Inflation Reduction Act will ‘make the Federal Reserve’s job a little easier’: Expert

Marc Goldwein, senior director of policy at the Committee for a Responsible Federal Budget, joins Yahoo Finance Live to break down what’s in the Inflation Reduction Act that Sen. Manchin (D-WV) said he supports as well as what the legislation will cost taxpayers.

Video Transcript

AKIKO FUJITA: Let’s continue our conversation on this particular measure. We’ve got Marc Goldwein, committee for A Responsible Federal Budget, senior director of policy. Marc, let’s start with the inflation picture because this is called the Inflation Reduction Act. How far does it go in bringing down inflation?

MARC GOLDWEIN: Look, this bill is not going to get us from 9% inflation down to the 2% to 3% it should be. What this bill will do is make the Federal Reserve’s job just a little bit easier so that they can fight inflation with fiscal policy moving in the same direction, not the opposite direction.

BRIAN CHEUNG: Hey, Marc. I mean, it’s Brian Cheung here. As a follow up on that, I mean, you’ve actually outlined that there’s a difference between what the inflationary implications of this are, and the micro-macro, and then the full effect, right? And we have to remember that there’s so many different provisions in here, we talked about ACA subsidies, energy climate reform. So can you just maybe give us a little bit more detail on what you just said, that’s gonna be a longer-term process that also depends on exactly how you’re looking at the inflationary implications as well, right?

MARC GOLDWEIN: Yeah, I think that’s right. But the good news is, almost however you look at this bill, it’s gonna be helpful for inflation. Macro-economically, it’s gonna take some excess money out of the economy, which we need when demand is so overheated. It’s also gonna lower drug prices.

Micro-economically, it’s gonna reduce the prices– the sticker prices that people of businesses see for energy, for updates to their homes, for healthcare, for drugs. And all of that is going to, hopefully, positively feed the inflation expectations. I don’t expect the effect to be large. But the direction is pretty clear and it’s gonna help make the Fed’s job easier.

AKIKO FUJITA: What kind of timeline are we talking about? Obviously, you know, lawmakers are looking at a calendar right now saying, well, what does this mean for the midterms? They can take that to the voters and say, look, we have a win. But at the end of the day, if they don’t see a reduction, they may not necessarily by that. Are we talking medium term, long term, talk to me about the timeline?

MARC GOLDWEIN: No, look, the only thing that’s going to happen in calendar year 2022 is the regulatory reforms that are accompanying this. So for example, permitting reform and, you know, opening up a various drilling. That might help a little bit. But really, this is a 2023, 2024, 2025 game. What this is supposed to do is help stop inflation from persisting over the long term. Again, making the Fed’s job a little bit easier. It’s not going to provide relief next month and we shouldn’t expect that.

BRIAN CHEUNG: Marc, let’s talk about the deficit implications of all of this. Manchin making it very clear exactly how he’s viewing the bill. From where you stand over at the CRFB, how are you kind of evaluating the deficit implications of all of this? They say they’re going to pay for it with that 15% corporate minimum tax. But is it squaring up like the Senator is presenting it to be?

MARC GOLDWEIN: Yeah, it’s not only this minimum tax, there’s also a lot more money from improving tax compliance and lowering drug costs. Overall, it’ll reduce the deficit by about $300 billion, which is the largest deficit reduction since 2011.

If you look out two decades, that number is probably something more like $1.5 trillion of deficit reduction. That’s not gonna fix our debt, just like this isn’t going to fix inflation. But it’s gonna help with our debt, just like this is gonna help with inflation.

AKIKO FUJITA: Marc, I wonder if you can speak to the Republican argument or critique to all of this. And they’ve talked specifically about the 15% corporate tax rate, saying, look, if you tax higher that obviously, pulls back on CapEx, that’s going to bring down supply, that they argue that that’s actually going to be inflationary. How do you respond to that?

MARC GOLDWEIN: I mean, by that argument, raising interest rates would be inflationary because raising interest rates also reduce investment. The reality right now is that the economy is overheated. We have too much money chasing too few goods. There’s lots of different ways we can take care of that, not just on the corporate side but on the individual side, from health care. There’s lots more we need to do. But this is a piece of the puzzle. And this is gonna help get inflation– help make it a little bit easier for the Fed to get inflation under control.

BRIAN CHEUNG: How about the carried interest aspect, the thing that’s gotten a lot of attention from hedge fund managers, maybe Wall Street-centric people. This is something that many iterations of legislation have attempted to tackle here. Do you think that this is a pretty substantial shot at, you know, actually reforming “the loophole,” as some have described it.

MARC GOLDWEIN: Yeah, look, we can either fight inflation, reduce healthcare costs, and reduce the deficit or we can deal with the special interest blocks, leave every loophole that’s in effect, keep drug prices high. I vote for taking on the special interests, closing that loophole. In fact, there’s many more loopholes we should be closing as well.

AKIKO FUJITA: Marc, I wonder if we can kind of sort of narrow this down for the average household, the average consumer, who’s saying, OK, so what does this all mean? You’ve got a study coming out from Rewiring America, which we should say was involved in the discussions for this bill, who say that $1,800 is the saving for an average household. And they specifically calculated the tax incentives on the energy portion of this– whether it’s the EV credit, whether it is, you know, for heating at home. I mean, how do you think our viewers should be looking at that part of this?

MARC GOLDWEIN: Yeah, so in the near term, people are gonna see some of their costs go down because of lower energy costs and because health premiums aren’t going to rise. That’s not actually anti-inflationary in itself. But it can be anti-inflationary to the extent that those things are paid for, so they’re not putting more money in the economy. And to the extent that they help with expectations.

So people may see some immediate sticker price relief. And the hope is then that turns into actual inflation relief where prices stop rising even without needing these subsidies.

AKIKO FUJITA: Marc Goldwein, committee for A Responsible Federal Budget, senior director of policy. I appreciate you joining us today.

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