The Inflation Reduction Act: All for Nothing | City Journal
As the highly inflationary Inflation Reduction Act passes its first birthday, it s worth taking stock of its track record over the last 12 months.
First, in contrast with its name, the IRA hasn t done much to reduce inflation. Even President Biden agrees, now that political attention is focused elsewhere. It has nothing to do with inflation, Biden told donors recently, conceding what critics said all along. It has to do with the $368 billion, the single-largest investment in climate change anywhere in the world.
Economists know that policy should lean against the wind of the economic cycle, adding fiscal and monetary support when the economy is weak and has too little inflation, and removing that support when the economy is strong and experiencing high inflation. In that sense, with inflation recently running as hot as 9 percent, this was the worst possible timing over the last four decades for new fiscal money; if the IRA really aimed to reduce inflation, it would have removed fiscal money from the economy, not injected more.
True, the IRA has promised some reductions in deficits, but they re either backloaded into the second half of the five-year window (by which time, presumably, inflation will no longer be a significant concern), or they re hypothetical, as with the expectation that an increased IRS budget will bring in more revenues. Taxpayers have been disappointed in the past, receiving no better government performance in exchange for fatter budgets.
Second, not only did the IRA boost demand in an already-overheated economy; it also further distorted the supply side, worsening inflationary pressures. The original Congressional Budget Office estimate for the size of the IRA s environmental tax credits came in at just under $300 billion, but recently revised estimates from the Joint Committee on Taxation put that number over twice the original score. This newer estimate would wipe out all the net expected deficit reduction over the entire budget window.
The Inflation Reduction Act did not reduce inflation but probably increased it, thus confirming the old Washington wisdom of every piece of legislation doing the opposite of its title.