Biden’s Inflation Do-Nothing Act
On August 16th, President Biden signed into law the Inflation Reduction Act, which contained policy crucial to the Democratic party. However, amid an economic crisis where inflation continues to blaze, this legislation contained little to no provisions for curbing inflation.
Rather, the Inflation Reduction Act advanced climate policy, corporate tax raises, pharmaceutical price changes, and IRS funding. The Democratic Party finally had the chance to bring these policy goals into law, marking a major win for the Biden Administration politically. However, not addressing inflation in this law as well as increasing the corporate tax rate to 15% (and stock buybacks by 1%) shows a lack of urgency about the current economic situation of the country.
Critics claim that a corporate tax hike will worsen inflation, as it harms new investments from corporations. Historically, however, corporate tax rates and inflation do not affect each other in any meaningful way. Although this raise does not hurt industry, it demonstrates the Democratic Party’s willingness to choose platform over present economic problems.
Climate concerns undoubtedly increasingly affect Americans. Tax credit programs are a slow yet efficient solution to addressing climate change. Biden’s corporate energy investment through this program definitively will help reduce carbon emissions nationwide. While this policy is applaudable, Democrats will pay for not combating inflation in the midterm elections. Investing $370 billion into energy is a hard justification to make to the American public who see tangible effects of inflation on their grocery and gas receipts.
Other provisions, like the pharmaceutical drug price reductions, will not go into effect until 2025. These price reductions apply almost exclusively to Medicare recipients and they work by forcing the government to negotiate pricing with pharmaceutical companies. This change will save both the government and Medicare recipients money in the long run.
This effect brings up a crucial policy question: should politicians prioritize the platform they run on, or the issues facing the country? Of course, in this case, there is some overlap between the two, but Biden seems to have doomed Democrats in the coming midterms.
The substance of the Inflation Reduction Act indubitably helps Americans in the long term, but not in ways that are tangible or re-electable in the present. This type of misnomer in legislation is common, with politicians using the names of bills as political posturing on different issues. However, the difference between this bill and other misnamed bills, like the Republican-sponsored REPEAL Act in 2011, is that inflation is both tangible and quantifiable. By selling a bill that exclusively advances Democratic policies as an inflation quick fix, President Biden then assumes political culpability for the continuation of inflation.
In a midterm race that sees nearly 80% of voters identifying the economy as their number one issue this cycle, it seems that President Biden should have focused on addressing this issue. He released gas from reserves in October to help with gas prices, but, other than this move, he has largely left inflation up to the Federal Reserve.
Voters are desperate for an alternative solution to inflation, and the misnamed Inflation Reduction Act does not tackle that problem. They have expressed outrage at the Biden Administration for trying to change the subject to labor markets and climate concerns.
This concern is not contained to just the United States; European Union officials expressed discontent with the economic incentives outlined in the Inflation Reduction Act. They fear that some of the tax credit programs threaten European competitiveness, especially in the electric vehicle market. European officials claimed that they would cooperate with American representatives to revise the programs and ensure that both interests are protected. This recent message from the European Union shows some of the issues with the Inflation Reduction Act internationally. If a focus on American battery supply chains threatens America’s relationship with the European Union, it seems this policy could have been better implemented in foreign markets.
A more effective proposal that would satisfy voters and international collaborators would be to reestablish the Obama-era US-EU free trade agreement. This plan would both maximize American and European production without the harms of inflation. By decreasing barriers to trade, there becomes a more streamlined supply of goods, which lowers prices. As it seems apparent that inflation may be around longer than expected, restarting America’s relationship with the European Union makes logical sense, especially as China and Russia solidify their economic partnership.
A new law, such as the one described above, from President Biden, could calm down the current panic surrounding inflation. The previous legislation, although positive on the climate front, does not work towards alleviating the problems Americans face most. This policy position seems far removed from the actual realities of most people living within the country. Ignoring inflation through a legislative lens is a nonstarter; the Biden Administration needs to consider alternatives.
The Inflation Reduction Act needs to be rethought to capture the biggest concern of people in the United States. A climate bill is important, but choosing policy over present concerns is a problematic policy stance for Democrats and President Biden. Reimagining the US-EU trade deal could be the solution that Biden uses to curry back confidence in his handling of the economy.
Andreas Rivera Young is a Junior at Brown University, concentrating in Political Science and History. He is a staff writer for the Brown Undergraduate Law Review and can be contacted at andreas_rivera_young@brown.edu.