Wharton Study: Democrat Reconciliation Bill Would Have Zero Impact on Inflation

The Democrats’ marquee bill to reduce inflation would likely have zero impact on inflation, according to a study by the influential Penn Wharton Budget Model.

Senate Majority Leader Chuck Schumer (D-NY) and Sen. Joe Manchin (D-WV) unveiled the Inflation Reduction Act this week which they claim would combat climate change, extend enhanced Obamacare subsidies, and reduce the budget deficit by roughly $300 billion.

Manchin has harped on the need to curb inflation since he blocked the multi-trillion-dollar Build Back Better Act. Now, with the country in recession and Americans continuing to reel from inflation, Manchin hopes that the legislation could curb inflation and bring the country’s fiscal house back to order.

But the Penn Wharton Budget Model has poured cold water on the alleged disinflationary effects of the Democrats’ reconciliation bill.

Jon Huntley and John Ricco wrote that the bill “would reduce non-interest cumulative deficits by $248 billion over the budget window with no impact on GDP in 2031. The impact on inflation is statistically indistinguishable from zero.”

That’s $52 billion less in deficit reduction than according to the one-page summary of the bill offered by Democrats. The Congressional Budget Office has not yet produced an estimate.

Ironically, the bill would actually “very slightly increase inflation until 2024 and decrease inflation thereafter,” according to the Penn Wharton Budget Model.

Manchin has relied on the Penn Wharton model in the past to push back against spending programs favored by other Democrats, appearing to find the Penn economists and their economic model more reliable than official government estimates of the costs and consequences of bills.

The study also found that extended enhanced Affordable Care Act (ACA) subsidies would reduce the incentive to work.

Manchin and Schumer said in a joint statement on Wednesday that the bill would aim to pay down America’s debt and curb inflation:

It is past time for America to begin paying down our $30 trillion national debt and get serious about the record inflation that is crushing the wages of American workers. In practical terms, the Inflation Reduction Act of 2022 would dedicate hundreds of billions of dollars to deficit reduction by adopting a tax policy that protects small businesses and working-class Americans while ensuring that large corporations and the ultra-wealthy pay their fair share in taxes.

They added, “Our tax code should not favor red state or blue state elites with loopholes like SALT and should focus more on closing unfair loopholes like carried interest. Through the enforcement of a fair tax code, we can use the revenue to cut the deficit and lower the cost of healthcare for working families and small businesses.”