The law on reducing inflation triggers a partisan debate about what it will actually do

The Democratic Reconciliation Bill has both sides of the partisan division citing study after study to support or against the deal. The bill, known as the Inflation Reduction Act, aims to curb climate change, improve healthcare, raise some taxes and reduce the deficit.

The problem sometimes is that opposite parties are making their cases using the same data.

It’s not the first time that policymakers have handpicked data, but the back and forth has been overdone this week. The debate has created uncertainty about the deal’s impact as lawmakers prepare to start voting on the 725-page bill in the coming days.

“I think there is a lot of confusion about it,” Moody’s Analytics chief economist Mark Zandi said in an interview Wednesday. He recently co-signed a letter with over 100 fellow economists urging approval of the bill and attempting to clarify its provisions.

The deal grew out of a behind-the-scenes negotiation between majority-leading Senator Chuck Schumer (D-NY) and Joe Manchin (D-WV). Virtually no one expected them to unveil the 2022 Inflation Reduction Act, but the effort quickly spawned a slew of analyzes, many of which, of course, look at whether it will actually reduce inflation.

In recent days, Manchin in particular has been trying to sell the bill with new data coming in seemingly by the hour, acknowledging in a recent conversation on CNBC that “different people have different opinions.”

Here’s what the sometimes conflicting data shows on key questions.

So, will it reduce inflation?

The Penn Wharton Budget Model hit the effort hard by predicting that it would slightly increase inflation through 2024 and then reduce it thereafter. In total, the group says it has little confidence that it will impact inflation in either direction.

The Responsible Federal Budgeting Committee directly rejected Penn Wharton, while acknowledging that the Inflation Reduction Act would not slash inflation drastically.

“This bill will not get us from inflation of 9% to 2% to 3% [the target range for the Fed]Marc Goldwein, a senior director of the committee, told Yahoo Finance Live. Goldwein, who supports the bill, said he aims to “make the Federal Reserve’s job a little easier so they can fight inflation with fiscal policy moving in the same direction.”

WASHINGTON, DC - AUGUST 02: Senator Joe Manchin (D-WV) speaks to reporters outside his office in the Hart Senate office building on August 02, 2022 in Washington, DC.  Negotiations continue in the US Senate for the Inflation Reduction Act of 2022. (Photo by Anna Moneymaker / Getty Images)

Senator Joe Manchin (D-WV) speaks to reporters on Capitol Hill on Tuesday as negotiations continue on the Inflation Reduction Act of 2022. (Anna Moneymaker / Getty Images)

But the nuanced argument has prompted some of the bill’s opponents to cite economists who actually support the bill, including Moody’s Zandi. He also appeared in a recent Republican letter. The press release mocked the fact that “President Biden’s favorite economic forecaster” had also said the bill was “not a game changer by any means” during an interview on CNN.

In Wednesday’s interview, Zandi reiterated his support for the deal and said it was worth the cost. Asked Wednesday about being involved in the partisan back and forth, he said, “Well, to be honest … I didn’t pay any attention to that.” Instead, he took care of studying the bill itself.

NEW YORK, NY - OCTOBER 25: Mark Zandi, chief economist at Moodys Analytics, speaks on stage at the Yahoo Finance All Markets Summit on October 25, 2017 in New York City.  (Photo by Cindy Ord / Getty Images for Yahoo)

Mark Zandi, chief economist at Moody’s Analytics, speaks on stage at the 2017 Yahoo Finance All Markets Summit in New York City. (Cindy Ord / Getty Images for Yahoo)

Will it raise taxes on the middle class?

The bill directly raises funds in three areas: a new minimum tax on some companies, new money to help the IRS banish tax tricks and reduce the “interest rate loophole” favored by money managers.

However, an analysis by the Joint Tax Commission (JCT), requested by Republicans, has fueled a debate on whether the bill will actually increase costs for the middle class.

Republicans trumpeted the report’s conclusion that the Schumer-Manchin bill would indirectly lead to a tax increase of up to $ 16.7 billion on US taxpayers earning less than $ 200,000. In a speech, Senate Minority Leader Mitch McConnell (R-KY) quoted the group as saying the bill “shatters President Biden’s promise not to impact families earning less than $ 400,000. “.

