The Washington PostDemocracy Dies in Darkness

Opinion Inflation is the least significant aspect of the Inflation Reduction Act

Sen. Joe Manchin III (D-W.Va.) speaks to reporters on Capitol Hill on Aug. 1. (Anna Moneymaker/Getty Images)

Let’s get something straight: Despite its name, the Inflation Reduction Act — the reconciliation deal forged between Senate Democrats and Sen. Joe Manchin III (D-W.Va.) — isn’t really about inflation. But that won’t stop both sides from trying to magnify that aspect of the package.

Republicans and the White House both tend to exaggerate the influence of particular pieces of legislation or presidential actions on inflation (e.g., opening the Strategic Petroleum Reserve, the American Rescue Plan). Inflation both at home and internationally is primarily driven by the sudden drop — and then rebooting — of economic activity during the coronavirus pandemic, resulting in a mismatch between supply and demand. The war in Ukraine then jostled international markets even further.

Let’s get real. The reconciliation bill raises about $739 billion in revenue, offset by $433 billion in spending, for a net reduction of about $300 billion. In a $25 trillion economy, this is a tiny change. Other factors, including the Federal Reserve’s interest rates and fluctuating energy prices, have far more impact on inflation than the fiscal effects of this bill.

Nevertheless, the administration and supportive economists are proclaiming it will help bring down inflation. After the deal was announced, President Biden declared, “This is the strongest bill you can pass to lower inflation, cut the deficit, reduce health-care costs, tackle the climate crisis, and promote energy security . . . while reducing the burdens facing working-class and middle-class families.”

Follow Jennifer Rubin's opinionsFollow

Others have echoed this message: Maya MacGuineas, president of the Committee for a Responsible Federal Budget, told the New York Times, “To fight inflation, we want policies that will increase supply or reduce demand. And this does both.” She adds, “Almost every one of these policies, in and of itself, will fight inflation. And on net, the entire package most certainly will.” Economist Lawrence H. Summers, a Post contributor who was one of the lonely voices warning about inflation in 2021, tweeted, “Great budget deal announced today. This will mean progress on inflation, economic growth, tax fairness, inequality, and climate change.” Summers was apparently instrumental in convincing Manchin to make the deal. The West Virginia senator went so far as to say “it’s all about inflation.”

Republicans, for their part, have been all over the place. Some have insisted it would be so disinflationary as to send us into a recession. Others have said it will spark more inflation. So which is it?

Well, the Penn Wharton Budget Model, a widely used economic forecasting model at the University of Pennsylvania, has the most clear-eyed analysis: “The Act would very slightly increase inflation until 2024 and decrease inflation thereafter. These point estimates are statistically indistinguishable from zero, thereby indicating low confidence that the legislation will have any impact on inflation.” That is, in large part, because of “the smaller size of the program’s spending and taxes relative to the overall U.S. economy.”

That does not mean the bill would be useless. Far from it. It would make a huge investment in green energy, which is good for the planet and for jobs down the road. It would prevent a great deal of economic hardship to Americans and improve medical outcomes by extending the Affordable Care Act and containing prescription drug costs. And, finally, it would help mitigate the monstrous unfairness in the tax code by requiring corporations to pay a 15-percent minimum tax on their book incomes and getting rid of the carried interest loophole. Indeed, it might be the best effort in years to reduce glaring inequities in the tax code (not to mention collect money already owed with better IRS enforcement).

Collectively, the bill would have important economic, health and environmental benefits for a wide swath of Americans. By all means, Democrats should vote for the measure thanks to all the varied, positive aspects of the bill. But both Democrats and Republicans should level with the public: Just because it has “inflation reduction” in its title does not mean it will do much to ease — let alone worsen — inflation.