The Inflation Reduction Act Won't Meaningfully Address the Budget Deficit
Congress has added $2.4 trillion to the long-term deficit since President Joe Biden took office. Now they want credit for reducing the deficit by $300 billion?
If the House of Representatives follows the Senate's lead and passes the Inflation Reduction Act, it would become the first major piece of legislation to have even a small positive impact on the federal budget deficit since President Barack Obama was in office.
But don't go popping those champagne corks just yet, deficit hawks.
The Inflation Reduction Act—which, notably, won't reduce inflation, but that's another story—cleared the Senate on Sunday with a 51–50 vote (Vice President Kamala Harris provided the tie-breaker). The bill includes an estimated $650 billion corporate tax hike and directs about $300 billion of that new revenue toward deficit reduction over the next decade, a key priority for Sen. Joe Manchin (D–W.Va.), who negotiated the package with Senate Majority Leader Chuck Schumer (D–N.Y.).
Within the context of the federal government's wildly out-of-whack budget, however, the promised savings from the Inflation Reduction Act are tiny at best—and that's only if those savings actually materialize, which they might not.
Start by comparing the bill's promised deficit-reduction efforts with how other recent efforts by Congress and the Biden administration have inflated the budget deficit.
When looking at the impact of legislation on the federal deficit, projections always take into account the next 10 years of federal spending and expected revenue—in other words, that $300 billion reduction created by the bill is the expected total amount over the next decade. That sounds like a lot of money—and it is!—but it looks a lot smaller when you stack it up against other bills Congress has passed in recent years. According to the Congressional Budget Office (CBO), the 10-year deficit has increased by about $2.4 trillion since President Joe Biden took office, thanks to items like the American Rescue Plan, the bipartisan infrastructure package, and this year's budget omnibus bill.
So, rather than looking at the Inflation Reduction Act as a $300 billion reduction of future budget deficits, it's probably more accurate to describe it as a plan to actually pay for about $300 billion of the estimated $2.4 trillion that Congress has agreed to borrow in the past 18 months.
In short, we'd still need seven more bills like the Inflation Reduction Act just to cover the rest of Biden's spending binge—and that's before we start trying to pay for the rest of the $6 trillion in borrowing that Congress did during the COVID-19 pandemic.
The actual math is likely to be even bleaker since a good bit of that $300 billion in deficit reduction is tenuous at best. Much of it won't arrive for several years, according to an analysis by the Committee for a Responsible Federal Budget. By then, it's likely that future run-of-the-mill spending increases or new initiatives like a student loan forgiveness program will have swamped whatever small relief results from this bill. If Congress decides to permanently extend the expanded Obamacare subsidies created during the pandemic, for example, it will end up costing about half of the supposed savings created by the Inflation Reduction Act.
If you want to see the really big picture, stack up the bill's supposed savings against the real drivers of the federal budget deficit in the next few decades: America's creaky entitlement programs. Social Security is set to run a $2.4 trillion deficit over the next decade years. Medicare will be $578 billion in the red over the same period.
Yes, $300 billion is a lot of money, but in the context of America's fiscal problems, it's actually not very much money at all.
"With or without this bill, deficits are going to be a trillion [dollars] per year," points out Chris Edwards, an economist at the libertarian Cato Institute. "Even under the best circumstances, this would reduce the deficit by $50 billion per year, starting five years from now, but we'd still be running trillion-dollar deficits from all the regular stuff the government does."
The bill's narrow Senate passage almost certainly doesn't foreshadow an oncoming rush of fiscal sanity in Washington. Instead, it's probably better understood as an indication of how a year-plus of runaway inflation has spooked lawmakers and slightly changed the political calculus around budgeting in Congress.
"We may soon look back on the 2009–2021 period as the era of 'free-lunch economics,' when hubristic politicians and economists declared that traditional fiscal and monetary trade-offs no longer existed in any meaningful form," wrote Brian Riedl, a senior fellow at the conservative Manhattan Institute and a former Senate budget committee staffer, in City Journal two months ago. With annual budget deficits well over $1 trillion for the foreseeable future and inflation spiking as a result of government stimulus, Riedl writes, "The 'free-lunch' experiment has collapsed."
