By Joseph E. Stiglitz
NEW YORK—Senate Democrats’ compromise bill , the Inflation Reduction Act (IRA) of 2022, addresses not just inflation but also several key longstanding problems facing our economy and society.
There is a simmering debate about the causes of today’s inflation; but regardless of what side one takes, this bill represents a step forward. For those worried about excessive demand, there is more than $300 billion in deficit reduction.
And on the supply side, the bill would mobilize $369 billion of investments in energy security and decarbonization. That will help bring down the cost of energy—one of the main drivers of current price growth—and put America back on track to reduce its carbon-dioxide emissions by some 40% (from 2005 levels) by 2030.
These investments will yield far-reaching returns. The costs of climate-driven events (wildfires, hurricanes, tornadoes, and floods) will reduce our standard of living even more than today’s inflation will, and they are disproportionately borne by lower-income households, people of color, and future generations. These costs are far larger and more difficult to rectify than the costs of deficits.
Energy security, health-care costs
Moreover, enhancing energy security has become essential. For far too long, authoritarian leaders of petrostates have been able to hold the rest of the world hostage. Russian President Vladimir Putin has reminded us once again that energy interdependencies come with serious risks (something I warned about more than 15 years ago). Weather may be variable, but fossil-fuel dictators are unreliable and downright dangerous.
The IRA also would help address the rising health-care costs that have long plagued America, both by lowering Affordable Care Act (Obamacare) premiums for millions of Americans and by capping out-of-pocket drug costs for those on Medicare. The pharmaceutical industry has received tens of billions of dollars more from Medicare payouts than it otherwise would, simply because the government is prohibited from negotiating for lower prices. This gift to the industry will finally be rescinded, yielding savings of almost $300 billion over 10 years.
The United States is one of the world’s leading sources of pharmaceutical innovation, and much of the basic research behind these advances was paid for by American taxpayers. Yet, Americans pay much more for prescription drugs than people in other countries, partly because drug companies have been given an unbridled power to set prices. Many of us have been fighting for years to curb these firms’ undue market power. If the IRA becomes law, this provision alone would be a signal achievement.
Paying their share of taxes
Furthermore, the bill would deliver sorely needed improvements to tax policy. Corporations and the wealthiest households are not paying their fair share of taxes. That not only erodes confidence in our democracy, but also is economically inefficient. Tax revenues are necessary to finance essential public expenditures without generating inflationary deficits.
Russia’s invasion of Ukraine has reminded us why defense expenditures are necessary. But to preserve America’s competitiveness, we also must invest heavily in education, research, technology, and infrastructure. Here, the bill includes provisions that would raise more than $450 billion (over a decade) through a 15% minimum corporate tax, increased tax enforcement, and the introduction of a 1% excise tax on stock buybacks.
The 15% minimum corporate tax is especially important. The U.S. has led a global negotiation to curtail the practice of a few governments cutting special deals for corporations so that they can siphon tax revenues and jobs from other countries and compete in a race to the bottom in tax rates—a race in which the only winners are the multinational corporations.
A 15% US minimum corporate tax will not only raise badly needed revenue; it will also help stop this self-defeating global race. This is especially important for the U.S., because it spares American jobs from unfair competition.
But the landmark global agreement that America forged is unlikely to move forward if America itself does not abide by its conditions. From climate change and food insecurity to the fight for democracy in Ukraine, there are so many issues for which we need global cooperation. Like the climate measures, the U.S. minimum corporate tax is an important step in showing that we can be good global citizens.
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