In May, the Biden Administration issued an Inflation Plan for the purposes of lowing "costs that families face" and to lower the Federal budget deficit.
More than three months into the Administration's Plan, where do things currently stand with respect to both inflation data and the Plan's actions?
Here is a rundown:
Latest Inflation Data
Key August inflation index data suggest that the current pace of inflation remains high despite slight month-over-month improvement from July. The 12-month rate of the Consumer Price Index (CPI) was 8.3%, down from a 8.5% rate through July; while the rate for the Producer Price Index (PPI) was 8.7%, down from an 9.8% rate. The Federal Reserve's (FED) policy target inflation rate is no more than 2%.
To help attack inflation, the FED began raising interest rates earlier this year including an aggressive 3/4 percent in both June and July. The full effect of an aggressive monetary policy stance is probably not yet fully baked into recent inflation index results. The next FED interest-rate-setting meeting is September 20-21 when an additional 3/4 of percent upward rate adjustment is expected given that August inflation results did not improve significantly.
Status Core Biden Inflation Plan Items
Oil Supply & Industry Taxes. Increase the oil supply to help bring down gasoline prices through Strategic Petroleum Reserve (SPR) oil releases – i.e., one million barrels per day over six months (~November 2022). Impose license taxes on oil producers not using existing approved (~9K) drilling licenses on Federal lands.
Status. Over three months since the issuance of the Plan, SPR reductions total about 94 million barrels which meets the one million barrels per day target. For the entire calendar year, the SPR inventory has dropped by nearly 141 million barrels of oil, or about 24%. While SPR releases do not represent a large amount from a supply perspective (U.S. production alone totals about 12 million barrels per day), average national gasoline prices have nevertheless been falling since reaching a peak level of $5.02 on June 14 to a level below $4.00 today.
According to the latest U.S. Energy Information Administration report on liquid fuels (August) global production of oil rose above consumption levels during the second quarter of this year, suggesting that worldwide production and supply has increased, which puts downward pressure on the price of oil (and in turn gasoline).
In terms of taxes on unused Federal-lands drilling licenses, the only legislative vehicle available to implement such a measure this year would have been the recently-enacted Inflation Reduction Act (IRA). Such a measure, however, was not included in the enacted law. The IRA did include increases in royalty rates for offshore and onshore drilling on Federal lands/waters, as well as a permanent reinstatement of a Hazardous Substance Superfund excise tax on domestic crude oil and imported petroleum products.
Clean Energy. Enact clean energy production tax incentives to reduce long-term dependency on oil.
Status: The IRA included new resources (primarily tax incentives) estimated at about $370 billion over a decade to be used for energy efficiency and clean energy activities which proponents claim will lead to a 40% emissions reduction in the United States by the year 2030. Examples of enacted incentives: $30 billion worth of production tax credits to accelerate U.S. manufacturing of solar panels, wind turbines, batteries, and critical minerals processing; $10 billion worth of investment tax credits to build clean technology manufacturing facilities, such as facilities making electric vehicles, wind turbines and solar panels; and, $30 billion in targeted grant and loan programs for states and electric utilities to accelerate the transition to clean electricity.
Fuel Efficiency. Increase car and truck fuel efficiency standards to help reduce dependency on oil.
Status: a final rule increasing fuel efficiency standards was published by the National Highway Traffic Safety Administration (May 2), progressively increasing the fleet-wide fuel efficiency standard to 49 miles-per-gallon by the year 2026. The effects of higher car and truck fuel efficiency standards on oil demand, however, will not be realized for years. ___
Healthcare Costs. Enact measures to reduce healthcare costs - e.g., through insurance plan tax incentives, capping insulin costs, negotiating drug prices.
Status: The IRA provided authority for the Federal Government to negotiate drug prices for the Medicare program starting in 2023 initially for the ten highest-cost medications, increasing gradually to the top 20 highest-cost medications. But this is can only be done for Medicare program beneficiary medications. A measure to permit this action for non-Medicare, private healthcare insurance holders could not overcome Republican opposition. The same is true for an enacted provision to cap the monthly costs of insulin to $35 per month for Medicare beneficiaries. The IRA also caps annual co-pay costs for Medicare Part D (medication) costs at $2,000 per year.
