What Biden’s Build Back Better Bill Could Mean For Inflation
Many Republicans argue that pumping more federal money into the economy will add fuel to the fire, while the White House and some Democrats say the bill will lower the cost of living for many families in the city. low income and will moderate inflation over the long term.
No one knows exactly how spending might affect inflation. But many political analysts agree that the impact will be relatively small. Here’s what some experts expect.
The plan would add “modestly” to inflation over the next few years
The Build Back Better bill, which passed the House in November, currently contains a variety of tax cuts and new federal spending provisions. It also includes tax increases on corporations and wealthy households that are supposed to generate income that pays for the new benefits.
Over 10 years, the Congressional Budget Office estimates, most of the legislation will be paid off, but that will add another $ 367 billion to the deficit. The White House disagrees and has worked to argue that the bill will be fully paid when considering a proposal to improve law enforcement, which the CBO has ruled out.
Two major tax relief programs would be implemented immediately – the expanded child tax credit and the earned income tax credit – while some of the tax increases would not come into effect until later.
Why experts don’t think the increase will be significant
Increased federal spending could increase consumer demand, which would increase inflation, but it’s unclear what impact this would have.
âThe directional effect is pretty clear that it would increase inflation, all other things being equal. But we don’t know by how much,â said Alex Muresianu, federal policy analyst at the Tax Foundation.
Benjamin Page, principal researcher at the Tax Policy Center, puts the possible rise in inflation in the near term about a few tenths of a percent, which would be a small bump from the 6.8% jump in prices last month.
Although roughly the same size as the Build Back Better bill, the US bailout is different because it quickly provided emergency relief to Americans and provided no income compensation. Build Better, on the other hand, aims to spend the money over several years and includes tax increases and other measures to help pay for new spending.
What would a slight increase in inflation mean?
Analysts are less in agreement as to whether even a small short-term increase in inflation is a good idea right now.
“It would be unwise for policymakers to take these risks at a time when inflation is already so high,” wrote analysts on the Committee for a Responsible Federal Budget. Although they believe the effect on inflation would be small and temporary, it could increase the economic cost of containing inflation.
But other experts aren’t as concerned about the potential rise in inflation.
âI don’t think it’s helpful, but I think the increase will be small enough that it isn’t a major concern of the bill – it should be pretty far down the list,â Page said.
Bill aims to cut costs for some families
These provisions would mean that in the short term, the bill “is likely to reduce the inflation that low-income and even lower-middle income households will face,” said Mark Zandi, chief economist at Moody’s Analytics.
Building back better could dampen inflation in the long run
While this may be true, Zandi believes that even in the long run, the bill will have a marginal impact on inflation.
“This will boost long-term economic growth and in doing so, all other things being equal, will dampen inflation in the long run,” Zandi said. “But again, these are very small potatoes, because it’s very marginal and a lot of programs expire, so they likely wouldn’t have any effect later in this decade.”
âMaybe that adds a bit to inflation next year, the year after,â Zandi said. “Maybe at the margin it reduces inflation in the longer run, but stepping back doesn’t have a significant impact on inflation.”