The IRA as inflation reduction

More than just a branding exercise

The Inflation Reduction Act was signed just over a year ago, and the rate of inflation has fallen steadily and dramatically since then. I am not a shameless propagandist who will tell you that the inflation drop is primarily because of the IRA.

But monitoring the anniversary discourse, I think a lot of people have overcorrected and are underplaying the importance of inflation-reduction in passing the IRA. Paul Krugman wrote last week that IRA “isn’t actually about reducing inflation; it’s mainly a climate bill, using tax credits and subsidies to encourage the transition to a low-emission economy.”

From the standpoint of most of the members of Congress who voted for it, I’m sure that’s true. They were highly motivated to reduce greenhouse gas emissions, highly distressed by the collapse of Build Back Better talks, and ready to call the bill whatever Joe Manchin wanted if that would get the deal done. But when it comes to understanding why the deal got done, I think it was actually very important that the IRA scores as slightly reducing inflation. A lot of people have conveniently memory-holed this, but pre-IRA there was a tremendous discourse from the left centered around accusing Manchin of acting “in bad faith” on BBB negotiations, positing that his real goal was the protection of his personal financial investments in the coal industry.

What Manchin said he was concerned about, though, was that BBB’s structure was likely to be inflationary at a time when inflation was a big problem.

When BBB was reworked into IRA, it shifted from an inflationary bill to a disinflationary bill, while maintaining strong emissions reduction provisions. On the “bad faith” theory, Manchin should have continued to oppose the bill. But it turns out that addressing his stated concerns changed his mind — the very model of good-faith negotiating. It’s true that progressives didn’t really care about IRA’s disinflationary punch because, by the same token, they didn’t really care about BBB being modestly inflationary. But that was a big sticking point. The pivotal senator wanted a bill that addressed inflation, and by writing a bill that addressed inflation, they got the deal done.

Making stuff cheaper

A related point is that even though most of the IRA’s provisions are about climate, it also includes some very important changes related to prescription drugs. The one with the biggest short-term impact was capping the price of insulin at $35, but even though Kyrsten Sinema watered it down, beginning the process of letting Medicare negotiate bulk discounts on prescription drugs is a really big deal for health care policy.