Sen. Joe Manchin III (D-W.Va.) has a long list of issues with the Build Back Better bill. Near the top is his concern that the legislation might make inflation worse.
The main reason inflation is at its highest level since 1982 right now is the pandemic. Demand for goods — everything from couches to washing machines to fancy decks — has soared as people continue to spend a lot of time at home. Meanwhile, supplies for these items are low as factories have struggled to reopen and staff up; supply chains were not capable of handling this surge. The result of high demand and low supply was easy to predict: Prices went up.
The $1.9 trillion American Rescue Plan that Democrats (including Mr. Manchin) passed this year likely contributed to inflation as well. It was designed to give most Americans money. What was spent on groceries, rent and other items helped push demand higher.
But Build Back Better is a very different bill. It does increase government spending, which traditionally boosts growth and inflation, but it also raises taxes on the wealthy and large businesses, which traditionally decreases them. The legislation is also (mostly) paid for, at least in the near term.
The Congressional Budget Office estimates the bill would add about $160 billion to the deficit over the next decade. That’s not zero, but it’s small in the context of a $23 trillion economy.
Inflation is most problematic for Americans who live paycheck to paycheck. Build Back Better would help reduce the costs of medicines, health insurance and child care for many low-income Americans. The current version of the bill also extends the enhanced child tax credit to give families with children extra money in 2022 to help pay for basic needs.
Some economists have pointed out that the bulk of the spending in Build Back Better comes in the first few years while the tax increases and other revenue largely occur later on. This could — and should — be tweaked in the final version of the bill. But even in its current form, the inflation impact is modest, according to many independent forecasters. Moody’s Analytics, for example, estimates inflation would be about 0.2 percentage points higher next year if the current bill passes. A harsh winter could have a similar impact by driving up energy demand.
Build Back Better is about investing in the long-term future of the United States. Voting yes or no on this bill should not be based on the short-term inflation outlook.
The primary consideration — for Mr. Manchin and every other lawmaker — should be whether these investments in child care, climate change and lifting people out of poverty are worth doing to benefit society for years to come.