Can the Inflation Reduction Act really cut U.S. inflation? (Global Hotspot)
According to US media reports, on August 12, the US House of Representatives passed the "Inflation Reduction Act" proposed by the Democratic Party with 220 votes in favor and 207 votes against.
The bill totals about $430 billion, covering climate, health care, tax reform and more.
Previously, the bill has been passed in the Senate.
In the next step, the bill will go into effect after being signed by US President Biden.
Since the beginning of this year, the cloud of high inflation has always loomed over the US economy, hitting new highs in more than 40 years.
The Inflation Reduction Act has been called "one of the most important pieces of legislation in the last decade" by some US politicians.
Some analysts pointed out that, from the analysis of its specific content and introduction process, there is still a question mark on the extent to which this bill, dubbed "inflation reduction", can be "true to its name".
"Old wine" in "new bottle"
According to US media reports, the "Inflation Reduction Act" is 755 pages long.
In terms of specific content, the bill will increase government spending by a total of $430 billion, while creating nearly $740 billion in fiscal revenue.
Among government spending, a record $369 billion was spent on tackling climate change, with a goal of reducing carbon emissions by 40 percent by 2030; $64 billion was spent on lowering the price of prescription drugs.
At the same time, the bill also authorizes Medicare to negotiate the prices of 100 drugs over the next 10 years in an effort to push prescription drug pricing reforms.
On the tax front, the bill would impose a 15 percent corporate minimum tax on large corporations, tax people earning more than $400,000, and spend $80 billion on improving the IRS' tax enforcement capabilities.
Democrats also added a tax on share buybacks in previous Senate negotiations.
The analysis pointed out that the main purpose of the Biden administration's introduction of the "Inflation Reduction Act" can be summarized as "one liter, one drop and one increase", that is, to reduce the federal government's fiscal deficit by "raising" taxes; reducing inflation by "lowering" medical costs Influence on some people; encourage the development of new energy and new energy vehicles by "increasing" subsidies to deal with the inflation problem caused by high oil prices.
U.S. Senate Majority Leader, Democratic Senator Chuck Schumer pointed out, "The introduction of economic legislation on addressing climate change and improving people's livelihood is a cause that the Biden administration has been advancing, but the process is difficult."
Although the "Inflation Reduction Act" is packaged by some Democratic politicians as a 'good recipe' to deal with inflation at the moment, in fact, the bill is nothing more than "old wine in a new bottle" and is the "Rebuild a Better Future Act" proposed by the Biden administration in 2021 "Shrinked Version".
Xiao He, an associate researcher at the Institute of World Economics and Politics of the Chinese Academy of Social Sciences, pointed out in an interview with this reporter that the initial version of the "Rebuild a Better Future Act" was worth as much as 3.5 trillion US dollars. Congressman Manchin was opposed by moderates in the Democratic Party.
In November 2021, the framework for a spending package shrunk to $1.75 trillion was approved in the Democratic-led House of Representatives but blocked in the Senate.
Later, Manchin publicly criticized the bill as being financially "irresponsible."
In July this year, as U.S. inflation continued to rise and the mid-term elections in Congress approached, the Democratic Party reached an internal compromise under pressure, and the bill was put back on the agenda after a facelift.
highlight political polarization
Statistics show that in the first half of this year, the US consumer price index (CPI) has remained at a high level and has shown an upward trend, reaching 9.1% in June.
In July, inflation eased slightly to 8.5%, but remains at an all-time high.
In the context of the urgent need to "cool down" high inflation, this "Inflation Reduction Act", which sounds like a direct hit, has not been echoed in Congress.
According to Reuters and other foreign media reports, when the "Inflation Reduction Act" was put to the Senate for vote, the agenda took nearly 27 hours, which can be described as a "marathon".
With Democrats and Republicans each holding 50 seats in the Senate, Democratic Vice President Harris, who also serves as Senate President, cast a key vote to break the 50-50 deadlock and eventually lead to the bill barely passed.
When the House of Representatives voted, with the Democratic and Republican parties accounting for 220 and 210 seats respectively, the bill was passed by a small margin of more than ten votes.
"Judging from the voting results, the "Inflation Reduction Act" highlights the serious political polarization in the United States, and the opinions of congressmen on the bill are obviously divided by party lines." Xiao He pointed out that in this political atmosphere, the Democratic Party proposed the bill. The bill has little cross-party support.