The IRA does include an extension of current ACA/Obamacare health care premium subsidies for three years that were scheduled to expire after 2022 (until the end of 2025). Such subsidies help control health insurance premium costs for ACA insurance policy holders.
Outside of the IRA, the FDA finalized a rule (August 17) that will enable over-the-counter (OTC) sales of hearing aids without a medical prescription. OTC sales will be permitted for certain hearing aids on sale as of October 17, 2022, which is also the effective date of the rule. OTC sales should help reduce consumer and insurance company costs of most hearing aids.
Childcare Costs. Enact measures to help finance family childcare costs. Status: Childcare cost financing measures were not included as part of the IRA, and are unlikely at this time to be included in other legislation considered by the Congress this year.
Food Supply. Enact measures to increase food supply by boosting U.S. food production.
Status: The Biden Administration committed to new investments earlier this year in meat and poultry processing capacity, though new capacity is a long way off from deployment. The same is true for fertilizer production, where the Administration is deploying a new program to expand U.S. production capacity with an initial $500 million investment. Separately, the Biden Administration requested from the Congress new funding of $500 million as part of a Ukraine funding supplemental package to boost U.S. food production via farming, but the final version of that supplemental in May did not include such resources.
Supply Chain. Address U.S. supply chain bottlenecks - e.g., through more truckers, expanded infrastructure investments in ports, and U.S. semiconductor production incentives.
Status: The CHIPS and Science Act was enacted into law (August 8) that, among other things, provides $39 billion in direct financial incentives to advance U.S. semiconductor manufacturing. The 2021 Infrastructure Act dedicates new resources for Port Infrastructure, including $450 million in new funding for FY 2022. The Infrastructure Act also provided enhanced funding for states and other entities to improve commercial drivers license programs to "help get more qualified drivers on the road who can help meet supply chain demands."
Home Building. Increase the supply of U.S. homes by incentivizing new construction.
Status: While limited new 2022 funding was appropriated by Congress to expand the construction of affordable housing, efforts to more substantially incentivize home building were not included in the IRA. There is unlikely to be any other legislative vehicle available to Congress this year to address this matter. ___
Deficit Reduction via New Tax Revenue. Increase tax revenue from wealthy Americans and corporations to help reduce the Federal budget deficit and also help dampen the effects of fiscal policy on inflation.
Status: The IRA dedicates $300 billion in new resources from tax changes on wealthier Americans and corporations towards deficit reduction over ten years, but the Congressional Budget Office estimates that actual deficit reduction over the ten-year-period will net out only to about $100 billion in total. The Federal budget deficit is currently running at an estimated annual level this year (FY 2022) of $1 trillion (August OMB estimate). While the deficit is down - $1.7 trillion below the FY 2021 deficit, it is still running at a historically-high level.
Antitrust Action. Address anti-competitive pricing through Justice Department antitrust law enforcement actions in areas such as energy and food production/processing.
Status: Limited actions have been taken on food production/processing and oceanic shipping, though broad-base actions across key sectors (e.g., energy in light of gasoline prices) have not been undertaken. Antitrust enforcement efforts can take considerable time, and success in any one sector is highly uncertain. That being the case, threats of antitrust enforcement can gain the attention of industry in the hope of self-policing measures.
Justice successfully helped prevent the merger of two global container shipping giants after the companies abandoned an effort to merge (August 25). The China International Marine Containers Group Co. Ltd. (CIMC) and Maersk dropped their planned merger after a Justice investigation finding that a merger would ensure the control of over 90% of insulated container box and refrigerated shipping container production worldwide in Chinese state-owned/state-controlled entities, and that it would have substantially increased the risk of "coordination among the remaining suppliers in the marketplace, most of whom would have been aligned through common ownership and related alliances.”
Justice also took action in February to block UnitedHealth Group from acquiring Change Healthcare, a $13 billion transaction, claiming that the acquisition "would harm competition in commercial health insurance markets, as well as in the market for a vital technology used by health insurers to process health insurance claims and reduce health care costs."