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Thursday, August 4, 2022

Inflation Reduction Act Will Not Reduce Inflation

From the Tax Foundation. Full analysis here

Reconciling the reconciliation bill: The Inflation Reduction Act, successor to the House-passed Build Back Better Act of late 2021, has been touted by President Biden to, among other things, help reduce the country’s crippling inflation.

Among the major tax changes are a 15 percent corporate minimum tax, drug price controls, IRS tax enforcement, and a tax hike on carried interest to pay for increased spending on energy and health insurance subsidies as well as deficit reduction. See a more comprehensive list here.

According to our model, the bill would raise about $304 billion in net revenue from 2022 to 2031, but would do so in an economically inefficient manner, reducing long-run economic output by about 0.1 percent, eliminating about 30,000 full-time equivalent U.S. jobs, and reducing average after-tax incomes for taxpayers across every income group in the long run.

What about inflation? On balance, the long-run impact on inflation is uncertain but likely close to zero.By reducing long-run economic growth, the bill may worsen inflation by constraining the productive capacity of the economy.
By increasing spending faster than it raises revenue between 2023 and 2025, the bill would increase deficits and worsen inflation, especially in the first two years. See our full analysis.

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