Last year’s policies, this year’s packaging

When they took control of Congress in early 2021, Democrats saw an opportunity for a huge increase in government spending to rebuild the post-pandemic US economy. It has taken almost 18 months to put together an agreement. However, while rising inflation has forced Democratic leaders to scale back their ambitions significantly, the various provisions of the Inflation Reduction Law they remain virtually unchanged from a time when inflation was the least of their concerns.

On April 28, 2021, Joe Biden appeared before a joint session of Congress To propose “a once-in-a-generation investment in America.” The president promised to “put engineers and construction workers to work building more energy-efficient buildings and homes” and reward “farmers who plant cover crops so they can reduce carbon dioxide in the air and get paid for it.” Biden promised federal funds to ensure affordable child care and an additional four years of public education for all Americans. He promised to give $7,200 to all households with two children under the age of six, in addition to paying “12 weeks paid leave and medical leave.” Biden called on Congress to “expand the benefits of Medicare coverage” and increase Obamacare subsidies.

The combined cost was estimated at about $7.5 billion over the next decade, once budget tricks were factored in, just over $5,700 per American household per year. But Biden claimed that he “would not impose any tax increases on people making less than $400,000” because he believed the middle class “already paid enough.” To cover the cost, it would only be necessary for “business America and the richest 1 percent of Americans to start paying their fair share.”

Moderate Democrats were already skeptical of this supposed fiscal math, and these concerns have been deepened by the overheating of the economy. As unemployment has fallen from 6.0 percent to 3.6 percentinflation has risen from 0.4 percent to 8.6 percent—a maximum of 40 years. Understanding that voters had little appetite for hugely expensive proposals that would further inflate the deficit and inflation, the administration was forced to downsize the original plan.

The bill is certainly in better shape for being a small fraction of its original size. The 2021 progressive wish list has been narrowed down to a focus on health care and climate policy. While previous proposals to limit or tax US carbon emissions would have served to boost industry abroad, the current proposal is simply intended to help the development of cleaner technologies. While Biden in 2020 promised to lowering the age of eligibility for Medicare to 60 and establishing a public option for all ages, the Reducing Inflation Act attempts simply to patch the cracks in existing coverage options.

Yet while most of last year’s Build Back Better Act proposal was scrapped, the sections that became the Inflation Reduction Act remain remarkably unchanged from a time when the purported goal was to stimulate demand in instead of reducing inflationary pressure.

Instead of revising the Obamacare regulations that caused insurance premiums to more than double, the proposal just increase the part of the premiums covered by the subsidies, even if these subsidies serve to inflate underlying costs even more. Instead of acting to reduce the growth in hospital costs, which are the main driver of health care spending, the legislation reduces payments for newly developed drugs, even though drug development is the only element of health care the health that reliably reduce costs in the long run.

The “Energy Security and Climate Change” sectionwhich accounts for most of the bill listed expenses, was clearly not designed with the goal of reducing inflation. As economist Tyler Cowen has pointed out, big new tax credits for electric car purchases are likely to drive up their price, as demand is already buoyant and production is severely constrained. Tax credits for households, manufacturers, farms and utilities to buy cleaner technologies are likely to do little to reduce prices, though they may be more successful in further reducing carbon emissions.

Democrats understand that voters fear rising prices more than rising emissions, so they’ve been at pains to say a tale for which the bill reduces the deficit and thus inflationary pressures, regardless of the nature of its specific provisions. However, the bill is likely increase the deficit in balance for the first five years. Once his budget gimmicks are taken into account, his alleged $300 billion reduction over ten years in the federal deficit almost disappeared. Much of the cost of the additional spending is financed through higher business taxesthat will be passed on to workers and consumers.

While most Democrats believe that moving the economy away from fossil fuels is worthwhile, it will surely increase the costs that Americans will have to bear. And it hardly offers the solution to inflation that they claim to be looking for.

Photo by Jabin Botsford/The Washington Post via Getty Images

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