The Inflation Reduction Act is aimed at tackling a host of problems, from climate change to catching tax cheats, but there's one issue it may not solve: reducing inflation.
That's the conclusion of the Penn Wharton Budget Model, a group of economists and data scientists at University of Pennsylvania who analyze public policies to predict their economic and fiscal impacts. Its
analysis, published Friday, comes as inflation remains near a 40-year high, crimping the budgets of consumers and businesses alike.
The Inflation Reduction Act would invest nearly $400 billion in energy security and climate change proposals, aimed at reducing carbon emissions by approximately 40% by 2030. It also would allow Medicare to negotiate with drugmakers on prescription prices, and would limit
out-of-pocket drug expenses for seniors to $2,000 annually. The bill also directs $80 billion in funding to the IRS, aimed at helping the underfunded agency
hire more auditors and beef up its customer service and technology.
But the impact on inflation "is statistically indistinguishable from zero," the Penn Wharton Budget Model said on Friday.
The legislation, which
passed the House of Representatives on Friday and is headed to President Biden's desk to be signed into law, has wide-ranging goals yet does little to directly tackle the underlying causes of inflationary pressures pushing up the cost of everything from food to housing, the economists predict. Still, the bill could help some Americans
lower their health care costs, through its provisions for seniors' prescriptions and another item that would lower what consumers pay for some Affordable Care Act plans.
The Penn Wharton Budget Model isn't alone in predicting that the Inflation Reduction Act won't measurably affect inflation, with the nonpartisan Congressional Budget Office concluding last week that the changes would have a "negligible" impact on inflation this year and next. However, the CBO expects the bill to help lower inflation in later years.
At the same time, the White House has trumpeted a letter signed by more than 120 economists, including several Nobel Prize winners and former Treasury secretaries, that highlights the bill's long-term effects, saying it would put "downward pressure on inflation by reducing the government's budget deficit by an estimated $300 billion over the next decade."
In theory, lower deficits can reduce inflation. That's because lower government spending and higher taxes, which help shrink the deficit, both reduce demand in the economy, thereby easing pressure on companies to raise prices.
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The Inflation Reduction Act may not lower inflation: analysis (msn.com)