Trump's Legacy: $7.8 Trillion Rise in Debt

By Yuval Rosenberg

Why Biden’s Ambitious Covid Relief Plan Could Get Cut in
Half

President-elect Joe Biden’s plan to "rescue" the American
economy proposes $1.9 trillion in federal spending to fund a
national vaccine program, boost unemployment benefits, provide
additional direct payments to Americans, assist state and local
governments, and more. (See more details
here.)

"During this pandemic, millions of Americans, through no fault
of their own, have lost the dignity and respect that comes with a
job and a paycheck," Biden said in a speech Thursday night. "The
very health of our nation is at stake."

Economists were
largely supportive of the plan. Mark Zandi and
Bernard Yaros of Moody’s Analytics projected that Biden’s proposal,
if enacted in full, "would provide a large boost to the economy,"
leading to GDP growth of nearly 8% this year and 4% next year,
while restoring nearly full employment by fall 2022.

Still, analysts at Moody’s and elsewhere were skeptical that
Biden’s full plan can pass, given Republican opposition, slim
Democratic majorities in Congress and potential procedural hurdles.
A number of analysts said they expect the final price tag will be
about half of the $1.9 trillion Biden proposed. Economists at
Goldman Sachs raised their projections for additional fiscal
support likely to be enacted from $750 billion to $1.1 trillion and
said that they expected to boost their economic forecast as
well.

Here’s how some other analysts, pundits and politicians are
reacting to the Biden plan.

A new fiscal era for Democrats: Centrist and liberal
Democrats welcomed the proposal, with some to the left of Biden
expressing relief that the plan was big, ambitious and unencumbered
by concerns about increased federal borrowing. Bloomberg’s Jonathan
Bernstein
wrote:

"Biden’s speech drove the final nail into the coffin of
mainstream liberal attempts to make Democrats the party of fiscal
restraint, efforts that began in earnest after Republicans adopted
big-deficit policies at the beginning of Ronald Reagan’s presidency
in 1981. For almost 40 years, Democrats tried and failed to
convince journalists and pundits that they were the party that
cared about federal budget deficits. ... That seems over."

A big proposal for a big problem: "This package is at the
scale of the problem,"
said Heidi Shierholz of the liberal Economic Policy
Institute. State and local aid, unemployment insurance
expansions/extensions, $400 billion to fight COVID, and more. They
got the economics right. This is a very bright spot in a difficult
time."

Good bang for the buck: "Parts of President-elect Biden’s
plan target constraints to faster economic recovery, including
funding for vaccine rollout, testing and treatments, areas likely
to have high bang for the buck,"
said Andrew Husby of Bloomberg Economics.
Extending unemployment benefits past the mid-March cutoff will also
ease burdens on the most vulnerable parts of the population."

Better too big than too small: "One lesson from the
financial crisis is that you want to be careful about doing too
little,"
said Glenn Hubbard, chief economist in the George
W. Bush administration.

Big Business supports – up to a point: Some traditionally
conservative groups such as the U.S. Chamber of Commerce also
expressed support. "[W]e applaud the President-elect’s focus on
vaccinations and on economic sectors and families that continue to
suffer as the pandemic rages on," the Chamber said in a statement.
"We must defeat COVID before we can restore our economy and that
requires turbocharging our vaccination efforts. We look forward to
working with the new administration and Congress on the details and
in ensuring that any additional economic assistance is timely,
targeted, and temporary."

And at least one Republican, Sen. Marco Rubio of Florida, said
he could get behind the call for $2,000 relief checks for most
Americans, though not other parts of the proposal.

Some early GOP resistance: Politics being politics,
though, not everyone was enthusiastic about the plan. Noted fiscal
conservative and former Club for Growth president Sen. Pat Toomey
(R-PA)
said Friday that Biden’s proposal would be "a
colossal waste and economically harmful," and decried the recent
growth in government spending. "In less than one year, Congress has
spent $3.4 trillion on direct COVID relief aid and nearly doubled
the entire federal budget," Toomey said.

