Despite the lofty ambitions expressed in its title, the Inflation Reduction Act likely will do little to ease rising prices for American consumers. It will, however, generate transformative and necessary changes to the U.S. economy, enhancing long-term stability and enacting several beneficial policies.
The legislation passed the Senate on Sunday, with Vice President Kamala Harris breaking a 50-50 vote that fell along party lines. All Senate Democrats supported the bill following months of negotiations between Senate leader Chuck Schumer, D-N.Y., and Sen. Joe Manchin, D-W.Va. It is expected to pass the Democratic-led House of Representatives this week.
“Senate Democrats sided with American families over special interests, voting to lower the cost of prescription drugs, health insurance, and everyday energy costs and reduce the deficit, while making the wealthiest corporations finally pay their fair share,” President Joe Biden said. “I ran for president promising to make government work for working families again, and that is what this bill does — period.”
What it probably won’t do is reduce inflation, a primary concern for many Americans. The White House and Congress have few tools for tweaking short-term inflation, but they can enact long-range policies that strengthen the economy and benefit consumers.
Most important, in the long view, is investment in mitigating climate change. The $430 billion bill — a truncated version of the Build Back Better legislation sought last year by Democrats — includes vast investments in clean energy and adds standards for lowering carbon emissions. It includes tax credits to spur the manufacture of solar panels and wind turbines, as well as the purchase of electric vehicles. Analysts say it represents the largest climate investment in U.S. history.
Other provisions include allowing Medicare to directly negotiate with prescription drug companies — as the Department of Veterans Affairs does — to lower drug prices, and providing subsidies for the 35 million Americans who receive health insurance through the Affordable Care Act (colloquially known as Obamacare).
The legislative package is projected to reduce the federal deficit by $300 billion over the next decade, with funding coming from raising taxes on some corporations that make more than $1 billion annually, taxing corporate stock buybacks and funding the Internal Revenue Service to go after tax cheats. Unlike the 2017 Trump tax cuts, it is expected to pay for itself.
Critics claim that federal spending through the Inflation Reduction Act will cause inflation to increase, much as it did in the wake of last year’s American Rescue Plan. But the new legislation calls for less than $500 billion in spending over a decade; the American Rescue Plan infused $1.9 trillion into the economy in a single year. Comparisons are specious.
But regardless of the impact on immediate spending, the Inflation Reduction Act is really a climate bill. It takes important steps toward reducing carbon emissions, marks the United States as a global leader in the effort, and sets a course for additional action in the future. Most important, it paves a path for economic change.
As a new report from the National Bureau of Economic Research says, “renewable energy leads to the creation of relatively high paying jobs, which are more often than not located in areas that stand to lose from a decline in fossil fuel extraction jobs.”
Under any name, the bill passed with no support from Republicans appears to be a victory for the future of the United States.