President Joe Biden signed the Inflation Reduction Act on Tuesday (Aug. 16), instituting what some call one of the most important pieces of legislation in history. “It’s one of the few truly historic days in the 30 years I have spent in Congress,” Representative Jim Clyburn (D-SC) proclaimed. All Senate Democrats voted for the bill, while all 50 Republicans voted against it. The Dems are touting its benefits, saying it will reduce inflation; those on the right are warning it will have little to no impact on prices.
Features of the Inflation Reduction Act
Clyburn said the bill “reduces deficits by $300 billion over the next decade” and “cuts climate pollution by 40% in just eight years while building a new, clean energy economy that will make electricity accessible and affordable and create nine million new jobs.” The legislation focuses on three main issues: climate control, health care, and taxes.
The $740 billion bill provides $369 billion to combat “the existential crisis of climate change,” the president remarked last week. A big portion of this aims to reduce greenhouse effects by supporting clean energy projects. In what Senator Chuck Schumer (D-NY) called “the boldest climate bill ever,” US residents are to receive a $7,500 tax credit if they purchase a new electric vehicle (EV). The Democrats promise that all relevant products will be made in America by Americans.
However, some automotive companies have recently increased the cost of EVs, which essentially cancels out any tax credits. Ford announced a price hike of $6,000-$8,500 for its cars, citing “significant material cost increases and other factors” as the reason, according to The Daily Wire.
The Inflation Reduction Act promises to:
- Put a $35 monthly cap on insulin.
- Place a $2,000 annual cap on out-of-pocket costs for Medicare, a move which Biden claimed “is a Godsend to so many families.”
- Provide a three-year extension on Affordable Care Act subsidies.
- Authorize Medicare to negotiate some drug prices.
The Senate estimates that reforming prescription drug prices will save Americans about $265 billion over the next ten years.
Taxing the Rich
Biden proclaimed, “We’re cutting deficits to fight inflation by having the wealthy and big corporations finally begin to pay part of their fair share.” Democrats expect to reduce the deficit by gaining $737 billion through the legislation.
The bill puts a 15% corporate minimum tax that is predicted to raise $222 billion. “With this law, the American people won, and the special interests lost,” the president exclaimed. By hiring 87,000 new IRS agents, the White House estimates that it will bring in $124 billion from tax enforcement, which will likely include ramping up audits. However, the commander-in-chief insisted during the signing that middle-class Americans will not be affected. “Let me emphasize, no one earning less than $400,000 a year will pay a penny more in federal taxes,” he promised.
Arguments and Rebuttal for the Inflation Reduction Act
Biden and Schumer took the opportunity to praise the Democrats for getting the bill passed and chastised Republicans for refusing to vote in its favor. “For anyone who thought Washington was broken and couldn’t do big things, Democrats have shown real change is possible,” Schumer said, adding, “After four years of a president who relished creating chaos, Americans are seeing what it looks like to have a president and Congress that’s focused on delivering results that make their lives better.”
Biden scolded, “Democrats sided with the American people and every single Republican in the Congress sided with the special interests in this, every single one.” He continued:
“Remember, every single Republican in Congress voted against this bill — every single Republican in Congress voted against lowering prescription drug prices, against lowering health care costs, against the fairer tax system. Every single Republican, every single one, voted against tackling the climate crisis, against lowering our energy cost, against creating good paying jobs.”
Among leading GOP figures who have expressed skepticism over this law is Senate Minority Leader Mitch McConnell (R-KY), who opined:
“Democrats’ response to the recession they caused is giant job-killing tax hikes and doubling the IRS. Democrats’ response to the energy crisis they’ve exacerbated is a war on American fossil fuel to fund Green New Deal giveaways for their rich friends.
“Democrats have proven over and over they simply do not care about middle-class families’ priorities. They have spent 18 months proving that. They just spent hundreds of billions of dollars to prove it again.”
In a bid to convince Dems not to pass the act, 230 economists sent a letter to House and Senate leaders, saying it will only contribute to rising inflation and stifling the economy. They called the Inflation Reduction Act “inaptly named,” saying it “would do nothing of the sort and instead would perpetuate the same fiscal policy errors that have helped precipitate the current troubling economic climate.” The letter, dated Aug. 2, was signed by, among others, professors from Columbia, Virginia, Duke, and Princeton universities as well as the University of Chicago.
The signers argued that the bill “would create immediate inflationary pressures by boosting demand, while the supply-side tax hikes would constrain supply by discouraging investment and draining the private sector of much-needed resources.”
Of “particular concern” to the group is the corporate minimum tax, which they warn will worsen supply chain issues. And the prescription drug terms “would impose price controls that threaten healthcare innovation, creating a human health toll that would add to the financial woes that Americans are already experiencing.”
A study at the University of Pennsylvania’s Wharton School found that the bill would “very slightly increase inflation” over the next two years and then later decrease it. However, both estimates are “statistically indistinguishable from zero, thereby indicating low confidence that the legislation will have any impact on inflation.”
While some households experienced lower energy bills last month, as the cost dropped 4.6% in July compared to the previous month, it is still 32.9% higher than just one year ago. Gas prices in July fell 7.7% but are still up 44.9% from last year. Hitting families even harder, the food index went up 1.1% last month, putting it at a 10.9% increase in the past 12 months – the highest since May 1979. Rent rose 0.7% in July and 6.3% for the year.
Democrats promise this bill will do as its name suggests and reduce inflation, but it is difficult to see exactly how and when this will happen. When asked which parts of the bill will quickly reduce inflation, Representative Jamie Raskin (D-MD) said last week, “Next question.”