All opinions expressed in this article are solely the opinions of the contributors.
President Biden’s recent streak of legislative victories, including the Inflation Reduction Act, is boosting his poll numbers. But some economic analysts warn it may take years before the bill actually reduces inflation. Straight Arrow News contributor Larry Lindsey adds that a closer look at the legislation reveals Biden’s Inflation Reduction Act won’t do much to help the U.S. deficit, either.
The Congressional Budget Office, which is the arbiter of such things, says the deficit is going to increase between now and 2026 by $22 billion. Well, that means in the near term, if anything, the bill is inflationary; modestly so. In fact, the big long-term deficit cuts don’t occur until 2028. Think about that. We’re going to have two midterm elections and two presidential elections by then. So anything could happen. Who knows what the situation is going to be in 2028?
So that’s really not a meaningful deficit reduction. Or over the average amount of the deficit reduction in the bill, even including those long-term deficits, is just $30 billion per year. The government spends on average, about $4.5 trillion. This is just a tiny fraction of that… less than two tenths of one percent. So to call the deficit reduction meaningful at all, is a bit of a stretch. It is just four one-hundredths of 1% of GDP. It has nothing to do with inflation reduction, no matter how you want to name it.
Also, there are some big tax increases in the bill. Some of them on the energy sector, which are going to make the price of gasoline, a very sensitive inflation topic, go up. There also is going to be a large tax increase on manufacturing corporations. The bill contains something called a “alternative minimum tax” for companies. Well, the difference between the alternative tax and the regular tax is largely the depreciation of purchases of plants and equipment. Right now, the bill allows you to write them off right away. Whereas the profit base for what the government now wants will not allow you to do that. It’s based on how much the company tells its shareholders that the machinery wore out. That’s likely, according to the National Association of Manufacturers, going to reduce GDP by $68 billion.
Now admittedly, the National Association of Manufacturers is not completely a disinterested observer here. But regardless of the size, this is going to be a negative for GDP. It’s likely to reduce wages by about $17 billion and likely to cost about 220,000 jobs over the long term. This reduces the supply side of the economy. It makes U.S. manufacturers less competitive. If anything that will prove to be inflationary.
