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Top Business School Finds Democrats' 'Inflation Reduction Act' Would Increase Inflation Through '24

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The University of Pennsylvania’s Wharton School released its preliminary estimates of the “Inflation Reduction Act” that is under consideration in the U.S. Senate, and it determined inflation would actually slightly increase in the initial years if it should become law.

The legislation is the result of negotiations between Senate Majority Leader Chuck Schumer and moderate Democratic Sen. Joe Manchin of West Virginia.

“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,” the Penn Wharton Business Model determined.

The PWBM calculated that inflation would increase up to 0.05 percent by 2024.

“We estimate a 0.25 percentage point fall in the [Personal Consumption Expenditures] price index by the late 2020s,” the group added.

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“These point estimates, however, are not statistically different than zero, thereby indicating a very low level of confidence that the legislation will have any impact on inflation,” PWBM concluded.

The nonpartisan Tax Foundation reached a similar finding, stating, “On balance, the long-run impact on inflation is particularly uncertain but likely close to zero.”

Manchin defended his support of the legislation Tuesday on Fox News saying, “This is about what we can do for the country, and right now inflation is the greatest threat we have.”

Fox News host Harris Faulkner asked Manchin about the PWBM’s determination that the impact of the law on inflation would be indistinguishable from zero.

Do you believe the Inflation Reduction Act will reduce inflation?

The senator responded that he and others have concluded differently and pointed to the deficit reduction component of the legislation. Manchin further noted there are provisions in the bill to allow for more oil production and coal extraction.

“It’s all part of a balanced approach,” he said.

The Inflation Reduction Act is a scaled-down version of Build Back Better, which Manchin and Democratic Arizona Sen. Krysten Sinema of Arizona opposed and therefore did not make it to a vote in the Senate.

The main components of the new legislation are $433 billion in spending, including $369 billion on climate and green energy initiatives and $64 billion on increased Affordable Care Act subsidies over 10 years.

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On the revenue side, Senate Democrats believe it will bring in $739 billion, by imposing a 15 percent corporate minimum tax, closing the so-called “carried interest loophole” on investment income, reducing prescription drug expenditures and stepping up Internal Revenue Service enforcement.

In all, Democrats said, the Inflation Reduction Act would cut the deficit over $300 billion.

The PWBM calculated the bill would cut the deficit by $248 billion over the next decade.

However, the legislation, only increases the Affordable Care Act subsidy for the next three years, making it something of a budget gimmick.

It’s likely if given the opportunity, Democrats would keep the enhancement in place.

If it is extended to the full decade, the PWBM calculated deficit reduction would only be $89 billion.

The Hill reported the Congressional Budget Office released an estimate on Wednesday concluding the Inflation Reduction Act would reduce deficits by approximately $100 billion.

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