In that sense, the passage of the Inflation Reduction Act probably matters more as a political signal than a fiscal one. Democrats read the polls, realized that Americans now say inflation is their top political concern, and rebranded their latest major piece of legislation as a response to that problem. It doesn't mean the incentives for higher spending and more borrowing are gone, but the political barriers to "free-lunch" fiscal policy have been raised ever so slightly.
On one hand, the Inflation Reduction Act signals a significant break with the recent, bipartisan trend of higher spending funded by more borrowing and higher deficits.
But in the context of America's $30 trillion national debt and the expectation of swelling budget deficits in the next few years, it is barely even a single step on the road to fiscal responsibility—and there's a long way to go.
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No shit, you don’t address inflation through even bigger government spending.
Seems obvious at face value.
to be fair it’s the borrowing that adds to the inflation. If they had somehow repurposed existing spending it wouldn’t increase inflationary pressure.
It’s borrowing MORE to spend MORE that is the issue.
Technically correct, the best kind of correct!
Yes, but what if we tried spending even more money?
but the Dems aren’t spending more money, they’re investing it! and saving the planet! and creating 87,000 new high paying jobs with good benefits (at the IRS)!
According to Progressive Econ 101, there’s some amount of borrowing at which existing debt will simply vanish, some point at which inflation will get high enough to benefit the poor more than it does the wealthy, and in the 201 class they’ll explain why there’s no direct or indirect connection between spending and deficits (as long at the money is spent on increasing public economic dependence on the State).
In the advanced classes, it’ll be explained (possibly by Robert Reich himself) how destruction of existing wealth is the key to prosperity and why every historical example seeming to prove that such policies don’t create the results that are promised is somehow the fault of market forces.
my strategic vote will be cast and I will watch it all burn while I write articles.
My tactical mail in votes will cancel your ‘strategy’ many times over.
Just remember….Boehm the Birdbrain reluctantly voted for Biden.
Boehm….This shit is on people like you who voted for POTUS Biden.
And the 15% corporate minimum tax will likely result in less reinvestment, less innovation, fewer pay raises, and more off shoring profits. Which all results in economic stagnation, and will probably never raise the amount of money they state it will (tax raised never do) and likely will result in depressed personal income taxes, so it will never raise the money they state it will (I’m also betting the new IRS funding will cost more than it ever recovers through stricter enforcement, because that’s how it always happens with the federal government).
And no, the global corporate tax system will never be adopted by everyone, some Caribbean or Alpine Country (or possibly African) will refuse to enforce it and suddenly every corporation will be based in those countries. It’s like shipping. There’s a lot of American Merchant Mariners worldwide, but very few American Flagged Shipping vessels anymore. Why? Because they get better deals by being flagged in other countries.
Let’s look at the numbers. Half the 87,000 new auditors (and it will take years to hire them) will be in audit/enforcement jobs. Let’s say that’s 45,000. Each one should be able to do 1 audit per day – not a big deal: taxpayer either provides the specific documentation on demand or she doesn’t. This might be providing a birth cert for a claimed dependent, or payroll records for a small business, or business dinner documentation. (Very few audits are “crawl up your ass” type audits.) So, 1 per day x 45,000 auditors x 200 days (have to account for vacay, sick, holidays, etc.) is 9,000,000 audits! And that’s about the number of returns every year from taxpayers earning +$200K. Now many of these taxpayers will have simple returns: W-2, 1099 match up to IRS records, take straight deductions, etc. so no need to bother them with an audit. IRS computers will kick out the hinky looking returns. Therefore the long arm of the IRS’ new agents is going to dip deep into the middle class, specifically small businessmen and independent contractors, waiters and other folks earning tips, cash-rich businesses like food trucks. Don’t forget to thank Dr. Jill’s husband when the IRS asks you to bend over and prove you don’t owe more money.
1 audit a day? Calm down Satan. This is government work we’re talking about here. That’s easily a whole week’s worth of work, maybe three.
