What exactly is in Joe Biden’s stimulus plans?

By Adam Housley, Economics Editor at The London Financial and Economic Analyst at City, University of London Economics Society

On April 28^th, Joe Biden announced his planned spending packages equating to about $6 trillion, aiming to rejuvenate the economy after the horrendous effects of the coronavirus pandemic on the United States (US). There is no doubt that the US economy has desperately needed reviving, as it has been hit particularly hard from the pandemic: 175.55 known deaths per 100,000 population, ranking them as the 6^th highest in the world. These devastating statistics have led to a recession which has dwarfed the 2008 subprime mortgage crisis. Even his predecessor, Donald Trump, who was a prominent advocate for minimal government interference into markets, laid out a $2.2 trillion pandemic relief bill before he left office. But what exactly has Joe Biden proposed?

In March, Biden narrowly passed the American Rescue Plan through the Senate by a margin of 50-to-49 with the total plan costing $1.9 trillion. The main headline of this bill is a $1,400 one-time payment for approximately 161 million Americans with the aim to reduce long-term poverty. It also includes emergency funding for localities, local governments and states alongside $21.6 billion in subsidies for federally-subsidised housing.

Biden also unveiled the American Jobs Plan on March 31^st which will cost the American taxpayer $2.2 trillion to upgrade vital infrastructure: from bridges to electric vehicle development. Infrastructure is an area that has long been neglected in terms of investment, with public domestic investment as a share of the economy falling by 40 percent since the 1960s. This means that even though the US is a global economic giant, it currently ranks 13^th in terms of the overall quality of its infrastructure, thus lagging behind its economic competitors. This is a large bill which covers many areas, including modernising 20,000 miles of highways, delivering clean drinking water, renewing the electric grid and delivering high-speed broadband to all Americans.

The final bill introduced is The American Families Plan equalling $1.8 trillion, which includes spending increases and tax cuts that seek to expand access to education and also supports women in the work force. In this plan, the government intends to inject $200 billion into free universal preschool for 5 million children in low-income and working-class families alongside other policies which aim to support the middle class families in the US.

Undoubtedly, all of the announced spending packages are ambitious with the American Rescue Plan being one of the largest spending increases in the US since World War II. As a result, Biden also announced that these ambitious packages would be funded through the Made in America Tax Plan, aiming to ensure that corporations and the top one percent of income earners in the US would pay more tax alongside raising capital gains and dividend tax rates. In addition, the I.R.S. will see $80 billion in enhancements which, as the Administration has estimated, could raise $700 billion from high earners and corporations that evade taxes. These stimulus packages are definitely needed with every other developed country introducing similar packages. That said, there remains questions if these packages are too large and whether these would lead to inflation in the future. One of the most outspoken critics is Lawrence Summers, Obama’s former economic advisor. However, The Made in America Tax plan targets the top one percent of income earners and corporations — those that are more able to pay these tax rises.

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