households, manufacturers, farms and utilities to purchase cleaner technologies are unlikely to do much to reduce prices, although they may be more successful in lowering costs further. carbon emissions.
Democrats understand that voters fear rising prices more than rising emissions, and so they have been at pains to say a tale in which the bill reduces the deficit, and therefore inflationary pressures, regardless of the nature of its specific provisions. However, the bill risks widen the deficit on sale for the first five years. Once his budget tricks are factored in, his supposed 10-year, $300 billion reduction in the federal deficit all but disappears. Much of the cost of additional expenses is funded by business taxeswhich will be passed on to workers and consumers.
While most Democrats think it’s worth moving the economy away from fossil fuels, it will surely increase the expenses Americans will have to bear. And it hardly offers the solution to inflation that they claim to seek.
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