This means that in the Senate vote, Democrats must win the support of every member, otherwise the bill will "abort".
For some moderate Democrats who hold opposing views, the bill has made separate compromises.
According to comprehensive foreign media reports, Senate Democrats encountered a "speed bump" set by Republicans in advancing the "Inflation Reduction Act" package.
For example, Republican lawmakers have proposed an amendment to a provision in the legislation that would tax large corporations at 15 percent, hoping to exclude some private equity firms and all of their businesses from the levy.
In the end, the amendment was passed with the support of six Democrats including moderate Democrat Sinema.
Analysts pointed out that "compromise" is the background color of the "Inflation Reduction Act".
In a Senate vote, Democrats can only bypass the 60-vote requirement for a lengthy Senate debate and pass a proposal with full Republican opposition, only through what is known as a "budget adjustment."
Accordingly, this strategy requires absolute unity within the Democratic Party.
"On the whole, the Inflation Reduction Act is the product of the Biden administration's continuous blending, balancing, and compromise in the political jungle of Washington." A reporter from this newspaper pointed out that "the bill was renamed 'inflation reduction' for 'situation', and it also made major adjustments on clean energy, climate change, and tax issues, such as reducing clean energy funding and emission reduction projects, and extending the time for emission reduction planning. to ensure support from moderates within the Democratic Party, while giving an account to voters disaffected by inflation.”
Doubtful about the actual effect
After the "Inflation Reduction Act" passed the Senate "thrillingly", Biden posted on social media that the bill will reduce the prices of prescription drugs, health care and energy, which is "a victory for the American people and a loss for the privileged class."
Schumer, the main pusher of the bill, also praised: "The bill will be a 'turning point'."
However, it remains to be seen how much practical impact the bill will have.
Expert analysis believes that the bill cannot completely solve the current inflation in the United States, and is more like a "propaganda slogan" launched by the Democratic Party in response to the mid-term elections.
Diao Daming pointed out that there are certain political considerations for the Biden administration to launch the "Inflation Reduction Act" when the mid-term elections are approaching.
Democrats are trying to reduce the criticism and pressure from Republicans by giving a feedback on inflation, the issue that voters care most about.
However, this so-called "Inflation Reduction Act" is somewhat deceptive and confusing.
For example, the tax increase in the bill can increase the federal government's fiscal revenue, but it cannot directly promote the flow of funds into the real economy, stimulate the production of consumer goods, or effectively alleviate the imminent high inflation problem in the United States.
Even if tax leverage can shape some market behavior, it will be a long-term process.
Zhang Monan, deputy director and researcher of the US-Europe Research Department of the China Center for International Economic Exchange, analyzed in an interview with this reporter that at present, the US mid-term elections are approaching, and the Democratic Party does not have an advantage in the approval rate.
The Biden administration has pushed a series of bills in an attempt to add points to the election.
However, once the Democratic Party loses in the mid-term elections, Biden may become a "lame president", and his governance concept will be greatly constrained.
Whether the "Inflation Reduction Act" can actually be implemented and how long it can be implemented is currently unknown.
It is worth noting that the Inflation Reduction Act also makes provisions for the automotive supply chain: after 2023, vehicles using Chinese battery parts will not be able to receive subsidies, and certain key minerals from China will also face procurement restrictions.
The alternative is to phase in battery components from North America.
The Alliance for Automotive Innovation, a group representing major automakers, recently warned that under the bill, only cars assembled in North America are eligible for the discount, and once the bill goes into effect, most existing electric vehicle models will not receive the $7,500 tax credit.
The rule would jeopardize the U.S. goal of reaching 40% to 50% of electric vehicle sales by 2030.
Zhang Monan pointed out that the "Chip and Science Act" and "Inflation Reduction Act" recently passed by the United States are all making a fuss around the supply chain, trying to bring manufacturing back to the United States through these coercive means.
"In the name of 'cutting inflation', the U.S. is destroying the international division of labor based on comparative advantages, seriously damaging the global industrial chain and supply chain structure and the process of economic globalization. This will not only fail to solve the U.S. domestic inflation problem, but will also increase production costs. Further raising the level of U.S. and global inflation. Multinational corporations and markets vote with their feet, and artificial 'decoupling' and 'broken links' are irrational and ineffective."