The <a href="https://www.irs.gov/inflation-reduction-act-of-2022">Inflation Reduction Act</a>: A Closer Look

The Inflation Reduction Act: A Closer Look

Introduction

Even President Joe Biden has expressed some regrets about the name of the Inflation Reduction Act. However, as the law celebrates its first anniversary, it becomes evident that its primary focus was not immediate price reduction. While there has been a decrease in inflation from 9% to 3.2% over the past year, economists agree that this drop cannot be attributed to the law. So, what exactly is the purpose of the Inflation Reduction Act?

Growing the Economy

President Biden recently acknowledged that the law is more about generating economic growth than reducing inflation. As a result, the law aims to provide alternatives that will stimulate economic expansion. Although it may not have directly curbed inflation so far, experts believe that it has the potential to lower electricity bills in the future.

Minimal Impact on Inflation

Economists, such as Jason Furman from Harvard University, struggle to identify any mechanism within the law that would have reduced inflation. They assert that other factors have been responsible for the decrease in inflation over the past year. Similarly, Alex Arnon, an economic and budget analyst for the University of Pennsylvania’s Penn Wharton Budget Model, agrees that the Inflation Reduction Act had little to no impact on the inflation rate.

The Name Game

The name of the law, although misleading, was fitting for the political climate at the time. Proposed after a period of skyrocketing consumer prices, the Inflation Reduction Act seemed like a relevant and necessary solution. Democratic Senator Joe Manchin and Senate Majority Leader Chuck Schumer came up with the name once they reached an agreement on Biden’s agenda. The law now forms a crucial part of Biden’s campaign strategy for the 2024 presidential election.

Shifting Focus

While inflation is no longer a pressing concern, the president is now placing more emphasis on the law’s provisions aimed at combating climate change, creating jobs, and reducing healthcare costs. Biden recognizes that the law’s true purpose lies in providing affordable alternatives for meeting basic needs and generating economic growth.

Potential Future Impact

Although the Inflation Reduction Act did not have an immediate impact on inflation, its implementation is just beginning. Alongside the CHIPS Act, the law has already stimulated approximately $500 billion in corporate investments for new factories. This has helped strengthen the job market and counter the anticipated recession caused by inflation.

Factors Influencing Inflation

While the Inflation Reduction Act cannot be credited with the decrease in inflation, economists have identified three significant factors that have contributed to this decline:

Oil and gasoline prices fell from their peak levels last year.
The Federal Reserve aggressively raised its benchmark interest rate, reducing borrowing and slowing down price increases.
Supply chain issues that arose during the pandemic have been resolved, leading to a decline in shipping costs.

The Administration’s Role

Republican lawmakers and some economists initially blamed the administration’s $1.9 trillion pandemic relief for high inflation. However, the impact of this relief on inflation has now diminished. Biden administration officials argue that their actions have contributed to lower inflation. By releasing oil from the U.S. strategic reserve and improving port activity and supply chains, they claim to have alleviated financial burdens and facilitated lower gas prices.

Cost Savings and Benefits

While the law may not have single-handedly reduced inflation, it does offer cost-saving measures and benefits to the public:

tax credits reduce the cost of installing rooftop solar panels by 30%, resulting in lower monthly electricity bills.
Installing a heat pump to control a home’s central air becomes more affordable with tax credits, potentially reducing energy bills by $1,000 annually.
tax credits are available for energy-efficient doors, windows, and new insulation.
Electric utilities utilizing tax credits for renewable energy will pass on approximately $8.2 billion in savings to their customers.
Consumers can offset the cost of purchasing a new electric vehicle with a $7,500 tax credit.
The law also includes measures related to healthcare, such as capping the monthly cost of insulin for Medicare recipients at $35 and implementing a $2,000 limit on…

Read More of this Story at www.ny1.com – 2023-08-13 15:04:00

The Inflation Reduction Act Failed to Lower Inflation