Finance

Democrats’ signature economic bill puts $200 billion toward deficit reduction: analysis

A sprawling Democratic economic package slated to pass Congress this week could contribute to more than $200 billion in cumulative deficit reduction, according to an analysis released by the Penn Wharton Budget Model (PWBM) on Friday.

The analysis estimates the latest iteration of the bill, which is poised to sail out of the House on Friday after passing the Senate last week, would reduce the country’s non-interest cumulative deficits by $264 billion over the next 10 years. 

The figure is $16 billion higher than a previous version of the bill, dubbed the Inflation Reduction Act, analyzed by the PWBM late last month, following changes made to tax provisions of the plan intended to raise revenue ahead of its passage in the upper chamber days ago.

The analysis found the bill would not have a “meaningful effect on inflation in the near term,” although it estimated the plan would help reduce “inflation by around 0.1 percentage points by the middle of the first decade.”

“These point estimates, however, are not statistically different from zero, indicating a low level of confidence that the legislation would have any measurable impact on inflation,” the analysis states.

However, Democrats have argued that the bill will have a positive impact on inflation, while also providing some relief to Americans with policies to reform prescription drug pricing by allowing Medicare to negotiate costs for some drugs. 

The analysis also found that most tax increases that would result from the bill would “fall on higher income households,” but not all of them.

“People alive today bear the burden of business tax increases in the form of lower investment returns and lower wages in the near term,” the analysis states. “However, future generations gain from the adoption of the Act, including positive gains to capital formation from reducing the debt as well as the increase in total factor productivity from reducing carbon emissions relative to baseline.”

“Second, current higher-income households bear a substantially larger share of the tax burden while future higher-income households also gain the most from the improved economy. In the long run, the Inflation Reduction Act leads to lower government debt, higher wages, higher total factor productivity and higher GDP,” the analysis finds. “Although older workers and retirees prefer current law, this growth leads to significant gains for younger households in all income brackets.”

Tags Inflation Reduction Act Penn Wharton Budget Model U.S. Congress
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