LOL. As a trained auditor, I know I could complete the average audit in 8 hours total (not on same day, of course). The average government drone (but I repeat myself) probably does 10 or 15 per year.
Yeah, I’m going to have fun explaining to some overcredentialed urbanite who thinks that there are no more cows and milk And beef magical shows up at the supermarket that yes, my dog is ranch equipment and yes I should get to write off her vet bill as business expense.
Au contraire, mon capitaine, it will make a meaningful impact on the deficit, just in the wrong direction.
it’s probably more accurate to describe it as a plan to actually pay for about $300 billion
And this calculation counts on the new 87,000-strong army of IRS agents being able to squeeze more blood from the taxpayers than it costs to hire, train, arm, pay and and endow them with generous federal benefits that the taxpayers will be on the hook for (including their generous retirement and health care benefits 30 years from now).
“Congress has added $2.4 trillion to the long-term deficit since President Joe Biden took office. Now they want credit for reducing the deficit by $300 billion?”
Hmmm…. Sounds just like Buttplug and his/her claim that Obama fixed the deficit.. These people are full on retarded….
People aren’t naturally retarded.. They’re only retarded when they’re not being honest and that dis-honesty has to be motivated.
Democrats pack a lot of motivation for criminal minds. Use Gov-Guns to STEAL for me (be it personal or utopian dream-lands)!!! [WE] gangsters want to conquer the USA for Gov-Gun dictation and theft (i.e. they like to call it “democracy”).
Of course it won’t. It is a spending spree bill, written by Progressive Establishment Democrats. Even if they believed that reducing inflation was desirable (and this isn’t clear to ME), the Progressive Establishment has demonstrated for something like a century that they have next to no grasp of how an economy actually works. Their economic (and Social, and what-have-you) planning has been a long litany of failure.
The only ways to avoid the budget deficit, while avoiding inflation, are: (1) throw millions of people into the streets without housing, food, health care, or education, or (2) take back the Trump giveaways to the rich, and then actually RAISE taxes on the wealthiest people and businesses. And I am not talking about raising the tax rates on the wealthy, which accomplishes little. I am talking about getting rid of all the special-interest loopholes that allow multi-billion dollar corporations to avoid paying taxes, then get government-paid subsidies on top.
Trump raised the budget deficit in 4 years more than any president ever has in 8 years. He did this by having ordinary people pay to make up for what he and Republicans simply gave away to the rich.
Amazon Corp. has tens of thousands of heavy trucks causing wear and tear on roads and bridges. You, as an individual with one or two much lighter cars, pay more in federal aid to maintain roads and bridges than the entire Amazon Corporation. You pay that subsidy on top of the direct subsidies to Amazon that come straight from the US Treasury.
When storms cause destruction in Florida or Texas, or fires cause destruction in California or Idaho, or someone decides to clean up the massive pollution in the Great Lakes, you can be sure of one thing: you as an individual are paying more to do something about it than the entire Walmart and Amazon Corporations combined.
And yet somehow still didn’t topple Obama’s 1T deficit…
U2 have been eating up leftard propaganda.
The CARES Act (87% written pushed and complained about that it wasn’t enough by Democrats) is the ONLY Trump Presidency bill that makes his record look even comparable to Democrats. And since a Democrat thwarted it’s actual vote; no one will ever know how much Republicans actually supported it but we do know Thomas Massie (a Republican) was against it.
And out pops Biden and his full Democratic support for the ARPA bill only but a few dollars short of the CARES Act directly after the Cares Act.. Now there’s the Build Back Better Bill then etc, etc, etc… SPEND, SPEND, SPEND……
Anyone who pretends not to notice that Democrats are the party of SPEND, SPEND, SPEND are selling leftard propaganda.
As irresponsible as Republicans are, they’re mere amateurs compared to Dems. Dems also believe that they can tax rich people to pay for their follies. That’s cute. So innocent and naive.
It used to be amusing that these morons thought that you could borrow your way out of debt, but it’s deadly serious now and they show no signs of having learned anything from their past foolish errors.