Biden stimulus showers money on Americans
President Joe Biden’s stimulus package, which passed the Senate yesterday, represents one of the most generous expansions of aid to the poor in recent history, while also showering thousands or, in some cases, tens of thousands of dollars on Americans families navigating the coronavirus pandemic.
The roughly US$1.9 trillion (NZ$2.6 trillion) American Rescue Plan, which only Democrats supported, spends most of the money on low-income and middle-class Americans and state and local governments, with very little funding going toward companies, a contrast to the bipartisan aid bills that passed last year under President Donald Trump.
This round of aid enjoys wide support across the country, polls show, and it is likely to be felt quickly by low- and-moderateincome Americans who stand to receive not just larger checks than before, but money from expanded tax credits, particularly geared toward parents;enhanced unemployment; rental assistance; food aid and health insurance subsidies.
But the ambitious legislation entails risks – both economic and political. The bill, which the House is expected to pass and send to Biden within days, injects the economy with so much money that some economists from both parties are warning that growth could overheat, leading to a bout of hard-to-contain inflation. Meanwhile, some businesses are saying that government aid has been so generous that they’re already having trouble getting unemployed workers to return to work – a problem that could be exacerbated by the legislation.
Unlike many other significant anti-poverty measures passed by Congress in history, this one has a short time horizon, with almost all the relief for families going away by the end of the year. That could be an abrupt awakening for Americans who have grown accustomed to financial support since Congress moved swiftly to create a stronger safety net at the start of the pandemic a year ago.
‘‘This legislative package likely represents the most effective set of policies for reducing child poverty ever in one bill, especially among Black and Latinx children,’’ said Indivar Dutta-Gupta, co-executive director of the Georgetown Center on Poverty and Inequality. ‘‘The Biden administration is seeing this more like a wartime mobilisation.
They’ll deal with any downside risks later on.’’
The total numbers are staggering. Cumulatively, the government will hand out US$2.2 trillion to workers and families between the relief passed last year and this latest bill, according to the Committee for a Responsible Federal Budget, a nonpartisan group. That’s equivalent to what the government spends annually on Social Security, Medicare and Medicaid combined.
Exactly how much money Americans are set to receive depends on a number of factors including whether they are unemployed, their household income, whether they have children or other dependents, and the state they live in. According to calculations by Marc Goldwein, senior policy director for the Committee for a Responsible Federal Budget, a Massachusetts family of four that had an income of about US$53,000 before the pandemic and has one parent unemployed stands to receive more than US$22,000 from this package. That’s in addition to the unemployment assistance and child tax credit the family would be eligible for without the pandemic.
In total, this family of four is set to have received more than US$50,000 from the relief bills Congress has passed since the crisis began, a large amount that more than replaces the family’s lost income during the crisis.
The Democratic stimulus package also provides significant funding for vaccine distribution and state and local governments. Business and health leaders say getting most Americans vaccinated is key to the economic recovery. But most of the attention on the bill has focused on its overall price tag and the payments that are set to go to about 150 million American households.
The latest stimulus will reduce poverty by a third, lifting nearly 13 million Americans out of it, according to an analysis by Columbia University’s Centre on Poverty and Social Policy. Black Americans, Hispanic Americans and poor families with children are set to benefit the most. Child poverty would be reduced by more than half, the researchers predict.
The magnitude of aid, especially for the poor, is far greater than the US government has responded to other economic crises. The total response to the Great Recession was less than US$1 trillion, and the most optimistic estimates are that about 6 million Americans were kept out of poverty in 2009 because of efforts by Congress at the time.
Biden and his top officials have repeatedly said they have learned lessons from the mistakes made during the Great Recession response. This time around they want to go big enough to ensure jobs return swiftly. They want a package that, in the words of White House press secretary Jen Psaki, will get families ‘‘talking about it at their dinner tables.’’
Many economists say the package is far from perfect, but they broadly agree that this crisis has been an unprecedented hit on low-income workers and their children and the aid should be targeted most toward them.
Recent history has shown that giving money to poorer families delivers the greatest boost to the economy, because those Americans are the most likely to spend the money right away.
‘‘History and a strong body of research would tell us the only way to avoid more lasting scars on households and the economy is by not doing too little,’’ said Ellen Zentner, chief economist at Morgan Stanley. She pointed out that giving money to low-income households ‘‘is much more stimulative than past policies in a downturn.’’
Still, one of the biggest criticisms of the bill is that it is too large overall at a time when the Congressional Budget Office projects the economy is running roughly US$700 billion below potential – a concept that tries to measure what a completely healthy economy would like.
‘‘I don’t think there’s any justification from an economic standpoint or a bottom-up standpoint for US$1.9 trillion in further Covid relief,’’ Goldwein said. ‘‘A package half that size would still be a safe boost to the economy.’’
Goldwein and others are especially critical of Democrats’ decision to allot US$350 billion to state and local aid, even though many states are no longer running deficits and independent estimates suggest the need is far less than that amount.
‘‘This legislative package likely represents the most effective set of policies for reducing child poverty ever in one bill, especially among Black and Latinx children.’’
Indivar Dutta-Gupta Georgetown Centre on Poverty and Inequality