Biden’s $2 Trillion Stimulus Plan – Implications For The Economy

America’s “Moral Imperative” To Stimulate the Economy?

As he unveiled the details of his sweeping $1.9 trillion stimulus package last week, which he calls the “American Rescue Plan,” President-elect Joe Biden emphasized there is a “moral imperative” for Congress to act immediately to combat the coronavirus, rescue the American economy and close the “growing divide between those few people at the very top, who are doing quite well in this economy, and the rest of America.”

A moral imperative? I’ve heard many presidents try to justify spending money we don’t have, but I don’t recall a previous president arguing we have a ‘moral imperative’ to do so. Where is it written that we have a moral imperative to spend another $2 trillion in money we don’t have? I’ve never seen it! Despite that, I fully expect the Democrats in Washington to give Biden what he wants just ahead – and push our national debt above $30 trillion.

Mr. Biden’s proposal is designed, they tell us, to combat twin public health and economic disasters and will set aside $400 billion to address the pandemic alone, including $20 billion for a national vaccination program, $50 billion for expanded testing and an investment to fund 100,000 more public health workers.

The bill will deliver checks of $1,400 to Americans, in addition to the $600 checks sent last month (for a total of $2,000), $400 a week increase in enhanced federal unemployment insurance, a further expanded child tax credit and provide money for rental relief, childcare and sick leave. All these expanded benefits would last until September 2021 unless extended.

Biden would expand check eligibility to include adult dependents who were previously excluded from receiving the money, including college students and individuals with disabilities. It would also include households with questionable immigration statuses after the first $1,200 payments Congress approved in the March CARES Act left out the spouses of undocumented immigrants who did not have Social Security numbers.

The bill will set aside $350 billion to help state and local governments fill budget shortfalls, $190 billion for struggling small businesses in the form of loans and grants and $130 billion to help the majority of K-8 schools reopen within Biden’s first 100 days in office.

Small businesses would be able to receive a grant through a $15 billion program separate from the Paycheck Protection Program under Biden's plan. The proposal would also make a $35 billion investment in some state, local, tribal and non-profit financing programs that can provide low-interest loans and venture capital to help small businesses.

The wide-ranging plan also includes a provision to raise the national minimum wage to $15 per hour (more than double the current $7.25), a big expansion of the SNAP food assistance program and money for childcare, along with a host of other provisions. Never mind that a $15 minimum wage will put hundreds of thousands of small businesses out of business.

During a press conference last Thursday, Mr. Biden declared: “We cannot afford inaction. It's not just that smart fiscal investments, including deficit spending, are more urgent than ever. It’s that the return on these investments in jobs [and] racial equity, will prevent long term economic damage, and the benefits will far...surpass the cost.”

Except that the last sentence is simply NOT TRUE, as I will discuss below!

$1.9 Trillion is Part One; Part Two to Follow in February

In his speech last Thursday night, Biden said the $1.9 trillion “rescue” plan is the first part of a two-part initiative, the second part of which he plans to unveil in February before a joint session of Congress. While Mr. Biden wasn’t specific about this second request in February, aids said it would focus on creating new jobs, infrastructure and, of course, climate change.

So, the $1.9 trillion is just the first installment with much more to follow in February. The question is whether or not President Biden can get the current stimulus passed. He will very likely need all 50 Democrat Senators, plus VP Harris to cast the tie-breaking vote.

At least one Democratic Senator, Joe Manchin of West Virginia, said last week he is opposed to the $2,000/person stimulus. He also insisted the additional payments be “targeted” to only those who have lost jobs or income. If Biden can’t flip Manchin, he’ll have to find a Republican Senator to replace him. As noted above, I expect the stimulus to pass.

The bottom line is: These types of stimulus plans simply DON’T WORK!

What they do is: Run up our national debt, risk higher inflation and thus higher interest rates – all of which are bad for the economy. That, in turn, runs the risk of a bear market in stocks. Need I say more?

Stephen Moore & Others: $2,000+/Person is a Disincentive to Work

Stephen Moore, one of my favorite economists/writers, and University of Chicago economist Casey Mulligan, have studied the Biden stimulus plan and conclude it will eliminate several million jobs if enacted. Moore and Mulligan warn:

“In addition to sending $1,400-per-person checks to millions of Americans -- helicopter money -- the Biden plan includes $350 billion for a blue state bailout, paid parental leave, a $15-an-hour minimum wage, $400 a week bonus unemployment checks, transit aid, paid leave of $1,400 a week, some $100 billion for school aid (for schools that have been shut down for almost a year), ‘health equity’ grants, student debt relief and checks for illegal immigrants.”

Moore and Mulligan point out that a family of four would receive initial stimulus checks totaling $5,600 followed by unemployment checks which would be expanded by $400 under the Biden plan.

That plus other benefits noted above will make many Americans choose to stay home rather than work, Moore and Mulligan argue. They point to President Obama’s $900 billion stimulus package passed in 2009, which even the Obama administration admitted cost hundreds of thousands of lost jobs.

Because Biden’s stimulus plan is already more than double Obama’s in 2009, with more to follow in round two, Moore and Mulligan predict at least four million jobs will be lost. I suspect several other economists will soon come forth with similar dire forecasts.

What do Moore and Mulligan recommend instead? In a column written for FOX News, Moore suggested we eliminate the payroll tax for one year. Moore wrote:

"We could completely eliminate for an entire year the 7.5% payroll taxes paid by every small business and taken out of every worker's paycheck. That would unleash millions of jobs. This would have virtually ZERO administrative and bureaucratic costs. Maybe that's why Washington pols [politicians] don't want to do it."

We’ll see what happens just ahead, of course, but I expect President Biden will get most of what he wants, now that the Democrats control both houses of Congress and the White House.

Wishing you profits,
Gary D. Halbert

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