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The Inflation Reduction Act was passed by the House has been heralded as a major legislative victory for the president and his party. But will it really matter for the economy or the markets? Read the latest Markets in a Minute to learn more.
Markets in a Minute: Will the Inflation Reduction Act Actually Reduce Inflation?
The Inflation Reduction Act was passed by the House has been heralded as a major legislative victory for the president and his party. The bill includes a long list of disparate agenda items including lower prescription drug costs, charges for stock buybacks and incentives to combat climate change, all tied with the bow of the politically popular idea of “lower inflation.” But will it really matter for the economy or the markets?
Reactions to the new legislation range from “tax costs exponentially outweigh benefits” to that the bill will “lower costs, create jobs, and help fight inflation.” As is common when it comes to politics, the answer lies somewhere in between: while the bill is unlikely to cause lower inflation (that appears to be happening on its own) it will also not significantly increase taxes.
For companies, the two most impactful parts of the legislation are a new minimum 15% corporate alternative minimum tax and a new 1% tax on share repurchases.
Will the bill actually bring down inflation?
Inflation Reduction Act of 2022, Effect on the Budget
Net deficit reduction (+) or increase (-) from spending and revenues
Sources: Penn Wharton Budget Model, Congressional Budget Office
Is inflation slowing?
Consumer Price Index
Level of consumer prices and rate of change over different time periods
Sources: U.S. Bureau of Labor Statistics, Kestra Investment Management
Inflation is an enormously difficult beast to tame. The good news is that inflation does indeed appear to be slinking back to its cage thanks to the easing of global supply chain disruptions and the Federal Reserve’s tightening of monetary policy. And the stock market has been applauding.
The real legacy of the new legislation will be in providing additional funding for health care and clean energy. Individuals will have their own opinions on those topics, but they are thankfully outside our purview. What we can say is that the Inflation Reduction Act is not likely to lower inflation, just as it is also not likely to hamper corporate profitability. Take that Left and Right.
The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Advisor Services Holdings C, Inc., d/b/a Kestra Holdings, and its subsidiaries, including, but not limited to, Kestra Advisory Services, LLC, Kestra Private Wealth Services, LLC, Kestra Investment Services, LLC, Kestra Investment Management, LLC, Bluespring Wealth Partners, LLC, and Grove Point Financial, LLC. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by any entity for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was created to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation. Kestra Advisor Services Holdings C, Inc., d/b/a Kestra Holdings, and its subsidiaries, including, but not limited to, Kestra Advisory Services, LLC, Kestra Private Wealth Services, LLC, Kestra Investment Services, LLC, Kestra Investment Management, LLC, Bluespring Wealth Partners, LLC, and Grove Point Financial, LLC does not offer tax or legal advice.