The ill-named “Inflation Reduction Act” has been blessed by the Senate – thanks to the tie-breaking vote of Vice President Kamala Harris. That’s the politics. What about the real world economics of this tax-and-spend package?
According to an analysis from the Tax Foundation, the pre-Sinema version of the bill – sold as a mixture of essential investments (partially paid for) and inflation-fighting ideas – could make inflation worse even as it reduces wages and income:
Using the Tax Foundation’s General Equilibrium Model, we estimate that the Inflation Reduction Act would reduce long-run economic output by about 0.1 percent and eliminate about 30,000 full-time equivalent jobs in the United States. It would also reduce average after-tax incomes for taxpayers across every income quintile over the long run.
By reducing long-run economic growth, this bill may actually worsen inflation by constraining the productive capacity of the economy.
That’s not what the buzz around this bill is. How does it miss the mark so badly, particularly on its namesake issue, inflation? The Tax Foundation says it comes down to harms to the private economy and old-fashioned politics:
Inflation is driven by expectations regarding the likelihood that the federal government will be able to repay its debt over the long term, which is a function of the expected performance of the economy, tax collections, and spending. By reducing long-run economic growth, the bill worsens inflation by constraining the productive capacity of the economy.
To the extent the revenue raisers are seen as long-lasting sources of revenue, the bill reduces inflation, but projected revenues are not certain and may be less than we are forecasting. For example, the history of the corporate alternative minimum tax indicates the book minimum tax may be a diminishing source of revenue. By increasing spending, the bill worsens inflation, especially in the first two years, as revenue raisers take time to ramp up and the deficit increases. We find that budget deficits would increase from 2023 to 2025, potentially worsening inflation.
To the extent the tax credits and health-care subsidies are expected to be extended on a permanent basis, these policies put upward pressure on inflation.
Lastly, to the extent the durability of the bill’s provisions are in doubt—that is, due to the lack of bipartisan support—it may have little impact on expectations about the fiscal outlook and therefore inflation. On balance, the long-run impact on inflation is particularly uncertain but likely close to zero.
In other words, don’t buy the hype. This bill won’t reduce inflation, but it will reduce economic growth, wages and GDP.
The opinions expressed in this article are those of the author and do not necessarily reflect the positions of American Liberty News.
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More pork, waste & weaponized IRS
the party of perpetual purveyors of unintended consequences are back in business. . .bury your wallets and grab a seat–it’s gonna be epic!
Great comments here! Common sense is in short supply these days, especially in DC. Anyway, all of Man’s jack-leg efforts that are ungrounded in Divine wisdom are doomed to fail.
Liars! It has nothing to do with reducing inflation. I am really tried of these greedy lying AHs.
Let’s not make this too complicated. If you print money that is not backed up with production gains, the money will loose value. That is called inflation. Don’t be taken in by Democrat propaganda.