Don’t Look for Inflation Reduction to Come from Capitol Hill


Democrats have christened their reconciliation bill, which is slated to hit the U.S. Senate floor this weekend, the “Inflation Reduction Act.”

It’s a serious bit of false advertising.

According to a new study from the Penn Wharton Budget Model at the University of Pennsylvania, the bill would have next to no impact on inflation.

Even that projection may be rosy. The bill’s massive tax hikes and lavish health insurance subsidies are among its many components that are more likely to drive up prices across the economy.

Take the corporate tax increases Democrats have proposed.

The reconciliation bill would extract about $315 billion through a new 15% minimum tax on corporations with more than $1 billion in profits.

They’re selling this provision as an attempt to force large companies to “pay their fair share.” But it’s a safe bet that corporations will just pass those tax increases along to consumers in the form of higher prices.

The bill’s expanded health insurance subsidies, meanwhile, will almost certainly drive up the price of coverage and care.

The reconciliation measure would extend until 2025 the enhanced premium tax credits enacted in March 2021 as part of the American Rescue Plan Act.

Absent action, they’re set to expire at the end of December 2022.

These subsidies guarantee that no American has to spend more than 8.5% of their income on exchange coverage through 2025.

The government will cover an even greater share of premiums for people who make less than four times the federal poverty level  $111,000 for a family of four.

These subsidies will insulate millions of people from the real cost of their coverage.

Insurers, in turn, will hike their premiums even higher, since the federal government will largely be picking up the tab.

Healthcare providers won’t be left out.

They’ve already cited high inflation as a reason to raise their prices.

Insurers won’t balk at those higher prices.

They’ll be able to pass them along directly to the government, thanks to the enhanced subsidies.

Democrats are marketing these subsidies as aid to consumers  and a way to expand access to coverage.

But the enhanced subsidies reduced the number of uninsured Americans by a mere 800,000 in 2021, according to the Congressional Budget Office (CBO). That’s out of an uninsured population of roughly 29 million.

Those subpar results were expensive. The enhanced subsidies’ two-year cost to taxpayers was $34 billion.

Then there are the bill’s price controls on prescription drugs, which ostensibly try to rein in inflation by fiat.

Consider its inflation rebate, which would penalize pharmaceutical companies for raising a drug’s price faster than the rate of inflation.

Drug firms will probably respond by setting prices for new drugs higher than they might have otherwise in order to avoid the penalty down the road.

The reconciliation package also threatens price controls for an escalating number of drugs starting in 2026. The CBO says that such controls would save the government roughly $100 billion over 10 years.

Those savings wouldn’t start for three years, though. Democrats propose to spend them in advance, in part on the inflationary enhanced subsidies.

How spending today in the expectation of future savings fights inflation is anyone’s guess.

That Democrats would name their reconciliation bill the Inflation Reduction Act is dishonest, even by the low standards of Washington politics.

Most of the reform package’s proposals would push the economy in the wrong direction.

At a time of such withering financial uncertainty, Americans deserve the truth.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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