The Inflation Reduction Act will be America’s first significant climate law and a cornerstone of President Joe Biden’s domestic agenda
twisting path through Congress, complete with detours, delays, side-deals, disappointments and a fair amount of deceit, the Democrats are on the verge of passing a giant tax-and-spend bill. It will be America’s first significant climate law and a cornerstone of President Joe Biden’s domestic agenda. A dizzying set of tweaks was needed to keep centrist hold-outs within the Democratic Party on board, allowing the bill, seemingly dead two weeks ago, to come back to life.
Contrary to its name, the “Inflation Reduction Act” will do next to nothing to reduce inflation. The Congressional Budget Office, a nonpartisan scorekeeper, reckons that prices will be somewhere between 0.1% higher and 0.1% lower in 2023 than they would have been without the bill. In the longer term some measures may restrain inflation , whereas others may nudge it up . The name of the bill is a transparent attempt to sell it to a public that is worried about soaring prices.
Its provisions are a shadow of what Democrats once dreamed of as the signature piece of legislation from their triple control of the presidency, the House and the Senate. This time last year they were aiming for a $3.5trn package that would have dramatically expanded the American welfare state and raised taxes on the ultra-rich. But they received no Republican support and their ambitions were whittled down by their two main internal opponents.
The original package, which featured everything from free preschool to more funding for dental care, may well have been too much for America to swallow all at once, politically and financially. But some successful policies were cast aside in the process. The extension of a monthly payment to families, temporarily implemented in the wake of covid, had cutSome of the ugliest compromises were over taxes.
Ms Sinema, however, rejected all such proposals. So the Democrats settled on a new 15% minimum tax on the profits of corporations with more than $1bn in annual income, as declared in their financial statements. Subjecting big companies to a basic minimum tax is an appealing idea. But levying it on their financial, or “book”, incomes will make a messy American tax system even messier. Financial statements are subject to a different set of rules from income as reported to tax authorities.