This spending is inevitably going to stoke demand. Inflation is already running at above 9pc in the US and showing little sign of coming under control. And, unlike in Europe, price rises are being driven by higher demand, not restricted supply.
While European prices have been jacked up by the Ukraine war, that is not true of the US. It is self-sufficient in oil and gas, and also in grain (it is actually a major exporter of wheat). The war has not made any difference to the US.
Instead, inflation was sparked by Biden and the Fed: the President’s wild spending, doling out $2,000 cheques to everyone, and the Fed’s willingness to finance it with freshly printed money. If the government pours another $739bn of stimulus into an economy already at full employment and with inflation running rampant, the Fed won’t have any choice but to raise interest rates more aggressively – or else let prices run completely out of control.
The second problem is Biden’s new plan imposes a huge new round of taxes on business. The new “minimum tax” is actually a disguised increase, since it will be imposed on companies regardless of standard deductions for investment, R&D or any other mainstream expenses or reliefs.
On top of that, Biden’s plan imposes a new 1pc levy on share buybacks, a measure the American Left has for years campaigned for. You can argue for or against it – in fact, with high corporate taxes, buybacks are an efficient way of returning money to shareholders – but there is no question it will take more money off companies and cause huge damage to Wall Street, which relies on companies to put cash back into the market.
Add it all up, and the new Inflation Reduction Act imposes a huge increase in corporate taxes. The result? Investment will be damaged, the supply side of the economy will shrink, and that will make inflation even worse.
Finally, despite claiming to reduce the deficit, the plan will send debt soaring upwards. As Rishi Sunak would have discovered if he had remained as chancellor, increasing corporate taxes sounds easy but the money generally does not materialise. Companies work around them or go elsewhere.
Biden will unleash the spending, but the planned revenues will never turn up, and the deficit will rise and rise. The US debt-to-GDP ratio has already hit an alarming 137pc of GDP, and may start to get towards Italian levels (currently 148pc of GDP). With the world’s reserve currency, the US can probably get away with that. But there is no point in pretending it will control inflation – that is not what debt does.
On taking office, President Biden inherited an economy that was already overheating from his predecessor’s wild spending, and was still struggling to cope with the supply crisis left over from the pandemic. His vast stimulus package has sparked the worst bout of inflation in four decades, as many economists warned it would at the time.
Now he plans to double down on that catastrophic mistake. His Inflation Reduction Act will do nothing to control prices – but it will crash the global economy all over again.