Checking the facts Republicans attempt to blame Democrats for inflation

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By Tara Subramaniam, CNN

As the US economy gradually recovers from the coronavirus pandemic, prices are rising across the board, with inflation exceeding the Federal Reserve’s 2% target and hitting a 13-year high in June. Republicans have turned this surge in inflation into a political talking point, trying to blame President Joe Biden and the Democrats, and sometimes distorting the current economic landscape in the process.

In mid-July, Minority Leader Kevin McCarthy’s representative tweeted: “Inflation is rampant in part because of the out-of-control spending by President Biden and President Pelosi.

About two weeks later, Republican House Conference Speaker Representative Elise Stefanik went further in blaming Democrats, telling a press conference that “inflation is skyrocketing because of spending reckless and unnecessary Democrats “and” this runaway inflation is the result of the Democrats’ reckless fiscal and spending policies. “

Later that day, in an interview with Newsmax, Republican Senator Ted Cruz suggested that Republicans should not support Democrat-led initiatives that call for more spending and cited the proposed multibillion dollar budget of Biden, claiming that “when it comes to spending, spending trillions is what drives inflation.

On Monday, Representative Jim Jordan tweeted that Democrats “are spending billions of dollars. So ignore inflation.”

The facts first: While some economists claim that the stimulus packages adopted in response to the Covid-19 pandemic are having an impact on inflation, it is misleading to suggest that this is the only explanation for the recent rise inflation. Blaming him exclusively on the Democratic spending proposals distorts what was actually passed and ignores the billions of dollars in spending voted last year, backed by Republicans and signed by then-President Donald Trump, who according to economists, also contributed to inflation.

Last year, Congress passed two bills totaling roughly $ 3 trillion in relief spending for Covid – the $ 2 trillion Coronavirus Aid, Relief and Economic Security Act passed in March 2020 and the $ 900 billion pandemic relief law passed in December 2020. Both were signed by Trump and backed by Republicans. Economic stimulus packages, including the $ 1.9 trillion US bailout package signed by Biden in March 2021, which contained at least one tax credit program already in place, have contributed to inflationary pressures but are not not the only reason for the rise, experts say. .

“Inflationary pressures stem from various factors: supply chain problems, reopening of the economy, over $ 2 trillion in excess household savings, accommodative monetary policy, the president’s $ 900 billion stimulus package Trump in December and the president’s $ 1.9 billion stimulus package, ”said Michael Strain, director of economic policy studies for the conservative think tank, the American Enterprise Institute.

Jason Furman, Aetna professor of economic policy practice at Harvard Kennedy School, noted that the stimulus checks included in the three Covid relief plans, and not the US bailout tax credits, were likely responsible. of any impact on inflation these policies had.

“The tax credit is relatively small compared to the economy as a whole,” Furman said. “If you want to call the checks a tax policy, yes, I think that has contributed to the inflation.”

Furman, a Democrat who previously worked for the Obama administration, admitted that the US bailout had helped inflation somewhat, but said, “I think the biggest thing that has contributed to inflation is just restarting an economy, ”something other countries recovering from the pandemic have also experienced.

Mark Zandi, chief economist at Moody’s Analytics, told CNN that “rising inflation has nothing to do with tax and spending policies.”

According to Zandi, inflation is temporarily driven by “a one-time price adjustment” after a drop last spring when the pandemic broke, supply chain constraints that limited production and an increase in demand when the pandemic hit. the reopening of the economy.

“Companies that cut prices during the height of the pandemic, such as hotels, airlines, car rental companies, etc. are simply raising prices to their pre-pandemic level,” Zandi said. , adding that “the supply side of the economy has lagged behind demand as the pandemic continues to struggle with scrambled global supply chains.”

According to Zandi, “This will all be sorted out in the coming months, supply will catch up with demand and inflation will moderate.

Federal Reserve Chairman Jerome Powell, who was appointed by Trump, also said he was convinced the rise in inflation was temporary.

In testimony before the House Financial Services Committee on July 14, Powell said he expects these “rapid” price increases “to partially reverse” as the bottlenecks in bottlenecks are easing in some areas. And at a press conference on July 28, he said, “We think inflation should come down over time,” but “it’s hard to say when that will happen.”

According to a Commerce Department report on Friday, a key inflation indicator rose slightly less than expected in June, despite still being the biggest gain in 30 years.

Future inflation

The tax aspect of the Republican critique of Democratic “tax and spending policies” probably refers more to proposed policies that have yet to be adopted or enacted. A few Republicans, including Jordan and Sen. Rob Portman, say such future policies, such as the initial infrastructure bill proposed by Democrats, which Biden said would be paid largely by taxes, would further increase l ‘inflation.

However, economics experts suggest the impact would likely be minimal.

“I think as a first approximation, the forward-looking proposals would have very little impact on inflation because they are spread out over time and give the Fed a lot of time to react and are mostly paid,” Furman said.

Compared to the US bailout which, according to Garrett Watson, senior policy analyst for the Tax Foundation, was primarily funded by deficit spending, Biden’s proposed infrastructure plan “would be partially offset by tax increases, which would mitigate inflationary impact, ”Watson told CNN. .

“To what extent this spending would increase inflation depends on two uncertainties: (1) how close is the economy to full capacity over the next few years without the additional spending, and (2) how much supply additional expenses themselves generate, ”Watson said. , adding that the latter point is an argument put forward by White House advisers as to why they are not so worried about the inflationary impact of the plan.

While it is possible that some of Biden’s proposed tax increases for the wealthy and corporate will be incorporated into the reconciliation bill, it should be noted that no tax increase is included in the draft. bipartite infrastructure law that the Senate is currently considering.

According to Furman, the Republican argument that Democrat-backed tax policies will contribute to inflation does not make sense.

“It’s weird. The tax changes that the Democrats are proposing are tax increases, so you would think that would reduce inflation, ”Furman said. “In general you think tax cuts are inflationary and tax increases are, you know, deflationary, so I think it’s a little weird because I think Republicans don’t try. accusing Democrats of being big tax cutters, but if you think taxes cause inflation, it’s like accusing Democrats of cutting taxes too much.

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