Aug. 15 (UPI) — Though it was a year ago today when President Joe Biden signed the Inflation Reduction Act, experts say it’s still too early to feel its effect.
Since the president signed the act, inflation steadily has slowed, falling from a rate of 6.3% in August 2022 to 4.7% in July, according to the U.S. Bureau of Labor Statistics. But there is not an exact through line between the Biden administration’s policy and the average interest rate.
The act, one of Biden’s largest economic initiatives, includes provisions incentivizing climate efforts, clean energy investments and lowering the costs of prescription drugs.
Anne Villamil, professor of economics at the University of Iowa Tippie College of Business, told UPI that the Inflation Reduction Act is a long-term effort to point the economy in the right direction. While it is too early to measure whether its policies are successful, she said it is off to a good start.
“The big thing here is it is reversing a trend,” she said. “Since about 1965, the percent of total federal outlays on investment have declined from a bit over 30% down to about 10%.”
Federal outlays, described by Villamil, include investments in physical capital, research and development, education and training. Outlays are payments made by the federal government that were determined by appropriations accounts from federal lawmakers.
“I think the ‘Inflation Reduction Act’ was a nice title that was sold politically but the big thing is to get back to public investment,” Villamil added.
Clean energy programs
Among the biggest investments under the IRA is the direction of an estimated $369 billion toward clean energy initiatives. Programs such as the Powering Affordable Clean Energy program seek to make clean energy affordable and accessible. Meanwhile, an $8.8 billion rebate program incentivizes homeowners to upgrade to energy-efficient features within the home.
Private corporations and local governments also are incentivized for reducing their carbon footprint. These policies extend to an increased focus on electric vehicles with programs like the Clean Vehicle Credit. Biden’s goal is for 50% of all new vehicle sales to be electric vehicles by 2030.
The emphasis on clean energy and electric vehicles has been criticized by Republicans. Presidential candidates such as North Dakota Gov. Doug Burgum and former Vice President Mike Pence have said the policy will make the United States more reliant on other countries like China.
Republicans push back
Several of the Republican candidates, including former President Donald Trump, have said they would roll back Biden’s clean energy initiatives if elected in 2024.
Villamil said there is always some level of concern about how changes at the White House and beyond will affect ongoing programs, but she said she does not believe these aspects of the IRA will be undone.
“Policy matters and policymakers matter,” she said. “But the uptake on these various types of clean energy projects has been much greater than anyone expected. That means there’s a demand for this. If there’s public support, it will be more difficult to undo.”
She added that the increased frequency of extreme and unpredictable weather events around the world have made it clear that climate initiatives will continue to be important in the future.
The IRA also allocates about $80 billion to the U.S. Internal Revenue Service over the course of 10 years. This funding, along with new tax enforcement policies, was estimated by Senate Democrats to generate $124 billion in revenue. Another $313 billion in revenue is estimated from a 15% corporate minimum tax.
The Republican-led House passed a bill in January that would rescind the additional funding for the IRS. It must next pass the Senate to be signed into law. Biden undoubtedly would veto the bill if it reaches his desk.
Inflation in U.S. vs. abroad
While Biden has been taken to task by political opponents and pundits over inflation, its impact has not been as severe in the United States as abroad.
“The U.S. economy particularly, relative to lots of other economies that are experiencing this, has actually come through quite well,” Villamil said. “My concern is much more about the geopolitical shocks right now. Not things related to what the Fed can control. Big shocks coming from China, issues with Russia and its effect on energy prices.”
As inflation has slowed, Federal Reserve Chair Jerome Powell has observed in recent months that trademark indicators like increased unemployment have not increased. The Fed has maintained a target 2% rate of inflation as it has repeatedly increased interest rates over the last 16 months.
July’s unemployment rate was 3.5%, according to the BLS. An estimated 5.8 million were unemployed and 2 million unemployment insurance claims were filed.
The Biden administration estimated that clean energy initiatives would create about 9 million new jobs.
Public understanding, public investment
Villamil again said it is too early to see this come to fruition, but she is encouraged by inflation taming while unemployment remains low. She said it is becoming less likely that there will be a “serious disruption in the labor market” as the economy cools.
All said, her only real criticism of the Inflation Reduction Act is the name being somewhat misleading.
“I’m not seeing any missteps other than I don’t think people really understand what the Inflation Reduction Act really was,” she said. “It was a set of policies that the Biden administration felt it could get through politically to undertake more public investment.
“Inflation is coming down — but I don’t think that is related to this bill,” she continued. “It makes it hard to see the success of the bill, but the biggest thing is the fact that it is an investment in the long-term process. That means we’re not going to see the results in one year or even two years.”