The Inflation Reduction Act may not reduce inflation — one sign that Senate Democrats’ reconciliation package, now that most of the drama is over, deserves a dispassionate accounting.
The deal President Biden and Senate Majority Leader Charles E. Schumer (D-N.Y.) had been laboring to strike for months finally passed Congress’s upper chamber on Aug. 7. The House of Representatives voted on Friday to also pass the measure, sending it to Biden’ss deesk. The bill is obviously not Build Back Better — whose child tax credit, universal prekindergarten and broad-based tax hikes on the wealthy have all fallen by the wayside — but there is still a lot to like. But even the provisions that remain might not achieve everything their biggest boosters might hope.
To claim the Inflation Reduction Act will, on its own, transform the economy would be foolish. The Congressional Budget Office estimates that the proposal will change the inflation rate by less than one tenth of a percent over the next two years, and that’s in either direction. Even economists more sanguine about the bill’s effects believe its impact will mostly be felt further into the future. Similarly, the reduction to the deficit, whether the $300 billion over the next decade its drafters promise or the just over $102 billion the CBO expects, adds up to little in the grand scheme of trillions in national debt.
The macroeconomics of the bill, in the end, are less interesting than its policy particulars: in prescription drug pricing, health care, climate and taxes. In all of these areas, the Inflation Reduction Act makes impressive improvements on the old status quo. And in all of them, the new status quo still isn’t satisfactory.
The most important parts of the pharmaceutical reform, such as allowing Medicare to directly negotiate the prices of certain medicines and placing a $2,000 per year cap on out-of-pocket costs for prescription drugs, won’t kick in for years. That leaves reason to worry that a more conservative Congress might snatch back this crucial change. On health care, the extension of pandemic-era subsidies to help people afford Affordable Care Act plans merits celebration — but the failure to close the Medicaid coverage gap means the most vulnerable will get the least help.
Climate involves a similar story. The legislation will purportedly contribute to lowering the United States’ greenhouse gas emissions by about 40% below their 2005 peak within 10 years. But whether the bill can really prompt so dramatic a change depends on how fast consumers really switch to clean-energy options, as well whether regulatory, logistical and political obstacles get in projects’ way. An agreement to boost oil and gas leasing that sweetened the pot for swing-voting Sen. Joe Manchin III (D-W.Va.) also sours the outlook for the transition away from fossil fuels.
Then there are the proposal’s tax revisions, which moved further from ideal in the last days of negotiations — this time, largely to please potential holdout Sen. Kyrsten Sinema (D-Ariz.). Rules to narrow the carried-interest loophole, which enriches hedge-fund managers by taxing their income from investment profits at a too-low rate, are no more. The 15 percent corporate minimum was chipped away at last week, and then again this weekend, most recently to resolve purported concerns from small businesses that experts believe were ill-founded.
The Inflation Reduction Act is a laudable achievement for the Democratic Party, and a boon to the country. But there’s plenty more to do.