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  • Germinal G. Van

The Inflation Reduction Act Will Not Reduce Inflation



In July 2022, the 117th United states Congress proposed the passage of the Inflation Reduction Act, which aims to curb inflation by reducing national deficit, lowering prescription drug prices, and investing into domestic energy production. This bill was proposed by Democrat Senators Chuck Schumer of New York and Joe Manchin of West Virginia. The bill is projected to invest $300 billion in Deficit Reduction and $369 billion in Energy Security and Climate Change programs over the next ten years. The following table shows the topline estimates:


TOTAL REVENUE RAISED $739 billion

15% Corporate Minimum Tax 313 billion

Prescription Drug Pricing Reform 288 billion

IRS Tax Enforcement 124 billion

Carried Interest Loophole 14 billion

TOTAL INVESTMENTS $433 billion

Energy Security and Climate Change 369 billion

Affordable Care Act Extension 64 billion

TOTAL DEFICIT REDUCTION $300+billion


Table 1: Source: U.S. Senate


The major question to then ask ourselves is the following: where will the government get that money to afford all of this? Presently, inflation is considerably high, which indicates that ordinary Americans already have a significantly reduced purchasing power than what it was two or three years ago. With the price of goods and services being substantially high, consumers have begun to adjust their behavior to the current economic condition.

We are undeniably in a recession. A recession is a decline in the total output of a country in two consecutive quarters. However, the White House has attempted to first deny and then change the definition of a recession for political purposes. In times of recession, consumers spend less and save more. They save in the hope that the general price level of goods and services will fall to a reasonable level before they could start spending again.

If their purchasing power is already low, how adding taxes to this already-low purchasing power will improve the economic condition of ordinary Americans? It must be said that in order to meet the demands of this Inflation Reduction Act, the federal government will have to increase taxes on the middle-class and high-income earners. Otherwise, the Federal Reserve and the Department of Treasury will have to work together to borrow money for the government to raise cash. It means that the government will then have to print more money and printing more money will increase inflation and accentuate the national debt whereas one of the goals of the Inflation Reduction Act is to reduce national deficit.

Raising taxes on purchasing power that is already low will further impoverish consumers and businesses. Businesses are already earning less because of the recession, which will lead to major layoffs. Taxing businesses more will only further unemployment because more businesses will have to lay-off more people. To make ends meet, businesses will have to increase the price of their goods or services in order to make profit and pay their staff. Increasing the general level of the prices of goods and services when consumers cannot afford them is what leads to inflation. Let us not forget that it was Biden’s spending policies that accelerated the level of inflation, in addition to the stimulus checks. The Inflation Reduction Act is another policy to increase government spending when ordinary Americans cannot afford public expenditures in these recessionary times. But politicians do clearly not understand that using political power to address economic issues will only lead to more unintended consequences from which ordinary people will not benefit. The Inflation Reduction Act will benefit government because it will expand its authority over public spending, but it will not benefit the average consumer who is currently struggling to make ends meet.

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