The recent report of over a half-million new jobs exceeded expectations. Unemployment dipped to 3.5 percent. The major economic problem facing the Biden administration is inflation. While weighing on all consumers, Republican politicians see inflation as the certain route to gaining congressional power in 2022 and the White House in 2024.
Rising prices are the result of an imbalance of supply and demand for goods and services, with demand outpacing supply. The Fed is charged with keeping inflation in check. As previous columns have pointed out, surging demand is the expected result of a resurgent economy. That, along with an abnormally restricted supply, is cause of the current inflation.
Restricted supply is the result of lingering supply-chain issues caused by the pandemic, exacerbated by the war in Ukraine and demographic phenomena, namely, continuing retirements of the huge Baby Boom population. The recent US Supreme Court decision on Roe vs. Wade, followed by increasing effort in many states to restrict women’s choice, will further restrict women’s participation in the work force, adding to supply woes.
To reiterate, the current inflation is more a problem caused by restricted supply than by rising demand that is expected in a recovering economy. A major problem is that the tools of the Fed are more adapted to dealing with demand issues than supply. To curb demand enough to stem inflation risks bringing on serious recession. Therefore, longer run measures are required, involving public policy, hence divisive politics.
The problem with political action is the obvious one of our current political division. For starters, there is the philosophical difference between Republicans and Democrats, with Republicans less willing to use the tools of government, preferring to “let markets solve problems.” Perhaps more important is that Republican politicians place blame for world-wide inflation on President Biden, seeing it as their route to control of congress in 2022 and road to the White House in 2024. Thus, they are united in blocking Democrat-led congressional action.
Republicans and Democrats can argue whether that’s “fair” or not. “Fairness,” in politics? How quaint. But political reality is that since Biden is the President, the problem lands on his desk. And since Democrats hold the White House, and, however narrowly, the Congress, it is up to them to take whatever steps they can to deal with inflation, however long-run these steps, and however little credit they may ultimately receive for taking these steps.
Up till now, it had appeared that nothing would happen as Biden’s Build Back Better proposal was held hostage by the filibuster and reluctance of Democratic Senators Biden and Sinema to cooperate.
Much to the surprise of all, negotiations continued behind the scene. Democrats came up with a scaled-down bill that takes significant steps addressing climate change, health care, and cost of prescription drugs, all while not increasing federal deficits.
Included in the bill is the long-time Democratic goal of enabling Medicare to negotiate with big pharma on important drug prices. Included is a $2,000 out-of-pocket annual limit for drug costs for Medicare participants, and a $35 per month limit on insulin costs, a tremendous saving for diabetes patients. The bill extends ACA subsidies for low-income beneficiaries.
The bill includes largest-ever measures addressing climate change, focused on renewable energy production and tax rebates for buying new or used electric vehicles.
The bill addresses the travesty of profitable corporations paying zero income taxes by imposing a minimum 15 percent income tax on those currently paying no income tax.
After recognizing that the bill would not increase net federal expenditures, Senator Manchin agreed to include measures on climate change.
Senator Sinema remained a holdout. She insisted that the proposed elimination of the “carried interest” loophole that benefits wealthy hedge fund managers be retained. To gain her support that loophole was retained, and replaced by a one percent levy on corporate stock buybacks. While retaining the carried interest loophole is objectionable to most Democrats and much of the public, they can take solace in that the levy on corporate buybacks will result in more revenue than closing the carried interest loophole. The bill also includes moneys to address drought.
According to polling, each of these measures is popular among rank-and-file voters. Nevertheless, the bill was fought vigorously, and unanimously opposed, by Republican senators and Representatives. Senators Grassley and Wisconsin’s Ron Johnson railed that this is “no time to raise taxes.” They obviously prefer profitable corporations to continue paying zero income taxes.
McConnell trashes the bill as just another “big Democratic spending bill.” The non-partisan Congressional Budget Office concludes that the bill will not increase net government spending, and will likely reduce deficits, however modestly.
Others argue that this is a blow against Medicare, and unduly “punishes” drug companies, insisting that this will discourage their research on new drugs. Republicans even opposed a measure that would reduce insulin costs for ALL diabetes patients, including those not on Medicare.
Even though measures of this bill enjoy popular support, congressional Republicans obviously see more political benefit in denying Biden “a win,” than in supporting measures that address drug prices, health care, climate change, and deficit reduction.
Will this bill solve the climate-change issue? Is it enough? Of course not — this long term issue is more complicated than that, and will take monumental world-wide effort to address. Nevertheless, it is a significant step in stark contrast to past neglect.
Americans pay more for prescription drugs than other industrial nations. Will this bill solve the problem of high drug prices? No, but it surely is reasonable that Medicare be enabled to negotiate lower prices for this program on which ALL Americans benefit. Generally neglected is that Medicare takes financial pressure off younger Americans to support their aging parents and grandparents with medical bills.
Will this bill change Biden’s low approval ratings, and significantly increase Democratic chances to hold on to congress? Probably not. The most significant provisions for lower drug prices don’t take immediate effect, even as the 2022 elections are upon us.
Nevertheless, the enactment of this bill is a refreshing change that will ultimately benefit many Americans.
— John Waelti’s column appears monthly in the Times. He can be reached at jjwaelti@tds.net.
