A new report from the Wharton Business School is shedding more light on the President’s Inflation Reduction Act, claiming the legislation will actually increase inflation throughout the next 18 months.
On Wednesday July 27th, Senate Democrats released legislative text for the Inflation Reduction Act of 2022 to be passed under FY2022 budget reconciliation instructions. In this brief, PWBM offers a preliminary analysis of the budgetary and macroeconomic effects of the bill.
The Act provides for new spending and tax incentives related to the adoption of clean energy technology, both at the industrial and consumer level. It extends a temporary expansion of Affordable Care Act (ACA) health insurance subsidies for an additional two years. To offset these deficit-increasing initiatives, the bill implements a new minimum tax on large corporations’ book income, limits a tax preference for “carried interest” income, and reduces government outlays on prescription drugs through several pricing reforms. The Act also provides for additional IRS funding which PWBM estimates would increase revenue collections in excess of new outlays.
In addition to modeling the effects of the bill as written, we analyze an illustrative scenario in which the temporary extension of ACA subsidies is made permanent. PWBM will provide additional updates as the legislative text evolves over time.