Is the Inflation Reduction Act a win for the Democrats?

The law is designed to reduce not only inflation but also carbon emissions and prescription drug costs

Joe Biden
Joe Biden can now present himself as a president ‘able to get things done’
(Image credit: Oliver Contreras/Bloomberg via Getty Images)

The passing by the Senate of a $750bn bill to tackle climate change, healthcare issues and soaring inflation is being heralded as a major victory for Joe Biden’s party ahead of the November mid-term elections.

The Democrat-endorsed Inflation Reduction Act represents “the largest climate investment in US history”, said CNN. The “sweeping” package is also designed to cut prescription drugs and to tackle soaring inflation by reducing the federal deficit by $300bn.

The product of “painstaking” negotiations, the act is expected to pass in the House of Representatives on Friday, the broadcaster added – and gives the Democrats the chance to “achieve major policy objectives ahead of the upcoming midterm elections”.

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What would the act deliver?

Democrats have argued that the act “will tackle voters’ main economic concern”, but Republicans insist the new spending will simply “aggravate inflation”, said NPR.

The non-partisan Congressional Budget Office has said the bill would have a “negligible” effect on inflation in 2022 and into 2023.

The bill would also allow the federal health secretary “to negotiate prescription drug prices with pharmaceutical companies”, said The Guardian. Insulin prices for Medicare patients would be capped at $35 a dose and expiring healthcare subsidies would be extended for three years.

But the planned measures won’t “impact every prescription drug or every patient”, said NPR, and “won’t take effect quickly”, starting with ten drugs covered by Medicare from 2026 and expanding to 20 drugs by 2029.

While the bill’s likely impact on inflation and healthcare problems are a matter of debate, plans to invest $370bn in clean energy and climate package mark the “biggest victory for the environmental movement since the landmark Clean Air Act”, according to CNN. Experts have estimated that the bill’s provisions will reduce US carbon emissions by up to 40% by 2030.

A domestic win for Biden?

Overall, the bill “is a very scaled-down” version of a $3.5trn proposal put forward by Biden and his party last year, said NPR.

But the bill still “delivers a much-needed domestic win” for Biden at a time when his “popularity has sunk”, said The Guardian. He “can now go to the polls and portray himself as a president able to get things done even in the difficult political circumstances of a deeply divided country”.

The hotly debated economic impact of the bill, and how that plays out with voters, remains to be seen though.

Tackling healthcare costs and boosting green energy may a “priority”, but it seems “disingenuous to claim that what makes up this bill will have a deflationary impact”, wrote Kate Andrews, The Spectator’s economics editor, in The Daily Telegraph. The “handouts” included are likely to “fuel inflation”, and “other aspects of the bill will work against economic growth”, she argued.

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