Joe Biden desperately needed an economic “win” for Democrats before November’s mid-term elections. With two quarters of falling real gross domestic product triggering the inevitable talk of “recession”, a legislative achievement could change the doom-and-gloom narrative. On Sunday, the lifeline came in the form of a Senate vote.

Joe Manchin, a holdout Democratic senator from West Virginia, finally gave a green light to a key climate and healthcare spending package from Chuck Schumer, the Senate majority leader, in return for squeezing corporations for more revenue and releasing some federal land for oil and gas exploration.

Dubbed the Inflation Reduction Act, the resulting misnamed bill that passed has little to do with monetary policy or the supply of essential goods. Instead, it largely reheats the climate aspects of President Biden’s doomed “Build Back Better” plan, stripping away its social programmes to finance new green credits and subsidies by raising taxes on companies and share buybacks. Any link with “inflation reduction” seems, at best, tenuous and, at worst, deceptive.

Right now, it is fashionable to think that government borrowing levels can determine inflation. Manchin considers it “common sense”. The bill accordingly trims deficits very modestly, reducing red ink by $305 billion over ten years — just over 2 per cent of the new debt previously expected. Even ignoring that it’s the interaction with monetary policy, not government borrowing alone, that can shift aggregate demand, this deficit reduction doesn’t occur for years and then is still highly dependent on the healthcare subsidies the bill delivers being allowed to expire.

As such, this law will have a “negligible” inflation impact this year, according to the US Congressional Budget Office. Even for 2023, “inflation would probably be between 0.1 percentage point lower and 0.1 percentage point higher”. Zilch again. At best, it might tighten demand in five years’ or so time. If the Federal Reserve hasn’t got inflation towards its target by then, the United States will have much bigger problems.

In fact, there’s reason to think this bill will raise inflation rather than reduce it. Hiking taxes on corporations reduces incentives to invest and thus shrinks new production capacity. The new “corporate minimum tax” that raises the bulk of the new revenue ($313 billion) is bound to create legal battles between American corporations and US tax authorities. To the extent that investment declines, more money chasing fewer goods means a higher price level.

Then there’s $250 billion in new tax credits for “clean manufacturing,” “clean energy” and electric cars. Subsidising your way to decarbonisation might be less destructive than banning fossil fuels outright, but that’s a low bar. Tilting the deck towards green technologies inevitably trades-off efficiency for lower carbon emissions. Encouraging otherwise uneconomic solar, wind and renewables investments reduces productive market capacity, rather than enhancing it. That’s all before we get to the 1 per cent tax on the market value of corporate share buybacks — another distortion to efficiently reallocating capital.

Ultimately, inflation can be reduced only through slowing money growth or raising productivity growth. This bill will deliver neither. Unless there are new shocks, the Federal Reserve’s monetary tightening, the unsnarling of supply chains and the recent oil price fall will likely lower America’s inflation through the year’s end. If that occurs, it would be an error to think it had anything to do with the Inflation Reduction Act that Biden will soon sign.