In a controversial interview with Fox News on Tuesday, Senator Manchin called the claims “a pure and utter lie.”

Other supporters of the bill say the results are misleading. They point out that it does not directly impose new taxes on the middle class. While those proponents acknowledge that some companies may actually pass on the costs of their higher tax taxes, they say its overall impact on average incomes is positive.

And, of course, the proponents of the bill have a study that confirms this. The study, led by a group called Rewiring America, found that the bill could save the average household $ 1,800 per year on energy bills.

WASHINGTON, DC - JULY 28: United States President Joe Biden looks at Treasury Secretary Janet Yellen during a meeting on the US economy with CEOs and members of his cabinet at the South Court Auditorium of the White House on July 28, 2022 in Washington, DC, A.D.  During the meeting, President Biden received a note from an aide stating that the creation of useful semiconductor manufacturing incentives (CHIPS) for the America Act had received enough favorable votes in the House of Representatives to pass the legislation.  (Photo by Anna Moneymaker / Getty Images)

On July 28, President Joe Biden speaks with Treasury Secretary Janet Yellen during a meeting on the US economy with CEOs and members of his cabinet in the South Court Auditorium of the White House. (Anna Moneymaker / Getty Images)

Treasury Secretary Janet Yellen spoke Tuesday in a letter to lawmakers. The bill “would reduce or have no effect on the taxes owed or paid by any family with income less than $ 400,000,” she said.

He added, “The clean energy tax credits and expanded premium tax credit will reduce taxes for millions of Americans.”

How will it impact corporate America?

The Joint Tax Commission has also stimulated a debate on corporate tax. Schumer and Manchin aim to raise rates on companies that have made over $ 1 billion in accounting profits in recent years but pay less than 15% in taxes, increasing about $ 313 billion over the next decade.

A JCT report requested by Republicans claimed it would hit manufacturing companies hardest, with 49.7% of taxes falling on the manufacturing industry. The manufacturing industry itself has also sounded alarm bells about this fact.

The Democrats immediately dismissed it, arguing that JCT data actually shows the bill would not primarily affect US manufacturers, but would instead tax companies selling foreign-made products in America.

Half of the tax would be paid by “known tax evaders in the pharmaceutical and technology industries, as well as other outsourcers such as the apparel industry, where 97% of clothing sold in the United States is manufactured in factories overseas,” he wrote. Sens. Elizabeth Warren (D-MA) and Ron Wyden (D-OR).

WASHINGTON, DC - AUGUST 02: Senate Minority Leader Mitch McConnell (R-KY) speaks at a press conference following the weekly Senate Republican Caucus meeting on the United States Capitol on August 02, 2022 in Washington, DC.  At the press conference, Republican senators spoke about their dismay with the Inflation Reduction Act of 2022. (Photo by Anna Moneymaker / Getty Images)

Senate Minority Leader Mitch McConnell (R-KY) and other opponents of the Inflation Reductio Act speak at a press conference in Washington on Tuesday. (Anna Moneymaker / Getty Images)

Meanwhile, economist Douglas Holtz-Eakin said the corporation tax could dissuade oil companies from increasing production because this could increase their profits and make them eligible for the new corporation tax.

Although lawmakers may say they are not trying to harm the fossil fuel industry, “that minimum tax on books is for them,” says Holtz-Eakin.

How much will the deficit really reduce?

The two sides are also discussing whether the bill would really reduce the deficit. Estimates range from about $ 305 billion to $ 248 billion over the next decade, making it one of Washington’s biggest efforts in decades to reduce the deficit.

On this front, the JCT provided optimistic estimates of how much the bill would reduce the deficit. Proponents of the bill also cited the group’s research showing that the bill would reduce overall federal spending by the end of the decade.

For his part, Zandi acknowledges that the political process means the bill is not perfect.

“If I had been king for the day and my only goal, without any political constraints, was to reduce inflation, I could have come up with a different law,” he said.

However, he stressed that the bill will cut costs for many Americans. Zandi added: “I thought it was a great effort.”

Ben Werschkul is a Washington correspondent for Yahoo Finance.

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