Inflation Reduction Act (IRA): Impact on 2024 US Election

Don’t say there cannot be a law to reduce inflation! Yes, there could of course 🙂 The USA, the world’s superpower, did this about 2 years ago. In doing so, the Biden government has also included a major green energy transformation, tax increases on companies and prices of individuals’ prescription drugs into the law. Thus, the inflation reduction act has become a very comprehensive package worth 460 billion dollars! America has benefited greatly from this law by increasing interest rates at the same time. In this context, if you remember, we previously mentioned how dangerous inflation is in our article.

In line with this, please do not forget that even some large countries, such as Germany, have suffered greatly in the past from the inexorable rise of prices. Actually, there is a belief in the economic literature that Germans are most afraid of inflation and Americans are afraid of unemployment. (Please remember that the 1929 US Depression sent unemployment skyrocketing.)

What is Inflation Reduction Act?

In this regard, we should point out that; As a result of the disruption of supply chains and the sudden explosion of postponed consumption after the Covid-19 pandemic, a high inflation phenomenon has emerged worldwide.

As of the end of 2021, countries that have started to experience social problems due to the disruptive effect of inflation on income distribution have started to take various harsh measures, especially interest rate increases. The inflation reduction act was one of these measures taken by the USA.

This law, also known as the most comprehensive law in American history includes a number of legislative changes such as:

• Green transformation,
• Reducing carbon emissions,
• Increasing the number of electric vehicles,
• Taking more taxes from high-profit companies and
• Negotiating with pharmaceutical companies to reduce prices of prescription drugs

Democrats, led by President Biden, who are in the majority in the American Congress, passed this law on August 16, 2022, despite the persistent opposition of the Republicans. In our article, we will make evaluations about the Inflation Reduction Law and its aftermath, which has passed approximately 1.5 years. It should not be forgotten that while the November 5 US Presidential elections are so close, the performance and development of this law will be good election material for Biden.

Purpose of the Inflation Act

The main purpose of the inflation reduction act, as the name suggests, is to reduce inflation which has become the biggest problem in the USA as well as all over the world after the pandemic period.

On the other hand, since the package has a very broad scope, it also has some side purposes. Some of those are;

• Ensuring green transformation and reducing America’s carbon emissions by 2030 within the scope of the Paris agreement,
• Reducing the US budget deficit within 10 years,
• To realize investments within the scope of green energy,
• Providing incentives for electric vehicles, reducing the prices of prescription drugs as much as possible, and
• Collecting at least 15 percent corporate tax from highly profitable companies.

In this context, US President Joe Biden stated that “the rich will pay more taxes by fulfilling their responsibilities for a fairer country” and stated that this law is the most comprehensive law in the country’s history that includes climate crisis and change. It should also be noted that the relevant law was passed by the Senate after long efforts. Because in the current structure, there are 50 democrats and 50 republicans in the senate, and as a result, the democrats passed by finding the majority with a total of 51 votes, with the additional vote of vice president Kamala Harris. In this context, it should be noted that republicans strongly opposed this law, stating that, far from reducing inflation, it would further fuel inflation.

At this point, the Inflation Reduction Act was approved just before the November 8 midterm elections and was perceived as a kind of Biden victory and also affected the midterm election result.

Scope, Content of Inflation Act

Thanks to the Inflation Reduction Act, some progress has been made in America in the past 2 years by making moves such as tax cuts, incentives, green transformation and collecting more taxes from the rich. In this context, inflation has been reduced as desired. On the other hand, to summarize the content of this law and its success rate in the past period:

• Reducing emissions: While the aim is to reduce emissions by nearly 50 percent by 2030 with the law change, faster progress has been made than expected in the last 2 years so far.
• Tax Increase: Inflation will be combated by reducing the state’s budget deficit by collecting a minimum 15 percent additional corporate tax from companies with annual balance sheet income of more than 1 billion dollars.
• Unemployment and Employment: Researchers predict that more than 1 million new jobs will be created within 10 years, thanks to the incentives and infrastructure investments such as clean energy, solar and wind power plants, and private sector investments.
• Prescription Prices: Medicare, the government agency that provides health insurance coverage for people over the age of 65 in the United States, initially negotiated with drug manufacturers to reduce prescription prices for drugs used in the treatment of 10 diseases. The institution, which selects important diseases such as diabetes, increased blood pressure and heart failure, will expand this list over time and will accelerate the fight against inflation.

Electric Vehicles

• Electric Vehicles: The damage that emission gases cause to nature due to the greenhouse effect is now known to everyone. In this context, the use and even production of gasoline or diesel vehicles is banned in some countries. In this context, with the inflation reduction law, the Biden administration has provided serious incentives for electric vehicles.
• Impact on Inflation: It was stated that inflation would decrease thanks to the effects of this law, such as reducing public budget deficits, then reducing prescription prices and collecting more taxes from the rich. On the other hand, when evaluated together with the interest rate increases, the inflation rate has decreased rapidly in the last 2 years with these effects and this target has been very close.

IRA, 2024 Election and Biden

It is certain that the most important factor affecting election results in almost all countries is the economic situation and performance of that country. If we look at it from this perspective, according to research on the economic situation in the Biden period, the American people say that “The economy is good in numbers, but we do not feel this good performance in our living standards.”  This is actually an important indicator for the election result. Knowing this, the Democrat administration will want to increase its economic performance as it approaches the election by using the Inflation Reduction Act card.

In this context, it should be noted that for now, despite the positive impact of the IRA, Joe Biden is a little further behind in the race than Trump. On the other hand, according to the recently published McKinsey report, as you can see in the picture below; With this law, it is envisaged that the fight against inflation will be achieved with a net savings of 237 billion dollars in total, when the 500 billion dollars that the public plans to spend is subtracted from the 737 billion dollars of revenue that the public will save through various means.

In this context, Biden plans to win the election again, thanks to this law that has been successfully developed so far, which also includes health and green energy before the November 5, 2024 Presidential elections.

Total Revenue of Act

Finally, we would like to point out a general summary of the Inflation Reduction Act. In this context, as you can see in the picture below, there is a total revenue expectation of 739 billion dollars, including 313 billion dollars from the 15 percent minimum company tax and 288 billion dollars from reducing the prices of prescription drugs through negotiation.

On the other hand, considering the total investment expenditure of 433 billion dollars, especially energy security and climate change, an income of more than 300 billion dollars and an inflation-reducing effect are expected with this law.