Biden’s $2.2T spending bill ‘likely to boost inflation’ in the short term,

When President Joe Biden first developed the Build Back Better plan during his 2020 campaign for president, inflation wasn’t on the minds of many Americans.

Now it’s a top concern. October saw a spike in consumer prices of 6.2% compared to the prior year, and polls show voters are obsessed with the issue as economists fear surging prices will continue well into 2022 if not longer.

Those concerns over inflation come as the Senate hopes to vote soon on the $2.2 trillion Build Back Better spending package, which the House approved last month. This bill has wide-reaching goals to increase health care coverage; boost social programs like universal prekindergarten and housing subsidies; and tackle climate change.

Despite claims from some Democrats, the bill is likely to add slightly to inflation pressures, says Marc Goldwein, an economist and senior policy director at the Committee for a Responsible Federal Budget.

“The effect is not likely to be large,” he acknowledges. However, he added, “Bottom line is it’s likely going to boost inflation in the first few years relative to where it otherwise would be.”

However, his group has analyzed the legislation in detail and in a conversation with Yahoo Finance this week, he outlined a range of ideas for changes to lessen the impacts. Those tweaks include revamping the timeline of the bill so it spends less money upfront; changing the way child tax credits are paid; and rethinking a key tax deduction, among other changes.

Revamp the timeline

The CRFB calculates the Build Back Better Bill is largely paid for as it is currently written, adding $160 billion to the national debt over 10 years. But the bill is front-loaded with more spending in the first five years and more savings between years five and 10. The bill will add about $750 billion in debt over its first five years before it largely evens out, according to Goldwein’s group.

“The easiest way to address that is don’t add $750 billion to the deficit in the first five years,” he said. “I’m not saying it’s got to be exactly budget neutral every year but closer to budget neutral in the first few years is going to make it less inflationary just by definition.”

The goal would be to ease inflationary pressures and spending in 2022. After that, those inflationary pressures will hopefully ease as supply chain problems lessen, the pandemic subsides, and the Federal Reserve takes actions to ease inflation.

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To meet this goal, Build Back Better should re-consider how it pays out an expanded child tax credit, according to Goldwein.

Traditionally, families have received this credit in a lump sum at tax time. However, a change enacted by the American Rescue Plan, which the president signed in March, made some of that credit monthly for 2021, meaning families receive checks of $250-$300 per child every month rather than that lump sum.