The Inflation Reduction Act Won’t Reduce Inflation

The recent attempt by Senate Democrats to push their social agenda through Congress takes Orwellian naming conventions to new heights. The anti-inflation law of 2022? You might as well add “world peace” and “global democracy” since the bill has about an equal chance of achieving those goals.

The bill includes a net $300 billion to reduce the deficit through higher taxes. In normal times, when inflation is around 2%, a tax hike of around 1.2% of GDP would put some downward pressure on inflation. However, since the deficit reduction is concentrated at the end of a 10-year period, only about a tenth of this reduction, 0.12% of GDP, would occur next year. The Inflation Reduction Act Won’t Reduce Inflation

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