House passes the Inflation Reduction Act passed
CHARLESTON — U.S. Sen. Joe Manchin’s Inflation Reduction Act passed the U.S. House of Representatives on Friday with local Republican House members being no votes.
And while the bill is on its way to the desk of President Joe Biden, tax and economic experts believe the Inflation Reduction Act will have little effect on lowering inflation in the short term.
The House passed the Inflation Reduction Act (IRA) in a 220-207 vote Friday afternoon along party lines with four members not voting, nearly one week after the U.S. Senate passed the bill 51-50 using the budget reconciliation process to avoid a filibuster by Senate Republicans.
The IRA included $437 billion in spending on new investments in clean energy, climate change mitigation, an extension of Affordable Care Act subsidies, and funding for western drought resiliency. It also includes $300 billion for reduction of the national deficit.
To fund these provisions, the bill includes $737 billion in new revenues, including a 15% corporate minimum tax on book revenue $1 billion or greater reported by corporations on financial statements to investors, a 1% fee on stock buybacks by corporations, prescription drug pricing reform, and funding to hire 86,000 additional IRS employees.
All three members of West Virginia’s Republican congressional delegation voted no on the IRA, as well as 6th District Rep. Bill Johnson, R-Ohio. Johnson, who will face Democratic opponent Louis Lyras in November, said the Inflation Reduction Act – coupled with previous spending in the $1.9 trillion American Rescue Plan Act and the $1.2 trillion Infrastructure Investment and Jobs Act — will prolong the recession many economists believe the nation is already in.
“Democrats’ out-of-control Washington spending coupled with a blatant attack on American energy have forced our economy into a recession after two straight quarters of negative economic growth,” Johnson said. “Naturally, the Democrats are now moving forward with their newest bill, the ridiculously named ‘Inflation Reduction Act,’ and they are ignoring the negative impacts this will have on hardworking Americans … This isn’t an inflation reduction bill – it’s a ‘pass everything we want now before we lose control of Congress’ bill.”
The IRA, the result of negotiations between Manchin, D-W.Va., and Senate Majority Leader Chuck Schumer, D-N.Y., is the latest version of the $1.75 trillion Build Back Better social spending bill that Manchin opposed last December. After asking for a pause in negotiations in July after the inflation rate rose to 9.1%, Manchin announced a deal with Democratic leaders in the Senate and House.
“As Americans are being crushed by forty-year high inflation, sky high prices for groceries and gas, and uncertainty about the economy, the Democrats’ answer is to spend more, tax more, and push their far-left priorities,” said 1st District Rep. David McKinley, R-W.Va. “The so-called ‘Inflation Reduction Act’ is merely their reckless ‘Build Back Better’ plan in sheep’s clothing.”
“This is a deeply partisan Democrat bill authored by Sen. Joe Manchin,” said 2nd District Rep. Alex Mooney, R-W.Va., who took out TV ads last week attacking Manchin and the IRA as he seeks the support for voters in November for the new northern 2nd District race against Democratic candidate Barry Wendell.
“Last year, economists warned that spending $1.9 trillion would inevitably lead to inflation. A year later and during a recession, Democrats want to raise taxes and increase government spending that will accelerate the inflation crisis created by President Biden,” Mooney continued. “Nothing in this bill will lower the costs of energy, groceries, or everyday items. This bill will make inflation worse, and it will deepen and lengthen the recession that we are in.”
Mooney cast a no vote Friday as a proxy for 3rd District Rep. Carol Miller, R-W.Va. Tatum Wallace, a spokesperson for Miller, said that the Congresswoman simply could not support the bill given its tax increases and other fees. Miller will face Democratic opponent Lacy Watson in November in the race to represent the new southern 1st District.
“… It is a laundry list of tax hikes and spending increases that will do nothing to lower inflation or provide financial relief for West Virginia families,” Wallace said. “It will increase inflation, raise taxes, stifle our energy producers, and worsen our recession. As families grapple with record high gas prices and costs of living, the Schumer-Manchin tax increase and spending package will kick them when they’re down.”
While “inflation reduction” is in the name of the bill, there is some question whether it can truly reduce inflation rates in the short-term.
According to the U.S. Bureau of Labor Statistics, the Consumer Price Index – used to determine the inflation rate – was 8.5% in July. That’s after rising to 9.1% in June — the highest rate of inflation since November 1981.
The Federal Reserve raised interest rates at the end of July by three-quarters, from 1.75% to 2.5%, in order to discourage demand – a time-tested way to bring inflation down. That’s after the Fed raised interest rates by two-quarters of 1% – from 1.25% to 1.75% — in May It is expected that the Fed will raise rates again in the next few months.
But the Tax Foundation, in an Aug. 10 update to its earlier analysis of the Inflation Reduction Act, believes that the tax provisions in the bill will have no effect on inflation while harming economic growth. According to their analysis, the IRA would reduce economic output by .02%, reduce employment by 29,000 full-time jobs, and reduce the amount of after-taxes income across all income brackets.
“By reducing long-run economic growth, this bill may actually worsen inflation by constraining the productive capacity of the economy,” the report’s authors wrote. “By increasing spending, the bill worsens inflation, especially in the first four years, as revenue raisers take time to ramp up and the deficit increases. We find that budget deficits would increase from 2023 to 2026, potentially worsening inflation.”
According to a Penn Wharton Budget Model (PWBM) analysis of the IRA released Friday, the IRA would only reduce inflation by .01% by the end of five years. PWBM is a project of the Wharton School of the University of Pennsylvania.
“We estimate that the Inflation Reduction Act as passed by the Senate would have a very modest impact on inflation over the next decade,” the report stated. “The Act produces some upward pressure on prices in 2023 and 2024, but its effects are too small to meaningfully affect measured the Personal Consumption Expenditures (PCE) inflation rate as reported by the Bureau of Economic Analysis.”
John Deskins, director of Bureau of Business and Economic Research at West Virginia University’s John Chambers College of Business and Economics, would not speculate on what the bill could do in the future without doing a full analysis, but he believes the best chance at reducing inflation in the near future is by letting the Fed do its job.
“The problem with inflation is now, and we need to make changes in the very near future to bring inflation down,” Deskins said in a phone interview Thursday. “To a large extent, I view the Fed as the group responsible for really needing to do the work to bring inflation down in the short term. And by short term, I mean over the next year.
“In defense of the bill, some of the things in there may help to lower costs over the long term,” Deskins continued. “But those are long-term fixes. The changes in the bill will take place over the next few years. They’re not going to impact this short-term problem with inflation that we see. It’s really a mismatch.”
During remarks on the House floor Friday afternoon, Johnson said the true goal of the bill was to burden job creators and fossil fuel producers for very little benefit for reducing the deficit or inflation.
“It’s a massive tax on American producers, American businesses, and American workers,” Johnson said. “It’s a tax on the American way of life.”