Washington, U.S. | Xinhua | U.S. President Joe Biden on Tuesday signed into law the Inflation Reduction Act in a seemingly legislative win for Democrats, amid doubts over its real effects on inflation.
Touting it as “one of the most significant laws” in history, Biden said at the White House that the package will lower costs for American families, combat the climate crisis, reduct the deficit, and finally make the largest corporations pay their fair share in taxes.
Critics, however, said the legislation does little to tamp down inflation, which stands at a four-decade high. Some argued that it may even lead to opposite results.
LITTLE IMPACT ON INFLATION
The new bill is a scaled-down version of the massive “Build Back Better” package Biden and many Democrats envisioned last year.
It includes a roughly 400-billion-U.S.-dollar investment in fighting climate change, measures to make prescription drugs more affordable, and a 15-percent minimum tax on big corporations. The legislation, according to Democrats, would generate nearly 300 billion dollars of net revenue over a decade.
Democrats had been eager to push through their domestic policy ambitions before the mid-term elections, arguing that the package will address inflation by lowering energy and health care costs for families and by helping to bring down the federal deficit.
Calling the bill a “hoax” on the American people, Republicans argued that tax increases would impose burdens on U.S. businesses and workers and won’t solve the inflation problem.
“You can’t tax and spend your way out of an inflation crisis,” House Minority Leader Kevin McCarthy said earlier, blaming the Biden administration’s policies for the surging inflation.
“Democrats robbed Americans last year by spending our economy into record inflation. This year, their solution is to do it a second time,” Senate Minority Leader Mitch McConnell tweeted on Tuesday.
“The partisan bill President Biden signed into law today means higher taxes, higher energy bills, and aggressive IRS audits,” said McConnell, referring to the Internal Revenue Service, which administers and enforces U.S. federal tax laws.
Many economists believe that massive fiscal stimulus package and ultra-loose monetary policy have contributed to the persistently high inflation, along with supply chain bottlenecks and global energy shortages. The act would have no meaningful effect on inflation in the near term.
A letter to Congress signed by over 200 economists argued that over 400 billion dollars in proposed government spending “would create immediate inflationary pressures by boosting demand, while the supply-side tax hikes would constrain supply by discouraging investment and draining the private sector of much-needed resources,” Fox News reported earlier this month.
The Tax Foundation, a nonprofit think tank, also argues that the so-called Inflation Reduction Act may backfire. It said in a recent article that by reducing long-run economic growth, this bill may actually worsen inflation by constraining the productive capacity of the economy.
MID-TERM BOOST FOR DEMOCRATS?
With less than three months from the midterm elections, Americans are concerned over a looming economic recession, and the Biden Administration has drawn criticism that it misjudged inflation and reacted too slowly, which has dragged down Biden’s approval ratings.
More than two-thirds of Americans think the nation’s economy is getting worse — the highest that measure has reached since 2008, according to an ABC News/Ipsos poll.
Only 37 percent of Americans approve of Biden’s handling of the economic recovery, while only 29 percent say they approve the president’s rating on inflation, the poll showed.
That doesn’t bode well for his party’s prospects in the November mid-term elections.
Democrats’ ability to pass such sweeping legislation could be seen by the party’s base as evidence of competence, and may benefit Democrats in midterms, as they struggle to retain control of the House and Senate.
Clay Ramsay, a senior research associate at the Center for International and Security Studies at the University of Maryland, told Xinhua the bill is helpful to Democrats.
That’s because it disproves the notion that while Democrats have control of the Congress and White House, they still can’t pass legislation, Ramsay said.
“The Inflation Reduction Act delivers many benefits to voters in the form of reducing drug costs, providing tax credits for green energy sources, and offering more equitable tax rates,” Brookings Institution Senior Fellow Darrell West told Xinhua.
“These are things many people have wanted for years,” West said. “That will help Democrats talk about what they have done to improve the situation under their stewardship.”
Christopher Galdieri, assistant professor at Saint Anselm College told Xinhua that the bill “helps fight the image that the party and the Biden administration are adrift.”
“For Democrats who had been disheartened, this is a reason to get back in the game,” said Galdieri.
However, it remains to be seen whether Biden and his party will be able to promote the bill as one of their legislative victories and persuade voters that it will benefit them in the near future.
As inflation remains elevated and the Federal Reserve’s aggressive rate hikes push up recession risk, it might be a tough sell.