The 2022 Inflation Reduction Act’s Agricultural Provisions: Rent-Seeking at Its Best?

Key Points

• The Inflation Reduction Act (IRA) authorized almost $38 billion in agricultural spending through fiscal year 2031—most of which is scheduled to be spent by the end of 2026—to achieve climate and other objectives, but it is not focused on reducing the US inflation rate.
• To achieve climate goals, the IRA funds initiatives of questionable value and provides support for technical assistance, but it fails to fund research and development initiatives needed to improve and assess the effectiveness of potential “climate smart” production practices.
• By increasing agricultural subsidies and spending on technical assistance, likely to be provided by consultants, the IRA is potentially creating a new “industry” and expanding opportunities for economic rent-seeking.

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Introduction

The Inflation Reduction Act (IRA), which would more fittingly be described as an “income redistribution act,” has been controversial in many ways, not least because its provisions are unlikely to affect the rate of change of the general level of prices in the short or long run.¹ When spending increases are roughly offset by tax increases, the impact of a policy initiative on overall demand and therefore the rate of change of the general price level will likely be minimal. Moreover, when the IRA’s negligible inflationary impacts are combined with the budgetary costs of the Biden administration’s recent college debt forgiveness program—$240 billion over 10 years—their joint fiscal policy impacts will be expansionary and pro-, not anti-, inflationary.

However, putting that and many other issues with the IRA to one side, in some ways, the IRA surprisingly has an entire title devoted to the agricultural sector and the rural economy. In an inflation-oriented context, this focus seems excessive because the agricultural sector, defined as farms and ranches, contributes less than 1 percent of US gross domestic product (GDP).² Further, the agricultural title provisions have nothing to do with mitigating inflation and are more likely to increase agricultural commodity and food prices than reduce them.

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Notes

1. The Inflation Reduction Act (IRA) proposes to reduce inflation while introducing and increasing spending on various new programs. Budgetary projections are, by their very nature, subject to considerable uncertainty. The nonpartisan Penn Wharton Budget Model finds the IRA’s impact on inflation statistically indistinguishable from zero. The Congressional Budget Office’s (CBO) scoring of the IRA finds that the federal deficit will decrease by $90 billion by 2031. However, these reductions are back-loaded, with increased spending raising deficits by over $25 billion in the act’s first five years. To put these impacts in perspective, the federal budget deficit totaled nearly $2.8 trillion in fiscal year 2021, and outstanding public debt currently exceeds $30.7 trillion. Thus, under the current optimistic CBO projections, the IRA will decrease public debt by 0.29 percent.
2. See US Department of Agriculture, Economic Research Service, “Ag and Food Sectors and the Economy,” https://www.ers.usda.gov/data-products/ag-and-food-statistics-charting-the-essentials/ag-and-food-sectors-and-the-economy.
3. Previous efforts included a provision included in the 2021 $900 billion American Rescue Plan to provide approximately $5 billion for socially disadvantaged farmers who were harmed by past discriminatory behavior by US Department of Agriculture agencies.