Democrats pulled off a fairly brilliant bit of marketing recently, rebranding their big domestic legislation (“Build Back Better”) into the smaller Inflation Reduction Act of 2022. The new name is easier to understand, addresses voters’ driving economic worries and satisfied the needs of Sen. Joe Manchin (D-W.Va.), whose support was crucial.
The legislation is substantial. It’s the biggest federal investment in fighting climate change ever and the biggest change in Medicare since 2003. But when it comes to actually reducing inflation, as its name promises, budget experts say it leaves much to be desired.
With the House set to pass it Friday and send it on to President Joe Biden for his signature, the bill will be one of the Democrats’ primary defenses on the campaign trail when they’re asked about what they did about rising prices. But Republicans have attacked the bill as actually doing little.
“The country is running on Joe Biden and congressional Democrats’ record. It is a miserable record with a cruel economy, and nothing they’re going to do can change that because this will not tamp down inflation,” Rep. Kevin Brady (R-Texas) said Monday on Fox News.
Brady’s concern found a sympathetic ear in the unlikely form of Senate Budget Committee chair Bernie Sanders (I-Vt.), who was frustrated that Democrats didn’t go further in their social agenda and push more ambitious legislation. During debate on the bill, which he ultimately voted for, Sanders went so far as to deride it as the “so-called Inflation Reduction Act.” The Republican National Committee even tweeted out video of Sanders’ remarks.
The Penn Wharton Budget Model, a project of the University of Pennsylvania that aims to give Congressional Budget Office-type independent analyses of legislation, kicked off the criticism of the Inflation Reduction Act on July 29.
It projected that the bill would actually boost inflation by 0.05 percentage point in 2024 and reduce it by 0.25 percentage point in “the late 2020s.”
“These point estimates, however, are not statistically different than zero, thereby indicating a very low level of confidence that the legislation will have any impact on inflation,” according to the project’s analysis.
The nonpartisan CBO came to a similar conclusion. In a preliminary analysis released Aug. 4, CBO Director Phillip Swagel wrote, “In calendar year 2022, enacting the bill would have a negligible effect on inflation, in CBO’s assessment,” and in 2023 inflation would probably be 0.1 percentage point lower or higher than if the law was unchanged.
The key, Swagel said, would be how the bill would affect various economic factors that determine inflation, including demand, the supply of workers, supply chain disruptions and the reaction by the Federal Reserve.
And though the head of the Penn Wharton Budget Model, Kent Smetters, and Swagel both served in the George W. Bush administration (and in Swagel’s case, also at the conservative American Enterprise Institute), their analyses have been seen as middle of the road.
“These point estimates, however, are not statistically different than zero, thereby indicating a very low level of confidence that the legislation will have any impact on inflation.”
Marc Goldwein, senior vice president and senior policy director at the bipartisan Committee for a Responsible Federal Budget, told HuffPost in an email that the inflation effects “are likely to be small.”
However, Goldwein said a side deal to loosen permitting restrictions on energy projects, such as pipelines and energy export facilities, would also help cut inflation.
“But still, the effects are likely to be modest. And smaller in the final version of the bill than the original one,” he said.
Democrats say those projections are too pessimistic and don’t give enough credit for the things the bill would do, like bring down prices on prescription drugs for seniors.
“I think that this gives us a chance to cut a lot of costs, and that’s part of inflation,” Senate Finance Committee chair Ron Wyden (D-Ore.) told reporters when the bill was on the Senate floor.
For example, he said, “as sure as night follows day,” private insurers will want to negotiate prices with drugmakers after they see how much Medicare will be able to save by doing so.
“If you’re on the board of a private company and you look at what Medicare is doing, that board member will say to the CEO, ‘You better go get me that. Medicare is doing it — why can’t I have it?’” he said.
The changes in the bill as it made it through the legislative process likely also reduced its effectiveness in something else Democrats have touted: cutting the budget deficit.
The CBO initially scored the package as cutting more than $100 billion from the budget deficit over 10 years. For perspective, the last CBO baseline estimate projected $15.7 trillion in deficits over the next decade. CBO later revised down its estimate of the bill’s effect to about $90.5 billion before the Senate began its debating.
CRFB’s Goldwein said the post-Senate version probably saw its deficit reduction cut even more, to somewhere around $70 billion.
On Thursday, though, the CBO released a letter from Swagel saying the changes made since the bill’s unveiling, which would include a narrowing of the prescription drug negotiation provision and a swapping out of tax provisions to preserve the carried interest loophole, meant they could not give it a final score for “a few weeks.”
Even if one includes the extra $200 billion in tax revenue the CBO says can be expected from stepped up enforcement ― which is prohibited from being in the formal score ― the effect on the deficit would be relatively small.
But Goldwein said the bill was significant in how it had been pared back from a more expensive proposal last year with much more gimmicky pay-fors.
“The Inflation Reduction Act, though not perfect, moves in the direction of deficit reduction ― something that hasn’t happened in a serious way since 2011 (or 2013 relative to ‘current policy’),” he said.