[This piece has been published in Restoring America to highlight how the Biden administration’s economic policies will do little to curb the inflation crisis].
Earlier this month, President Joe Biden signed the Inflation Reduction Act (IRA) into law, creating tax cuts and spending on energy, climate, and healthcare. Despite the name, reports from Penn’s Wharton Budget Model and others suggest that the legislation won’t prove to be especially disinflationary. And a new analysis from the Committee for a Responsible Federal Budget suggests that any gains would be completely offset even by a modest student loan cancellation event, expected to be announced by the White House any day.
Their analysis indicates that even extending the current pause on student loan repayment (in place since former President Donald Trump enacted it through executive action at the onset of the COVID-19 pandemic) through the end of the year would cost as much ($20 billion) as the deficit reduction achieved from the first six years of the IRA. To be fair, most of the gains on inflation from the IRA are expected in later years. If the White House were to enact an executive order canceling $10,000 of student debt for every borrower with household income under $300,000 (or individual income under $150,000), which has been rumored to be the forthcoming policy, it would undo 10 years of the deficit reduction from the IRA.
The truth is that student loan cancellation likely won’t be hugely inflationary. Putting new dollars in the hands of American consumers can only increase demand, which is necessarily inflationary, but the scale and nature of student loan cancellation mean the effect will be modest. But that reveals another ugly truth: that the IRA isn’t especially disinflationary, despite its branding.
In sum, these policies suggest that Democrats, currently holding both houses of Congress and the White House, aren’t showing much commitment to addressing inflation through fiscal policy.
While last month’s data on inflation seems to suggest a slowing trend, we are by no means out of the woods. The Federal Reserve sits poised to continue raising rates at an aggressive clip. And yet it seems, as made evident by the recent passage of the IRA and the anticipated loan forgiveness through executive action, that Democratic lawmakers are more concerned with the political perceptions of their actions than on the actual economics.
This article originally appeared in the AEIdeas blog and is reprinted with kind permission from the American Enterprise Institute.
