Reactions to the Inflation Reduction Act

There’s a wisecrack attributed to the late, great Morrie Mages who for many years had a huge sporting goods store in Chicago. “These are sporting goods to sell not sporting goods to use’. There’s something about the much-touted Inflation Reduction Act of 2022 that reminds me of that wisecrack.

The editors of the Washington Post are delighted:

The deal President Biden and Senate Majority Leader Charles E. Schumer (D-N.Y.) had been laboring to strike for months finally passed Congress’s upper chamber on Aug. 7. The House of Representatives is expected to vote on Friday, yet the legislation’s fate is finally close to certain. The bill is obviously not Build Back Better — whose child tax credit, universal prekindergarten and broad-based tax hikes on the wealthy have all fallen by the wayside — but there is still a lot to like. But even the provisions that remain might not achieve everything their biggest boosters might hope.

o claim the Inflation Reduction Act will, on its own, transform the economy would be foolish. The Congressional Budget Office estimates that the proposal will change the inflation rate by less than one tenth of a percent over the next two years, and that’s in either direction. Even economists more sanguine about the bill’s effects believe its impact will mostly be felt further into the future. Similarly, the reduction to the deficit, whether the $300 billion over the next decade its drafters promise or the just over $102 billion the CBO expects, adds up to little in the grand scheme of trillions in national debt.

Note that the $300 (or $100) billion deficit reduction is over ten years which a quick back-of-the envelope calculation suggests is $30 (or $10) billion per year over the next 10 years and that’s assuming that its assumptions hold true. Have you ever looked at the assumptions of the Social Security Act of 1935, the Medicare and Medicaid Act of 1965, or the Patient Protection and Affordable Care Act? None of their assumptions have fared particularly well over time.

The editors of the Wall Street Journal are not nearly as happy, not the least because they don’t like tax increases. There is one passage which I would like to call out:

Our contributor Bjorn Lomborg looked at the Rhodium Group estimate for CO2 emissions reductions from Schumer-Manchin policies. He then plugged them into the United Nations climate model to measure the impact on global temperature by 2100. He finds the bill will reduce the estimated global temperature rise at the end of this century by all of 0.028 degrees Fahrenheit in the optimistic case. In the pessimistic case, the temperature difference will be 0.0009 degrees Fahrenheit.

In other words, the climate provisions in this ballyhooed legislation will have no notable impact on the climate.

Furthermore, at Joe Lancaster notes that the provisions of the IRA to subsidize electric vehicles only apply to vehicles that do not presently exist:

Currently, new electric vehicles (either hybrid or all-electric) qualify for a rebate of up to $7,500, limited to 200,000 rebates per manufacturer; Tesla and General Motors have hit the cap and no longer qualify. The new bill removes the cap, and it also introduces a $4,000 credit that can be applied to used EVs.

The bill also puts restrictions on which EVs can qualify. Starting in 2024, an EV that qualifies for the full rebate amount must source at least 40 percent of its battery’s components—including minerals such as lithium, cobalt, manganese, and graphite—from either the U.S. or a country with which the U.S. has a trade agreement. Also starting in 2024, no minerals can be sourced from a “foreign entity of concern,” such as China.

The stipulation was part of a compromise with Sen. Joe Manchin (D–W.Va.), whose support was critical to the bill’s passage. Manchin insisted that the bill take a hard line on China, telling reporters: “I don’t believe that we should be building a transportation mode on the backs of foreign supply chains. I’m not going to do it.”

But 60–80 percent of EV batteries’ mineral ingredients are controlled by China. That country currently produces 76 percent of the world’s lithium-ion batteries, while the U.S. produces only 8 percent. Despite ambitious plans to scale up, the U.S. and Europe together will likely account for only about a quarter of total global production of EV component minerals by 2030.

Not that any of this was news: Last week, Reuters reported that multiple automakers were complaining about the feasibility of meeting the bill’s timeline. Sen. Debbie Stabenow (D–Mich.), whose state includes the U.S. auto capital of Detroit, called it “a very cumbersome, unworkable credit once the full restrictions set in.”

Presumably, the intention is to subsidize completely U. S.-based supply chains for EVs. Unfortunately, those being offered the subsidies have little ability to effect that result. Maybe some enterprising souls will step forward to mine the necessary materials, refine them, and fabricate the necessary components in the hopes of reaching that market. IMO it’s more likely that the subsidies will just be given for purchasing vehicles that don’t actually comply with the regulations.

Supporters might say that at least it’s a start. Is it? Or will it just be repealed in the next Congress before any of the IRA’s provisions have taken effect? Maybe its intention is to move the “Overton window“, expanding the range of things that are politically possible. It could just as easily have the opposite effect.

In summary we have an inflation reduction bill that will not reduce inflation and a climate change bill that won’t actually do much to halt (let alone reverse) climate change. Returning to old Morrie Mages it’s an inflation reduction act to run on not an inflation reduction act to reduce inflation.

5 comments… add one
  • steve Link

    OMG, first ever bill out of Congress that does not really do what the title says.


  • Andy Link

    It’s not just the title steve…

    I’ll just get on my regular hobby horse and note that bills that come from secret negotiations among small groups of Senators or Representatives and thereby avoid committee processes tend to be bad. Not intentionally bad, but the federal government is complex, and politicians often don’t actually understand how to write a bill that will result in the ends they desire.

  • steve Link

    I largely agree with you but my point still stands. They put awful names on almost every bill. They really should be named stuff like “Another bill to make rich people richer” or “Another way to spend lots of money and reward people we like, maybe buy a vote or two”. Bills are always named with a political/marketing bent.

    I suspect that for this bill they took what had already been designed by committees and then just figured out to adapt it to get Manchin and Sinema to agree. it could have been worse. Suppose manchineel and Sinema supported the bill and they had to cater to the two most extreme senators to get their votes. (Forget any votes from the opposition.)


  • Drew Link

    I can’t bring myself to comment on such a ridiculous, insulting to one’s intelligence, bill.

    But it is good to know that the government is as inefficient as always: 87,000 new agents to solely chase 400 billionaires, armed to the teeth with tax accountants more skilled than the agents. Sounds logical.

    Sounds more like a union jobs bill, as the agents are unionized, and a way to launder campaign contributions back to Democrats.

  • steve Link

    If that were actually true I would agree with you.


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