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Will Democrats’ Inflation Bill Lower Prices? Of Course not, Study Says.

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According to a study made by the University of Pennsylvania, the Democrats’ inflation bill negotiated between Senators Chuck Schumer (D-NY) and Joe Manchin (D-WV) will do almost nothing to reduce the record-breaking inflation the United States has been suffering over the last year, these revelations contradict the Democrat’s framing of the bill as the “inflation reduction act.”

 

The study was conducted by the Penn Wharton budget model, a widely used fiscal model that forecasts the effects of proposed legislation on the national debt, economic growth, and inflation. Many Democrats, including the author of the bill Chuck Schumer, have quoted the Penn Wharton budget model to criticize previous Republican statements.

 

Schumer and Manchin announced the bill earlier this week in a surprise joint statement. The latter’s endorsement is a significant win for the bill’s prospects, and Democrats will push hard to get the legislation through both chambers of Congress and get a last legislative victory before the midterm elections later this year.

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The main provisions of the bill would extend some Obamacare subsidies, include new incentives for renewable energy, create a 15% minimum corporate tax, reform the “carried interest” tax policy, allows Medicare to negotiate the price of certain prescription drugs, and it gives extra funding to the IRS to strengthen its tax enforcement abilities.

Senator Joe Manchin (D-WV) negotiated the bill with Senate Majority Leader Chuck Schumer (D-NY)

The legislation would spend $433 billion on energy policies and Obamacare extension and more than $300 billion on reducing the deficit. It would theoretically fund that expenditure with the rise in corporate tax, prescription drug reform, IRS tax enforcement, and the carried interest provision.

 

Despite being marketed as the Inflation Reduction act, a vast majority of the bill’s provisions have almost nothing to do with inflation. The U-Penn study confirms that it does nothing to combat the 9.1% annual rise in prices American consumers have suffered.

 

Democrats’ inflation bill strategy: don’t reduce it.

 

The U-Penn study concludes that, contrary to the title of the bill, the “IRA” bill (nothing to do with the other IRA) will produce a “very small increase on inflation for the first few years” increasing the Personal Consumption Expenditure rate by 0.05% in 2024. Still, the bill would also eventually reduce the PCE by 0.25 in the late 2020s. The study warns, however, that the estimates are “not statistically different than zero” which means there is low confidence that the bill would do anything to reduce inflation.

 

Besides having almost no tangible effect on inflation, the Schumer-Manchin bill will have a minimal impact on the national GDP. By 2030 there will be no effect on the GDP thanks to the account, which will only bring a 0.2% growth in Gross Domestic Product by 2050. The bill will, however, have some acute effects on the government debt as it would reduce inflation by 8.4% by 2050 and the deficit by $248 billion over the budget window.

democrats'-inflation-bill

Inflation reached a record 9.1% between June 2021-2022 (Image: EFE).

It is no surprise that Democrats and mainstream media outlets have decided to highlight the investment in renewable energy and the expansion of Obamacare that are on the bill instead of the main issue the bill is supposed to tackle, inflation.

 

President Biden has said the bill would be the “most significant legislation in history to tackle the climate crisis and to improve our energy security,” a point repeated by media outlets like NPR, which called the legislation the “single largest federal clean energy investment in U.S history.”

 

Over the next few weeks, Washington D.C will witness the Democrats’ attempts to woo the maverick Senator for Arizona, Kyrsten Sinema (D-AZ), to support the bill. The bill’s effects will be open to fierce debate. However, it looks like one of the main points of discussion (whether the bill does anything to reduce inflation) has already been answered, and the response is not a good one for Democrats.

Daniel is a Political Science and Economics student from the University of South Florida. He worked as a congressional intern to Rep. Gus Bilirakis (FL-12) from January to May 2020. He also is the head of international analysis at Politiks // Daniel es un estudiante de Cs Políticas y Economía en la Universidad del Sur de la Florida. Trabajo como pasante legislativo para el Representate Gus Bilirakis (FL-12) desde enero hasta mayo del 2020. Daniel también es el jefe de análisis internacional de Politiks.

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