A recent report by the Congressional Budget Office (CBO) shows that Senate Democrats’ proposed Inflation Reduction Act will raise the budget deficit within the next six years.
In the 10-year period between 2022 and 2031, the Inflation Reduction Act is calculated to reduce the budget deficit by $101.5 billion, according to the CBO report published on Aug. 3. However, in the first six years, between 2022 and 2027, deficits are projected to increase by $24.6 billion.
Except for 2023, the remaining five of the first six years are calculated to see an increase in deficits, with 2025 and 2026 projected to register more than $16 billion and $20 billion, respectively, in deficits.
The $101.5 billion deficit reduction predicted by the CBO is only approximately a third of the $300 billion in deficit reduction projected by the Democrats.
The agency expects an increase in funding for tax-enforcement activities to boost revenues. “The CBO estimates that as a result of those increases in outlays, revenues would increase by $204 billion over the 2022–2031 period,” the report says.
However, this potential revenue gain was not included in the calculation due to congressional guidelines. Some experts have criticized the $204 billion in projected tax collections, arguing that much of the revenue will come from middle-class citizens, with the wealthier taxpayers accounting for only a small percentage of it.
The $430 billion Inflation Reduction Act is a tax, climate, and spending bill that was introduced by Sen. Joe Manchin (D-W. Va.) and Senate Majority Leader Chuck Schumer (D-N.Y.) last week.
The bill is a priority for Democrats ahead of the upcoming midterm elections in November. As the Senate is split 50-50, Democrats are looking to pass the bill through reconciliation without Republican support.
Though the Inflation Reduction Act is being presented as a measure that will reduce inflation, Republicans have raised concerns over such claims. On Tuesday, for example, Rep.Jason Smith (R-Mo.) published a fact sheet revealing how the bill uses false sunsets and budget gimmicks to hide the real cost of the bill.
The Inflation Reduction Act calculates Obamacare subsidies for three years at $64 billion. But if the program were extended for 10 years, the total cost would come to $248 billion. The legislation sets up $369 billion worth of energy security and climate change programs.
Moreover, the bill might not even serve its purpose. “The Act would very slightly increase inflation until 2024 and decrease inflation thereafter. These point estimates are statistically indistinguishable from zero, thereby indicating low confidence that the legislation will have any impact on inflation,” an analysis by Penn Wharton Budget Model states.
Matthew Dickerson, director for the Grover M. Hermann Center for the Federal Budget at The Heritage Foundation, believes the act will worsen the current stagflation environment and push up prices higher for families.
“Unfortunately, the Inflation Reduction Act doubles down on the same irresponsible fiscal policy that has caused inflation: All of the new government spending is up front, while the deficit-reducing revenues are backloaded.”