The Inflation Reduction Act aims to tackle a range of problems from climate change to catching tax fraud, but there is one issue that cannot be solved: reducing inflation.

This is the conclusion of the Penn Wharton budget model, a group of economists and data scientists at the University of Pennsylvania that analyze public policies to predict their economic and financial impacts. Its analysis, published Friday, comes as inflation remains at a 40-year high, slashing the budgets of consumers and businesses alike.

The Inflation Reduction Act will invest nearly $400 billion in energy security and climate change proposals that aim to reduce carbon emissions by about 40% by 2030. This would allow Medicare to negotiate prescription prices with drug manufacturers, and limit out-of-pocket costs. Drug expenses for senior citizens up to $2,000 annually. The bill also directs $80 billion in funding to the IRS, intended to help the underfunded agency hire more auditors and strengthen its customer service and technology.

But the effect on inflation is “statistically indistinguishable from zero,” the Penn Wharton budget model said Friday.

The legislation, which passed the House of Representatives on Friday and is headed to President Biden’s table for signing into law, has broad goals, yet aims to tackle the underlying causes of inflationary pressures directly on everything from food to food. The cost is to push. Housing, economists predict. Still, the bill could help some Americans lower their health care costs through provisions for seniors’ prescriptions and another item that allows consumers to pay for some Affordable Care Act plans.

The Penn Wharton budget model isn’t alone in predicting that the Inflation Reduction Act will not affect inflation on average, with the nonpartisan Congressional Budget Office concluding last week that the changes will have “negligible effects on inflation this year and next.” “There will be an effect. However, the CBO expects the bill to help moderate inflation in subsequent years.

At the same time, the White House has trumpeted a letter signed by more than 120 economists, including several Nobel laureates and former Treasury secretaries, that highlights the long-term effects of the bill, saying it will “press inflation by reducing The government’s budget deficit over the next decade is less than an estimated $300 billion.”

In theory, a lower deficit could reduce inflation. This is because lower government spending and higher taxes, which help reduce the deficit, both reduce demand in the economy, lessening the pressure on companies to raise prices.

Feeling the Impact: Rich Americans

Even if the Inflation Reduction Act would not reduce inflation immediately, the bill would have many other effects in the Penn Wharton budget model, from reducing the government deficit to increasing the tax burden on wealthy Americans, businesses and shareholders. can be.

And Americans who haven’t even been born yet can benefit through lower carbon emissions, the analysis noted.

“Most, but not all, tax hikes fall on high-income households,” the analysis said. “However, future generations, including high-income households, benefit from a better economy, including a reduction in carbon emissions.”

The analysis found that the bottom 20% of Americans with income earners will face an average $5 increase in taxes next year. Overall, this group will bear just 0.4% of the tax burden from the Inflation Reduction Act.

But the top 0.1% of earners will bear the largest tax burden, with a typical increase of $61,520 next year. Overall, this group of wealthy Americans would bear 26% of the increased tax burden from the bill’s provisions, the analysis found.

The Biden administration has vowed that the bill would not raise taxes on households earning less than $400,000. The impact on wealthy families could come from a number of provisions, ranging from an increase in IRS agents targeting high-income families for audits to increased corporate taxes. The latter includes a new tax on share buybacks that will largely affect shareholders — or the types of wealthy Americans in the top income bracket.

The Penn Wharton analysis states that over the years, the Inflation Reduction Act should prove positive. “In the long run, the Inflation Reduction Act leads to lower government debt, higher wages, higher total factor productivity and higher GDP,” it said.

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