Would the Build Back Better Plan Make Inflation Worse?

Some experts say yes, others say no—and the arguments might not even matter

Woman looking dubiously at a container of orange juice in the supermarket
•••

Peter Cade / Getty Images

As President Joe Biden works to resurrect his Build Back Better domestic spending plan—likely in a stripped-down, more incremental form—he faces opponents wielding a persuasive counterargument: concerns about inflation, currently running at its hottest pace in nearly four decades. But what impact would the ambitious package of social and environmental programs really have on inflation, if any?

Key Takeaways

  • When Sen. Joe Manchin blocked President Joe Biden’s Build Back Better plan, he cited inflation as a major reason—an objection Biden must overcome to salvage his domestic spending agenda.
  • Experts are divided on whether the measure would actually cause inflation: Some say yes, others say no, and still others say it wouldn’t make much difference either way. 
  • The wide-reaching impact of inflation has become a politically powerful argument against the plan.

That’s a matter of debate among economists, some of whom say the extra spending would make inflation worse, while others say it would actually cool rising prices in the long run. Still others don’t see it making much difference either way. 

“Basically it’s a nothingburger for inflation on either side,” said Michael Klein, a professor of international economic affairs at Tufts University and founder of the nonpartisan economics analysis blog, econofact.org

The Build Back Better bill was essentially killed when Sen. Joe Manchin, a Democrat from West Virginia, said in December that he wouldn’t vote for it, suggesting the new spending would exacerbate inflation and add to the national debt. (The Democrats can’t pass the bill without all 50 of their votes in the narrowly divided Senate.)

In its most recent iteration, the bill would have created and expanded a wide range of social and environmental programs at a cost of $1.7 trillion over 10 years. It would have extended last year’s expansion of the child tax credit and created universal free preschool and new green energy subsidies, among other things. 

“My Democratic colleagues in Washington are determined to dramatically reshape our society in a way that leaves our country even more vulnerable to the threats we face,” Manchin said in a statement in December. “I cannot take that risk with a staggering debt of more than $29 trillion and inflation taxes that are real and harmful to every hard-working American at the gasoline pumps, grocery stores and utility bills with no end in sight.” 

Biden said last month that some elements of the bill might get support if they were broken up, and that seems to be all he can hope for at this point. Manchin on Tuesday told an Insider reporter the bill was “dead,” though when pressed about whether he would mind a smaller version, he said, “We’ll see what people come up with. I don’t know,” according to Politico.

But does Manchin’s concern about inflation hold water? Some economists say it does, citing basic laws of supply and demand.

"Inflation is the result of too much demand chasing too little supply," said John Leahy, a professor of public policy and economics at the University of Michigan, in a blog post. "Anyone arguing that the bill is inflationary can point to any standard economic textbook: An increase in government spending should increase demand and thereby increase inflation.” 

However, others argue that the spending isn’t the whole story. The bill would also include tax increases on the superwealthy and big corporations, so it would be taking almost as much money out of the economy as it puts in, argues Chad Stone, chief economist at the Center on Budget and Policy Priorities, a progressive think tank. 

That view is supported by economists at FT Advisors, who pointed out in a recent analysis that big government spending bills haven’t always led to more inflation in the past: The New Deal, for example, didn’t cause inflation to accelerate.

Making Expenses More Affordable

Some proponents of the bill argue that the subsidies for families, rather than making inflation worse, will help them deal with the inflation that already exists by making child care, medicines, and other important expenses more affordable. That was the argument made in a letter signed by 56 economists in December—one that’s often cited by Biden administration officials arguing in favor of the bill.

Another wrinkle: The bill’s investments in child care, preschool, research and development, and infrastructure would help make the economy more efficient, getting people back into the labor force and boosting economic productivity in the long run—all of which would act against inflation, according to an analysis by the Committee for a Responsible Federal Budget, an anti-deficit think tank.

While the committee’s analysis concludes these effects would be mildly outweighed, at least in the short term, by the inflationary effects of the extra spending, others disagree. Klein, for example, points out that since the bill’s $1.7 trillion cost over a decade is a drop in the bucket compared to the goliath U.S. economy, with its $22.3 trillion in gross domestic product annually, it probably wouldn’t have a noticeable impact on inflation, either for better or worse.

So who’s right, in the end? For the future of the Build Back Better plan, the competing arguments might not even matter.

“I think that people who are against it will use whatever they think will resonate whether or not there is any intellectual merit to it,” Klein said. 

And concerns about inflation do weigh heavily on the public. Recent polls of investors and the general public show that inflation increasingly is top of mind, even as other facets of the economy—such as the roaring job market and an extremely low level of home foreclosures—are much rosier. 

Inflation looms large in the public imagination—and in political debates around the Build Back Better bill—because it affects everyone, Klein said. In contrast, while economic problems like unemployment and foreclosures are severe for those they impact, they usually affect a relatively small portion of the population, he added. 

“When the price of gas goes up, everybody who drives a car notices it, and when the price of orange juice goes up, everybody who goes to the grocery store and buys orange juice is touched by it,” Klein said.

Correction - Feb. 2, 2022 - This story was corrected after misstating the timing of a letter. A letter urging passage of the Build Back Better bill was signed by 56 economists in December, not January.

Have a question, comment, or story to share? You can reach Diccon at dhyatt@thebalance.com.

Article Sources

  1. Gerald R. Ford School of Public Policy. “Build Back Better Will Increase Inflation.” Accessed Jan. 31, 3022.

  2. First Trust. “Who Gets the Blame for Inflation.” Accessed Jan. 31, 2022.

  3. Invest in America Action. “56 Economists Urge Passage of Build Back Better Act To Lower Costs & Ease Pressure of Inflation for Families.” Accessed Jan. 31, 2022.

  4. Committee for a Responsible Federal Budget “What Will Build Back Better Mean for Inflation?” Accessed Jan. 31, 2022.

  5. The Conversation. “Manchin Killed Build Back Better Over Inflation Concerns – An Economist Explains Why the $2 Trillion Bill Would Be Unlikely To Drive Up Prices.” Accessed Jan. 31, 2022.