The passage of the comprehensive tax, health care, and climate change Bill on Friday was a huge victory for President Joe Biden and the Democratic Party. The Bill, which has now been signed into law, will help cut the deficit by more than $300 billion and put money into making energy and products in the United States.
It is projected that the bill will cut carbon emissions by about 40% by 2030. The plan also changes the prices of prescription drugs and keeps the expanded Affordable Care Act program going for three more years until 2028.
According to the White House, the bill would fight inflation in three ways:
- Getting energy costs down
- Getting families' health care costs down
- Getting the deficit down
Several experts concur that, albeit slightly and slowly, the bill may positively impact inflation, claiming that it would take a few years to notice its effects. Even so, Americans are still unsure about the bill's overall influence on inflation in the short or long term. And they're quick to express their doubts on social media.
For example, Twitter user @AdaminHTownTX tweeted, “How exactly will this legislation help me pay my bills, Charles?” in response to Chuck Schumer's tweet about the Act.
Another user @_3MTA3_tweeted, “inflation reduction act = climate investment. Someone explain to me how spending money and adding more IRS agents are going to reduce inflation, I'll wait”.
One reason for the doubt is that the bill's various components promote expenditure. With the already painful bites of the current overheated economy, it's hard for consumers to believe that more government spending and taxes will mitigate the financial burden of the average American.
What the Reality of the Act May Mean
“This measure may increase taxes on small businesses, harm the middle class, increase layoffs, and drive up gas prices even more.” Jaun Carlos Lascurain, CEO of Grosvenor Square Consulting Group and Lascurain-Grosvenor, explains. According to him, the legislation will mostly impact consumer pricing because most producer companies will face increased taxes to pay for policies with little economic impact.
Lascurain predicts that as a result, the price of essential products would rise significantly, further hurting those in the U.S. economy who make the least money.
For example, the Bill mandates that a company that makes more than $1 billion annually for three years must pay a minimum corporate tax of 15%. This mandate would affect at least 25 of the big oil companies in the U.S., like Chevron and Shell, that Americans depend on for gas.
Also, production rates could go up by as much as 6%, both offshore and onshore. Companies will pay a higher bonus bid, the price paid at an oil and gas lease sale. It would go from $2 an acre to $10 an acre.
According to Lascurain, the typical consumer will notice that the costs of the products and services these businesses provide are rising. On top of this, the legislation increased the superfund excise tax on crude oil and petroleum from 9.7 cents to 16.4 cents per barrel, which the average citizen will pay.
Granted, the Bill allows households to claim up to $1,200 per year, or 30% of the total cost, as a tax credit for energy efficiency improvements. But Lascurain suggests that this pales into insignificance after all the taxes citizens have to pay and the growing inflation produced by an ineffective bill.
“The economic studies and trends have shown us that imposing subsidies, rising tax rates, and imposing environmental actions on privately owned enterprises while failing to tackle the growing gas prices and the extraordinary rate at which the Federal Reserve is printing U.S. dollars is the perfect cocktail for failure and for aggravating a recession and inflation cycle,” says Lascurain.
He warns that the only tried-and-true option is to provide tax incentives, cut back on government spending, and impose prudent monetary policies designed to control inflation.
What the Bill Does Not Take Into Account
The ability of Medicare to bargain with drug manufacturers to reduce prescription drug pricing is perhaps the bill's strongest advantage. For older Americans who struggle with high expenditures, this may mean a life-changing annual savings of several thousand dollars. The bill may also be the biggest shift in health care since the Affordable Care Act of 2020.
Still, the Act has neglected core issues that led to the current state of the economy. For instance, it has not adequately addressed supply constraints, which account for half of the spike in U.S. inflation. One can argue that the initial CHIPS Act—now law—seeks to increase domestic semiconductor manufacturing to address supply shortages.
However, putting it into action would take years because of the infrastructure and people needed to make it happen.
Likewise, The Inflation Reduction Bill does nothing to fix the housing problem, another major cause of inflation. Furthermore, it has not addressed issues with policy, making the high energy prices consumers and businesses already have to deal with even worse.
Unfortunately, the perception of inflation will endure as long as ordinary Americans' concept of inflation is tied to essential items like gas prices and other everyday expenses, which are still rising and consume a significant portion of a household's budget.
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This article was produced by Wealth of Geeks.
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Amaka Chukwuma is a freelance content writer with a BA in linguistics. As a result of her insatiable curiosity, she writes in various B2C and B2B niches. Her favorite subject matter, however, is in the financial, health, and technological niches. She has contributed to publications like ButtonwoodTree and FinanceBuzz in the past. In addition to ghostwriting for brands like Welovenocode, Noah and Zoey, and Ohcleo, amongst others. You can connect with her on Linkedin and Twitter.