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White House admits Inflation Reduction Act, pushed by Manchin, Schumer, will barely impact inflation

The $739 billion Democratic spending plan dubbed the Inflation Reduction Act will barely affect prices over the next decade, experts say — and even the White House admitted it Monday.

According to Moody’s Analytics chief economist Mark Zandi, the 725-page bill hammered out by Sens. Chuck Schumer (D-NY) and Joe Manchin (D-WV) would only lower the Consumer Price Index – a closely watched gauge that measures what consumers paid for goods and services –0.33% by 2031. 

“Through the middle of this decade the impact of the legislation on inflation is marginal, but it becomes more meaningful later in the decade,” Zandi wrote.

Jesse Lee, a senior communications adviser to the National Economic Council, was quick to tout Zandi’s findings, tweeting, “This is actually the overwhelming consensus.”

“White House officials’ own rosiest, best-case-scenario spin is that their ‘Inflation Reduction Act’ will have taken one third of one percentage point off inflation by nine years from now?” Andrew Quinn, a speechwriter for Senate Minority Leader Mitch McConnell (R-Ky.), asked incredulously.

“White House comms spiking the ball over a bill that doesn’t reduce inflation until 9 years from now,” mocked Heritage Foundation spokesman Jon Cooper. “And keep in mind, this is obviously the best number they could come up with.”

The White House admitted the Inflation Reduction Act from Sens. Joe Manchin and Chuck Schumer won’t impact prices much over the next decade.
Photo by Anna Moneymaker/Getty Images

Schumer and Manchin have claimed the bill would reduce inflation by lowering prescription drug and energy costs while reducing the federal budget deficit through a 15% minimum tax on corporations that report income of at least $1 billion per year, increased tax enforcement by the IRS, and taking a share of profits earned by general partners at private equity, hedge funds, and venture capital firms known as carried interest.

However, experts say the inflation cure prescribed by the Democrats is likely to be ineffective, and could be worse than the disease.

Alex Muresianu, a federal policy analyst with the Tax Foundation, told The Post on Monday that the corporate tax – also called the “book minimum tax” — would “reduce supply in the long-run by reducing incentives to invest, particularly for manufacturing firms.” 

“Meanwhile, on the demand-side, by taking money out of the economy, tax increases in excess of the spending attached could reduce inflation incrementally, but there are a couple problems,” he added. “First, in the first couple years, the bill does not net reduce the deficit — most of the net reduction in the deficit over the ten-year window comes in later years.

Schumer and Manchin claimed the bill would lower prescription drug and energy costs.
Schumer and Manchin claimed the bill would lower prescription drug and energy costs.
Photo by Drew Angerer/Getty Images

“And second, the tax increases like the book minimum tax are not focused on taxpayers with high marginal propensity to consume, meaning the tax increase does not come with a particularly large reduction in aggregate demand.

“So, on the whole,” Muresianu concluded, “we should expect the bill to have a negligible impact on inflation. The Federal Reserve’s choices will play a much bigger role in whether or not inflation subsides than whether or not this bill passes.” 

Levon Galstyan, a Certified Public Accountant with Jersey City- based Oak View Law Group, agreed, noting: The Inflation Reduction Act will shift resources through hundreds of billions of dollars in special-interest subsidies targeted to Democratic constituencies, further limiting supply through restrictions and tax increases.

“A deterrent to output would be that manufacturers would pay around half of all new levies,” Galstyan also told The Post. “The legislation would subject small businesses to a horde of tax enforcers, driving up prices and limiting their capacity to serve customers.”

According to Moody's Analytics chief economist Mark Zandi, the bill would only lower the Consumer Price Index by 0.33% by 2031.
According to Moody’s Analytics chief economist Mark Zandi, the bill would only lower the Consumer Price Index by 0.33% by 2031.
AP Photo/Alex Brandon

Peter Morici, an economist and professor emeritus at the R.H. Smith School of Business at the University of Maryland, also argued that there was almost no chance the legislation would reduce prices. 

“One of the Fed bank presidents [Neel Kashkari of Minneapolis] came out [Sunday] morning … saying we’re going to get inflation down at 2%. If you believe that, then I want you to go to Yankee Stadium on Sunday afternoon and look for me playing shortstop,” Morici told The Post. 

“I’m 73 years old. I was a pretty damn good middle infielder, but I didn’t have much of a career because I never could hit the breaking ball,” he added. “I mean, that’s as credible as I’m gonna play shortstop for the New York Yankees.”

Other experts have pointed out that the legislation fails to provide a long-term solution for bringing down inflation

“Inflation results from deep-set, fundamental issues and this bill does nothing to address those factors,” said James Lucier, managing director at Washington-based policy research firm Capital Alpha.

Biden administration official Jesse Lee, a senior communications adviser to the National Economic Council, agreed with Zandi's findings.
Biden administration official Jesse Lee, a senior communications adviser to the National Economic Council, agreed with Zandi’s findings.
AP Photo/Susan Walsh

“Inflation will probably fix itself over a ten year period, if we’re lucky,” Lucier told The Post, labeling the supposed “anti-inflationary effects” of the legislation as “smoke and mirrors.” 

Rather than bringing down prices, some of the economists suggested that federal tax credits for Americans to buy electric vehicles and the extension of ObamaCare subsidies would exacerbate the problem.

“They’re giving people money to buy electric vehicles. They’re in short supply. The lithium that goes into them is in short supply. That’s gonna raise the price of electric vehicles,” said Morici, who added that “additional subsidies to buy health insurance is not going to lower the cost of health insurance, it’s going to increase the price.”

“Many of the incentives that are in the bill tend to increase the price of components for products that go into the electrical grid and so forth,” Morici continued. “So it’s basically giving people money to chase products that are in short supply.” 

Will McBride, VP of federal tax and economic policy at the Tax Foundation, echoed that concern, saying the ObamaCare subsidies would make “entitlement spending” worse. 

“Essentially,” McBride said, “the value of the dollar is getting diminished as the federal government’s ability to repay its debt diminishes.”

Additional reporting by Lydia Moynihan and Ariel Zilber.



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