The Koch-backed Freedom Works advocacy group also criticized the
"leftist policies" in Biden’s proposal. "The recently announced
‘American Rescue Plan’ appears to be less about rescuing American
families from their current economic problems and more about using
the COVID-19 crisis as an excuse to ram through a laundry list of
leftist policies," the group said.

What comes next: The comments from the right suggest that
Biden may have a hard building support for the proposal among
Republicans. The negotiations ahead could stretch out for weeks or
months. "This is an opening bid," Bill Hoagland of the Bipartisan
Policy Center told the Associated Press. "There is a sense from
Republican staff that $1.9 trillion is a little rich. But
President-elect Biden is an astute student of the Senate and
negotiations and I have a feeling that they would expect this to be
the top and not everything would be accepted."

If negotiations go nowhere, Democrats could try to use
budget reconciliation process to pass all or part of Biden’s plan
with a 50-vote margin in the Senate. Analysts at Goldman Sachs
poured cold water on that option Friday.

"While Democratic leaders might use the budget
reconciliation process to circumvent potential Republican
opposition, there are two arguments against doing this," the
Goldman analysts wrote. "First, recent political events put a
greater premium on finding areas of bipartisan support, if
possible. Second, the reconciliation process has never been used
before to pass discretionary spending, and it appears that around
half of the proposal—state fiscal aid, education grants, public
health spending, to name a few areas—falls into this category.
While it is possible that congressional Democrats might find a way
to do this, it looks more likely that the need to find bipartisan
support might constrain the size of the package."

Will the New Congress Do Anything to Lower Drug Prices?

More than 100 pharmaceutical companies raised the prices of 636
drugs in the first week of January, according to the advocacy group

Patients for Affordable Drugs. The vast majority
of the price hikes, 95%, came on brand-name drugs, and the median
price hike was about 5%, the group says. Nearly all of the price
increases were above the rate of inflation. Pfizer raised prices on
93 of its products, the most of any company.

Why it matters: These are changes to list prices.
"Patients with insurance don't pay those prices, and may not see
any increase in their costs even when list prices go up," Axios’s
Marisa Fernandez
notes. "But price increases do affect the
uninsured and people with high deductibles." And, as Fernandez
points out, the price increases come at a time when millions of
Americans have lost their health coverage because of the
pandemic.

Where things stand: President Trump spoke often about
lowering prescription drug prices, but as Paige Winfield Cunningham
of The Washington Post’s Health 202 pointed out on Thursday, "not
much has actually been accomplished" — and the prospects of
bipartisan action on the issue by the new Congress don’t look
promising.

Sen. Ron Wyden, the incoming chair of the Senate Finance
Committee, said this week that he wants to "take bold action on
prescription drug prices." After a bipartisan reform effort that he
worked on with Sen. Chuck Grassley (R-IA) was sidelined last year,
the Post reports that Wyden now "is focusing on a wish-list item
for Democrats but poison pill for the GOP: eliminating a ban on the
federal government using its negotiating power to directly force
lower drug prices under Medicare."

Winfield Cunningham says that a new Government Accountability
Office report finds that such direct negotiations can bring down
government costs for prescription drugs — with the Department of
Veterans Affairs, which buys drugs directly from manufacturers,
paying 54% less for a unit of drugs than Medicare’s drug program,
which is restricted by law from direct negotiations.

"This effect is one reason the pharmaceutical industry — and
thus many Republicans and some Democrats — hate the idea so much,"
Winfield Cunningham writes.


Read more at The Washington Post.

Trump’s Legacy: Why the $7.8 Trillion Rise in Debt Matters

Journalists, historians and others pondering President Trump’s
legacy are likely to point to his historic impeachments, his
generally
divisive politics and his anti-democratic propagation of
misinformation and disinformation as well as the roughly 400,000
Covid-related deaths that took place while he was in office.
They’re already pointing out that his four years in office started
with a vow to end what he darkly described as "American carnage"
and ended with him urging a march on Congress that led to one of
the most shocking examples of such carnage in the nation’s
history.

