Cogito Ergo Non Serviam
Senate Passes Inflation Reduction Act, 51-50
After sitting all week-end during an endless process of pointless amendments, the US Senate voted on a straight party line to pass the Inflation Reduction Act. The IRA, not to be confused with an Individual Retirement Account nor with the Irish Republican Army, is a pared down version of the Build Back Better Act that Senators Manchin (D-WV) and Kirsten Sinema (D-AZ) torpedoed earlier in the year. The bill has a lot of good things in it, but it is unlikely to do enough about the long-term climate problem the US and the world faces. More immediately, it is not going to cause prices to dip any time soon. It is a fairly big deal, despite not being as great as the Democrats said nor as bad as the Republicans claim. It now goes back to the House for a vote.
The package calls for $725 billion in increased revenues. That sum comes from: $313 billion raised via a 15% minimum corporate tax; $288 billion in drug pricing reform including letting Medicare and Medicaid negotiate prices with the pharmaceutical companies; and $124 billion in improved IRS collections. Dropped from the bill was an additional $14 billion that would have come from ending the carried interest loophole that lets hedgefund managers and others pay a much lower rate in taxes than if it were treated as regular income. Also dropped was a cap on insulin prices at $35 a month. Although Medicare and Medicaid patients may still enjoy this benefit.
There is also $433 billion in spending. That means $391 billion of the new revenue will go to deficit reduction. Then, $369 billion will go to resist climate change (it is not yet a real fight until the targets become much more ambitious) with things like retrofitting houses and the renewable energy sector grow. Also, $64 billion will go to extend the subsidies in the Affordable Care Act that keeps many Americans in health insurance.
The effects of all of this is hardly immediate, with the exception of the ACA subsidies. For the rest of it, the smaller deficit is good but will not change anyone\'s life. The climate reduction spending will have little impact on the immediate climate problem; the planet will heat, just a little slower. It is already too late to prevent the changes. Now, the world needs to ameliorate the worst of it. That is going to cost much more than the $369 billion promised. And it does nothing to reduce carbon output in China and India. It may well be canceled out by new coal-fired power plants in those countries.
Calling it the Inflation Reduction Act is more than a bit cheeky. While one can argue that the provisions of the IRA will slow price increases in the future, it is not going to affect prices for the next few quarters. By then, the Fed rate hikes and the mechanism of the market will have sorted out most of it. Proponents of the act will claim the law did affect inflation, but that is post hoc propter hoc reasoning.
In the next 2-5 years, the effects of the bill will be much clearer. One anticipates that the deficit will continue to shrink (have ballooned under President Trump), that inflation will be tamed (the Fed has 2% as a target which should be met) and that emissions will decline 20-30% by 2025.
What is troubling is the fact that the Republicans were unwilling to vote for this, not one of them. They decided that it was more important to vote against the Democrats than it was to vote for their constituents. Worse, this is how they approach every problem. They are no longer interested in governing but in scoring points in the media and winning the news cycle. No bill can fix that.
© Copyright 2022 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Ubuntu Linux.
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