Claim: President Joe Biden’s administration has claimed that the Inflation Reduction Act will provide inflation relief to Americans.
Rating: This claim is MOSTLY TRUE. The Inflation Reduction Act does not seek to directly affect inflation by altering monetary policy, which is the role of the Federal Reserve Bank. Instead, it seeks to address some of the historical causes of inflation by tackling health care and energy costs. It also invests in renewable energy and energy manufacturing, which protects the United States from global events that affect energy supply and cost.
Passed by Congress and signed by President Joe Biden on August 16, 2022, the Inflation Reduction Act (IRA) of 2022 is a law that contains spending targeted at reducing inflation. This is done via a combination of deficit reduction, reducing the cost of health care, and improving energy security and independence while addressing the problem of climate change.
Overall, the bill raises $720 billion over 10 years through reduced drug costs, better tax enforcement, and new corporate taxes, while it spends $455 billion. The remainder of $264 billion would go towards deficit reduction.
What is inflation?
Inflation is the increase in prices, which occurs when the materials and labor that provide goods and services increase in cost. As the United States is the only country in the G7 whose economy has returned to pre-pandemic levels, American demand has increased more quickly than the global economy’s ability to produce supply. Things that contribute to inflation are low interest rates that encourage spending, as well as global events like the war in Ukraine that can affect the cost of commodities like fuel and food.
Since demand is high, Americans are willing to pay higher prices for the same goods and services that they paid less money for earlier. At the same time, companies have also been increasing prices to maximize revenue.
How the IRA reduces the deficit.
The most debated aspect of the Inflation Reduction Act is the projected $264 billion in spending targeted at reducing the federal deficit. The nonpartisan Congressional Budget Office and the Penn Wharton Budget Model (from the University of Pennsylvania) do not predict that the bill will increase inflation. In fact, the nonpartisan Committee for a Responsible Federal Budget predicts that the bill will reduce inflation primarily through deficit reduction.
The bulk of the revenue money from the Inflation Reduction Act will be collected by increasing taxes on corporations, as well as increased spending towards the Internal Revenue Service to pursue individuals and companies who are deliberately avoiding or underpaying their taxes.
How the IRA decreases health care costs
Both former President Trump and President Biden had a goal of giving Medicare the ability to negotiate better drug pricing, especially for drugs like insulin — which the IRA has now capped at $35/month, where the previous average was $54/month. The IRA also extends the Premium Tax Credit (PTC) of the Affordable Care Act so that households who are within 400% of the federal poverty act receive a tax credit to help pay for health insurance premiums. The cost savings from cheaper prescription drugs is estimated at $230 billion, while the cost of extending the PTC is estimated at $70 billion, with a net savings of $160 billion.
How the IRA addresses climate change
The Inflation Reduction Act contains $369 billion in funding for renewable energy technology, which provides the U.S. with a path towards energy independence and makes meaningful steps towards addressing man made climate change.
Tax credits for electric vehicles have been extended to include used vehicles. Additional incentives help homeowners pay for more energy efficient and money-saving appliances in their homes.
Methane, the second biggest contributor to climate change, is often released into the environment as a byproduct of oil and gas drilling as it leaks from the ground. New penalties will be aimed at encouraging these companies to control these methane leaks.
Tax credits promote the creation of more wind, solar, and nuclear energy sources, as well as manufacturing of advanced clean energy technology to better compete with China, who is the current leader in clean energy.
Energy uncertainty driven by conflicts across the globe have historically been a driver of inflation. For example, in the 1970s, inflation far beyond what we have seen in recent history occurred shortly after a 350% increase in the price of oil. Many economists believe that inflation was the direct result of this uncertainty in energy pricing as it directly affected the cost of producing and shipping goods.
These investments are projected to reduce U.S. greenhouse gas pollution to 40% lower than that of its peak emissions in 2005.
Will the IRA reduce inflation?
Inflation is a complex topic and can be caused by a variety of factors. For instance, increases in gas prices, considered an indicator of inflation, peaked at $5.02/gallon in June, but have dropped to $3.68 in mid September 2022, a 27% drop. Gold and copper, indicators of inflation and used as raw materials for many products, have also spiraled downward in pricing. The root causes of the inflation in the U.S. have been a combination of conflicts like the war in Ukraine, rapid economic recovery of the U.S., and the continued problems in the Chinese economy due to COVID.
While it is hard to point at specific policies beyond the monetary policy of the Federal Reserve in fighting inflation, protecting Americans from spiraling costs in health care and energy — while limiting the effect of global events on the US economy — can prevent inflation from rising to disastrous levels. For these reasons, Viet Fact Check concludes that the claim that the Inflation Reduction Act will reduce inflation to be MOSTLY TRUE.