The Inflation Reduction Act Has Passed

What does it mean?

Aug 08, 2022

Yesterday, the Senate passed the “Inflation Reduction Act” on a party line vote of 51-50 (Vice President Kamala Harris had to break a tie). The legislation aims to reduce the rate on inflation, which saw gas prices double nationally in the past year. But what exactly could this bill mean for everyone’s pocketbooks?

After the passage of the bill, Senate Majority Leader Chuck Schumer (D-NY) said on the Senate floor "Today, after more than a year of hard work, the Senate is making history. I am confident the Inflation Reduction Act will endure as one of the defining legislative feats of the 21st century."1. This all came after the Senate spent most of the weekend in session going through a “vote-a-rama”, where Republicans proposed lots of amendments to the IRA, all of which were struck down by Democrats. The only major amendment to pass from Republicans was one that would exempt some private firms that have backing from a private equity from the new corporate tax rate. Senator Bernie Sanders (I-VT) also proposed several amendments, all of which were struck down by both parties, oftentimes with Sanders being the only vote in support.

The Congressional Budget Office wrote in its report on the IRA that it “would not increase on-budget deficits after 2031.”2. However, the CBO has stated some parts of the bill, like parts on environmental regulations, are impossible to tell whether they would increase or decrease the budget deficit, with the CBO report saying:

CBO cannot determine whether part 6 of title V would increase or decrease deficits after 2031 because there is significant uncertainty about federal mineral leasing and energy development activities and related receipts after 2031.3

The major effect to the pocketbooks of us normal people could be severe however, as many senators are concerned of its effect on Americans. Bernie Sanders had this to say about the IRA:

“According to the [Congressional Budget Office] and other economic organizations that have studied this bill, it will have a minimal impact on inflation,”4

His worries are joined by Republicans, with Ted Cruz (R-TX) saying this in a statement to The Daily Wire:

“The Schumer-Manchin bill will drive up inflation and prices, hammer small businesses and American manufacturing, increase the price of gas, and sic the IRS on Americans, all while raising taxes on Americans in nearly every tax bracket including those who make less than $400,000 a year,” —— “This bill is just Biden’s Build Back Broke by another name. It’s a gift to radical environmentalists and to rich, liberal elites. It uses taxpayer dollars to subsidize electric vehicles while imposing even more new taxes to raise the price of gas in the middle of out-of-control inflation and a recession,”5

President Biden touted the bill as “This bill tackles inflation by lowering the deficit and lowering costs for regular families.”6. Biden then went on to say this before thanking Senator Schumer for the bills passage:

Finally, it pays for all this by establishing a minimum corporate tax so that our richest corporations start to pay their fair share. It does not raise taxes on those making under $400,000 a year – not one cent.7

The bill still must pass in the House before President Biden can sign it into law.

The major concern by conservatives is that the IRA’s increase on taxes for large corporations will be reflected in prices for consumers. This is the inverse of their “trickle down” philosophy when it comes to taxes. The “trickle down” idea is that when you lower taxes on large corporations, it will in turn lower the cost on consumers for those products. The other large concern is that the costs are front-loaded in the bill, while taxes are meant to spread for the whole cost. This would in turn cause a rise in the budget deficit, causing inflation to increase until the later years of the bill.

The final reason for why this bill may not lower inflation is in the other program it funds. The bill spends $369 billion on environmental provisions, along with another $64 billion on extending Obamacare subsidies from the era of COVID. This all led The Heritage Foundation to call the Inflation Reduction Act a bill that “spends hundreds of billions of dollars, raises more in taxes, and hikes the cost of doing business at a time when people are facing record inflation and a recession”8.

So watch out, this bill could potentially lead to an increase in the costs of everything, how much is something we can only wait and see.

Overall, Democrats are confident that this is a major win for them going into the Midterms. Republicans see the consequences of this bill as another major boost for them in winning back the House and potentially the Senate. The Heritage Foundation article puts this belief into words, saying that Democrats “will have a rude awakening in November”9. What effect this bill will have on the Midterms is unknown right now, but it could become a major talking point as we get closer to November.

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