US Senate approves $430 billion inflation reduction plan

A $430 billion climate, tax and health care bill passed the US Senate on Sunday after months of negotiations that ended in a marathon night of debate and amendment votes.

$430 billion US anti-inflation package

With 51 votes in favor, thanks to the casting vote of Vice President Kamala Harris, who is still a senator, the controversial bill strongly wanted by Biden and his Democratic party on climate, taxes and health care has passed. Contained in the bill are measures to combat climate change, a tax increase for large corporations and an expansion of health care coverage for the weaker classes.

The measure called the Inflation Reduction Act provides for $430 billion aimed at fighting inflation, investing in domestic energy production and reducing carbon emissions by about 40% by 2030. The bill will also allow Medicare to negotiate for prescription drug prices and extend the expanded Affordable Care Act program for three years, until 2025.

The bill must now pass the House where the Democratic majority is larger (220 versus 211 for Republicans) and its approval should be a foregone conclusion before it receives the signature for final approval from President Biden, who has already welcomed, via Twitter, the bill as a landmark event for the United States.

The Inflation Reduction Act won’t just be the largest investment in clean energy and American energy security in history.

It will be the largest investment in American manufacturing as well.

— President Biden (@POTUS) August 4, 2022

Senate Majority Leader Chuck Schumer, in remarks on the Senate floor as members prepared to vote for final passage, said:

“It’s been a long, tough and winding road but at last, at last, we have arrived. Today, after more than a year of hard work, the Senate is making history. I am confident the Inflation Reduction Act will endure as one of the defining legislative feats of the 21st century”.

Climate, taxes and health care

Highly controversial was the chapter on raising taxes, as seven Democratic senators supported a Republican amendment exempting some businesses from paying additional taxes. The Congressional Budget estimated that the legislation will reduce the deficit by $102 billion over the next 10 years and will have an important impact in keeping 8%-based inflation in check. 

Republicans, on the other hand, said the plan will have little impact on inflation and, instead, will raise taxes leading to job losses.

Also disagreeing with the positive effects this measure could have on reducing inflation are 230 economists who wrote an open letter to Democrats and House Speaker Nancy Pelosi, saying this bill would even increase inflation in the US:

“At a time when the economy already faces supply/demand imbalances, the residual effects of stimulus, labor shortages, and supply chain disruptions, this bill would compound rather than alleviate many of these problems”.

Specifically, from what is reflected in the letter, according to these economists, the $433 billion in proposed government spending would create additional immediate inflationary pressures by increasing demand, and tax increases to businesses would discourage investment, creating a vicious cycle that could lead to stagnation in the economy.