This week on Facing the Future: a Concord Coalition review of the flurry of recent Congressional action. Plus, we take a look at the latest economic numbers. As inflation shows signs of peaking (finally) and the job market looks as strong as ever, with more than 500,000 new jobs added in July alone. Joining me for this week’s program were Concord’s chief economist Steve Robinson and policy director Tori Gorman. The big news in Congress this week was the passage of major pieces of President Biden’s domestic agenda. After many twists and turns and months of fitful negotiations, Senate Democrats finally passed the Inflation Reduction Act, their version of the House-passed Build Back Better legislation.
The Senate’s version is much smaller than the original House legislation. It would spend approximately $740 billion to help reduce prescription drug prices for Medicare beneficiaries, preserve affordable health insurance through Obamacare marketplace exchanges, and invest in clean energy technologies to help address climate change. In addition, the bill includes tax increases on large corporations to offset these costs and reduce future budget deficits. In our statement following Senate passage of this bill we welcomed the deficit reduction goals of the legislation, but expressed concern that the back-loaded nature of the savings may means they never materialize (much like the Affordable Care Act, or ACA, ‘Cadillac Tax’).
“For the very first time in history, government will be able to negotiate prices on up to 10 of the most ‘high expenditure’ prescription drugs in Medicare,” said Gorman. “The good thing about that is that it’s going to save money. It’s going to slow the growth of Medicare. There’s a lot of concern, froth, and misinformation out there about how this is going to cut Medicare for beneficiaries, that’s not what this does. This saves the Medicare program money because it won’t be spending as much on the same prescription drugs that people get today. The bad news is that this program doesn’t start until 2026.”
The bill also extends for three years an expansion of federal subsidies for health insurance coverage first approved at the start of the COVID-19 pandemic to participants in the ACA state-level exchanges.. In addition to the health care provisions in the legislation, it also contains the largest federal investment to date - nearly $370 billion - on measures designed to address climate change, including billions of dollars in tax incentives meant to encourage the use and purchase of clean energy technologies, such as electric vehicles and solar energy panels on a wide scale.
Gorman says the other good news about this bill - unusual for Congress these days - is that the bill would reduce projected deficits. A preliminary estimate prepared by the Congressional Budget Office before a final round of amendments found that the bill could reduce the deficit by up to $300 billion over the next decade. Gorman says this is not huge in the big picture, but it is a start and a step in the right direction.
“There is now a new 15% alternative minimum tax on large corporations that will take effect in January of next year. That’s going to raise approximately $ billion over 10 years,” said Gorman. “There’s also a 1% excise tax on stock buybacks by publicly traded corporations, that goes into effect next year. Democrats also decided to invest in the IRS. If you’ve been paying attention at all, under Republican control of Congress and the White House they’ve really decimated the IRS and its ability to enforce our current tax laws. So Democrats are making a down payment of $80 billion in trying to re-right that ship, to get the IRS back to where it was, and help the IRS collect the revenue that is owed to the federal government under current law, and that’s expected to generate about $200 billion over 10 years.”
Whether or not the so-called Inflation Reduction Act will have any impact on inflation is dubious at best, notes Concord’s chief economist Steve Robinson. The U.S. is a $25 trillion dollar economy–the Democrats’ bill is simply too small to move the needle on inflation.
Looking at the latest economic numbers, inflation seems to have cooled in July, with year-to-year consumer prices showing an increase of 8.5%, which is down from the June figure of 9.1% but still high. Robinson says these figures - combined with a very strong jobs market - may show some signs of hope, but also makes the next move combating inflation more tricky for the Federal Reserve.
“The speculation is ‘well maybe inflation has peaked and maybe the Fed can take its foot off the brake’,” said Robinson. “The Fed’s been raising interest rates. They raised it three quarters of a percentage point last time, and there was speculation that they’ll have to do a similar increase the next time, and now people are saying ‘well inflation’s come down so maybe the Fed can back off’ so maybe we’ll only see a half a point increase the next time. But these numbers are really fluid and it’s hard to decide that in fact inflation really has peaked and it will continue to come down. It very well could, but it’s too early to tell.”
Hear more on Facing the Future. I host the program each week on WKXL in Concord N.H., and it is also available via podcast. Join my guests and me as we discuss issues relating to national fiscal policy with budget experts, industry leaders, and elected officials. Past broadcasts are available here. You can subscribe to the podcast on Spotify, Pandora, iTunes, Google Podcasts, Stitcher, or with an RSS feed. Follow Facing the Future on Facebook, and watch videos from past episodes on The Concord Coalition YouTube channel.