If the US midterm elections in November this year are to be played out on economic indicators, the situation is delicate for President Biden and the Democratic camp. Admittedly, inflation slowed more than expected in July in the United States, driven by the fall in the price of gasoline at the pump. Consumer prices rose 8.5% year on year, according to the Consumer Price Index released by the Labor Department. This is less than the 9.1% in June, unheard of for over forty years. But it’s still high. GDP continues to contract, by 0.9% in the second quarter after -1.6% in the previous one. Slowing demand, rising energy costs and tight labor markets are increasingly weighing on the US outlook.
How to curb this combination of inflation and decline and revive the American economy? If the US Federal Reserve is maneuvering with several increases in key rates now at 2.50%, the federal state does not intend to play the absent subscribers. But it is not only in France that the president only has a relative majority. In the United States, the absence of a Democratic majority in the Senate forces Joe Biden to rally all the Democrats behind him to snatch the votes with one vote, which has considerably handicapped him for a year and a half to apply his program.
Everything suggested that he could not pass a second major bill after the Investment and Job Act of November 2021. However, he is now able to pass a program of 433 billion federal spending called ” Inflation Reduction Act” to fight inflation, accelerate the energy transition and implement measures in favor of the less well-off populations. This project, largely amended according to eight months of negotiations and concessions made to the two Democratic dissidents, in particular the emblematic resumption of authorizations to exploit oil and gas on federal lands and at sea, develops considerable financial means to develop the “green economy” and drastically reduce greenhouse gas emissions.
Massive Clean Energy Subsidy
The sum of 369 billion dollars (as much in euros) of subsidies and tax aid should thus be mobilized in favor of clean energies and energy efficiency. All sectors of the economy are concerned in a text which covers the production of low-carbon electricity, biofuels, the implementation of less polluting industrial processes and the capture of CO2, in particular in the chemical industry, cement factories or the steel industry. It also specifically targets low-income households to lower their energy bills. Tax credits are planned to help them to electrify their homes and their domestic equipment, to install solar panels on the roof and heat pumps or to acquire clean vehicles.
These public expenditures should be financed by the establishment of a corporate tax rate of at least 15% and the renegotiation by the Federal State of the price of drugs for social security beneficiaries. As much as possible, these green technologies will have to be “made in America” (produced in the United States), with 60 billion dollars dedicated to the development of production chains for solar panels, wind turbines, batteries, heat pumps and treatment of critical minerals. Up to $20 billion in loans will also be allocated for new clean vehicle manufacturing sites. In total, the project expects to create 1.5 million jobs.
This project would represent by far the largest climate investment in the history of the United States. It must mark their return among the nations committed to achieving the objectives of the Paris agreement by placing them on a path to reduce emissions by 40% by 2030 compared to 2005. Definitively voted on by the House of Representatives, it will be an important victory for President Biden ahead of the upcoming midterm elections to show his constituents that he is delivering on his environmental and social agenda.