Writing for
The Washington Post and ProPublica,
Allan Sloan and Cezary Podkul argue that Trump’s legacy will
include another a "lesser known but profoundly damaging" Trump
legacy is the nearly $7.8 trillion increase in the national debt
over the last four years (the debt held by the public has grown by
about $7.2 trillion):

"The growth in the annual deficit under Trump ranks as the
third-biggest increase, relative to the size of the economy, of any
U.S. presidential administration, according to a calculation by
Eugene Steuerle, co-founder of the Urban-Brookings Tax Policy
Center. And unlike George W. Bush and Abraham Lincoln, who oversaw
the larger relative increases in deficits, Trump did not launch two
foreign conflicts or have to pay for a civil war. …
"The combination of Trump’s 2017 tax cut and the lack of any
serious spending restraint helped both the deficit and the debt
soar. So when the once-in-a-lifetime viral disaster slammed our
country and we threw more than $3 trillion into covid-related
stimulus, there was no longer any margin for error."

The effect of that surge in debt, they argue, is that the United
States — with an aging population and rapidly rising Social
Security and Medicare expenses — will be strained when it comes to
investing in the future — "things like research and development,
education, infrastructure and workforce training," which have
already declined sharply as a share of federal spending.

And even with interest rates at historically low levels,
federal interest costs are already set to be the fastest-growing
budget category. "The government’s interest cost (including
interest paid to government trust funds) was around
$523 billion in the 2020 fiscal year," they note. "That
outstrips all spending on education, employment training, research
and social services, Treasury data shows."

Orszag, Rubin and Stiglitz Call for a New Fiscal Framework

The consensus on the dangers of rising debt has shifted
dramatically over the last decade. Economists have been reexamining
how best to spur recovery and encourage wider-spread prosperity as
persistently low interest rates defy earlier warnings about the
cost of massive government borrowing.

"The facts have changed and economists have, sensibly, changed
their minds," the Financial Times editorial board
noted yesterday. "Inflation, economic growth and
interest rates failed to recover as anticipated after the financial
crisis. This not only kept borrowing costs down but demonstrated
that cutting spending may have had a bigger negative impact than
expected."

Against that backdrop, three prominent fiscal policy experts —
Peter Orszag, former director of the Congressional Budget Office;
Robert Rubin, the Treasury secretary under President Bill Clinton;
and the Nobel Prize-winning Columbia University economist Joseph
Stiglitz — are calling for a broad revamping of federal tax and
spending policies.

In a
paper published this week by the Peterson
Institute for International Economics, they warn that, in our
uncertain world, the current low interest rates shouldn’t be taken
for granted and propose a number of changes to make fiscal policy
more responsive to economic conditions.

"The goal is to streamline the decisions policymakers must make
and curb potential sources of budgetary instability while
preserving an ability to make corrections on top of such
adjustments," they write. "To move in this direction, we propose
reducing the budget’s exposure to interest rate variation while
also making it respond more automatically not only to short-term
economic conditions but also to drivers of long-term fiscal
pressures (for example, in health care and pensions)."

They make five key recommendations:

* Relying more on automatic stabilizers such as unemployment
benefits.

* Creating a "permanent" new infrastructure program that spends
more when the economy turns down or when the expected returns on
investment are high.

* Lengthening the maturity of U.S. debt to lock in the long-term
benefit of low rates and reduce the impact of any sudden rise in
rates. The authors say they support the creation of bond maturities
longer than 30 years. "At today’s yield curve, I’d do as much as I
could" to extend the maturity, former Treasury Secretary Rubin told

Bloomberg.

* Indexing Social Security to changes in life expectancy as part
of a goal of having the government’s long-term fiscal commitments
tied more directly to their drivers

* Allowing policymakers to streamline their decision-making and
focus more on budget adjustments in response to changing
circumstances.

"These five points are admittedly more a sketch than a
full fiscal plan," the authors write. "But our main point is to
highlight the problems in being too certain about fiscal
prognostications in a world that continuously surprises all of us,
and this five-point architecture points the way toward a more
resilient budget policy."

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