Joe Biden’s $1.9tn stimulus bill is mainly intended to speed up the American recovery from the pandemic. But it has a secondary goal: to make the world’s largest economy more equitable.
The huge new injection of US government spending, involving large-scale transfers directly targeted at low- and middle-income families, marks the White House’s first stab at reducing income inequality and poverty — entrenched problems that have been exacerbated since the coronavirus hit.
Biden has placed an effort to create a more balanced, as well as stronger, economy at the heart of his agenda since the campaign last year, when he criticised the unequal “K-shaped recovery” that was unfolding under Donald Trump’s watch.
Even before then, tackling economic disparity has been an unfulfilled goal for Democratic politicians and left-leaning economists since the global financial crisis.
“This package is designed to stem the challenges in the here-and-now so that as we move towards the recovery, we will not have such a sharp disparity,” Heather Boushey, a member of the White House council of economic advisers, told the Financial Times.
“As this pandemic has worked its way through our economy and our society, many at the top have been just fine . . . while for those folks at the bottom what you see are just real intense needs and challenges,” she added.
The main provisions of the Biden stimulus are directed towards immediate relief for broad swaths of American society with less income and less wealth to absorb the shock of the crisis. There is limited help for business and markets.
Direct payments of $1,400 per person are available for Americans earning less than $75,000 per year. But these are rapidly phased out at $80,000, with no money going to the top 1 per cent of households.
A boost to the tax credit for children is projected to reduce the number of children in poverty by 50 per cent, while an emergency top-up to unemployment benefits worth $300 per week will be extended through September. Additional funding for reopening schools and rolling out vaccinations are expected to be of particular help to low-income neighbourhoods, where both have lagged. Even Bernie Sanders, the leftwing Vermont senator who challenged Biden for the Democratic presidential nomination last year, cheered it on.
“[This] is the most significant piece of legislation to benefit working families in the modern history of this country,” Sanders said after voting for the package on Saturday. “The American people are hurting, and this comprehensive plan goes a long way to addressing the myriad crises that we face,” he added.
The impact of Biden’s stimulus bill will only be temporary, since its key features will gradually fade later in the year and into 2022 — so lawmakers and economists say it will take a lot more to fundamentally change the structure of the US economy to make it less unequal.
During his campaign, Biden promised a series of steps that would help tackle economic inequality, including tax increases on the wealthiest Americans and companies, but it is unclear how far the White House will push those in its next economic plan, which is due to be focused on infrastructure spending. Also in Biden’s campaign platform were massive investments in education and childcare, and low-income communities, which are also designed to curb entrenched inequality, including racial disparity.
“[This stimulus bill] is largely about making sure that we don’t end up with more inequality because of Covid,” said Claudia Sahm, a former Federal Reserve economist. “We have to get back to February 2020, and then we can build. And you know, build bridges to a better place with less inequality, a more robust safety net, and more opportunities for all Americans, particularly children. That’s the next package,” she said.
Although opinion polls indicate Biden’s stimulus plan is popular, Republicans have dismissed any suggestion that it could have a positive impact.
“The Senate has never spent $2tn in a more haphazard or less rigorous way,” Mitch McConnell, the Republican senate minority leader said on Saturday, calling it a “colossal missed opportunity for our nation”.
Other economists have raised worries that Biden’s stimulus could stoke an unwarranted spike in inflation — well beyond the average 2 per cent target sought by the Federal Reserve — and was excessive at this point in the cycle.
“Seems like we’re spending all this money at the wrong time now. We’re already in recovery phase,” said Price Fishback, an economist at the University of Arizona. “What the Democrats are doing is trying to match what the social welfare system looks like in Europe,” he said.
But at the White House there is little doubt that the government boost to the economy needs to be big — and will be in vain if the benefits are not broadly shared.
“We’ve learned a lot in the past decade — from the Great Recession — and one of the lessons is if we do not nip these recessions in the bud and go out and do what you need to do, the scarring effects linger for some months and even for a lifetime,” Boushey said. “When the pandemic hit, we saw how inequality created fragility, across our society and across our economy. And that made all of us more vulnerable.”
Source: Economy - ft.com
