Is Biden’s Covid Rescue Plan Too Big?

Is Biden’s Covid Rescue Plan Too Big?

Printer-friendly version
Plus, a new push to repeal the SALT cap
Friday, January 29, 2021

Biden Urges Congress to Move Quickly on Covid Relief, Won’t Rule Out Acting Without GOP

Saying the economy is in dire need of more support, President Biden on Friday urged lawmakers to move quickly to approve his $1.9 trillion Covid relief bill.

“We have to act now,” Biden told reporters as he met with newly confirmed Treasury Secretary Janet Yellen in the Oval Office. “There is an overwhelming consensus among economists, left, right and center, that this is a unique moment in this crisis. The cost of inaction is high and it is growing every day.”

Biden said more spending more now will help the economy return to full employment at a faster clip. “We need to make these investments so the economy can grow the remainder of this year and next year,” he said. “Investments now will help the economy grow. It will not, in fact, put a drag on this economy ... it will do the exact opposite.”

Yellen, citing a “huge amount of pain in the economy right now,” said the case for more support was clear. “Economists agree, that if there is not more help, many more people will lose their small businesses, roofs over their heads and the ability to feed their families. And we need to help those people before the virus is brought under control," she said.

“I want to emphasize that the president is absolutely right,” Yellen added. “The price of doing nothing is much higher than the price of doing something, and doing something big. We need to act now, and the benefits of acting now and acting big will far outweigh the costs in the long run.”

A generational threat: Failure to pass aid quickly could make it harder to reopen schools, Biden said, jeopardizing young people’s future earning potential. “You could see an entire cohort of kids with lower lifetime earnings because they’re deprived of another semester of school,” Biden said. “The choice couldn’t be clearer. We have learned from past crises: The risk is not doing too much, the risk is not doing enough.”

Psaki invites Republicans to climb aboard: Addressing GOP complaints that Democrats were moving too quickly and threatening to proceed without bipartisan backing, White House Press Secretary Jen Psaki reiterated that Biden is seeking support from both sides of the aisle, even if the bill is advanced through reconciliation, which would allow Democrats to pass it with just 51 votes. “This bill should be bipartisan,” Psaki said at a press briefing. “A fair question you might ask our GOP or Republican colleagues is why they oppose proposals that have the support of 74% of the American public. If this bill moves forward through the reconciliation process, it doesn’t mean they can’t vote for it.”

Biden to push relief bill: In his first days in office, Biden has signed a remarkable number of executive actions — 42 at last count — touching on a wide variety of issues, but he plans to shift his attention next week to getting legislation through Congress, NBC News reported Friday. His main focus will be the Covid relief package, and he has already started calling key Republicans to lobby for the bill, including Sens. Susan Collins of Maine and Rob Portman of Ohio. Biden may invite lawmakers to the White House to press his case. “I support passing Covid relief with support from Republicans if we can get it,” Biden said Friday. “But the Covid relief has to pass, there's no ifs, ands or buts.”

Is Biden’s Relief Plan Too Big?

Combined with the $900 billion in aid passed in December, Biden’s $1.9 trillion relief bill would produce the largest stimulus effort in modern American history. Could it be so big that it overheats the economy? As Neil Irwin of The New York Times writes Friday, the answer is probably yes — but that might not be such a bad thing.

According to Mark Zandi, chief economist at Moody's Analytics, Biden’s Covid bill amounts to roughly 8% or 9% of U.S. GDP this year and would be about twice as large as the current output gap — the difference between what the economy will produce and what it is capable of producing. That would almost certainly be enough to make the economy run hot.

Zandi, whom the Biden economics team has cited, says that as far as he is concerned, this is not a problem. “It’s better to err on the side of too much rather than too little,” he told Irwin. “Interest rates are at zero, inflation is low, unemployment is high. You don’t need a textbook to know this is when you push on the fiscal accelerator. Let’s go.”

Conservatives are far less enthusiastic about the plan due to concerns about inflation and the national debt. Douglas Holtz-Eakin, a Republican who served as director of the Congressional Budget Office, said the economy is “already in uncharted territory.” Pointing out that fourth quarter GDP was $119 billion lower than the same period a year earlier, he asked Irwin, “Do we need another $1.9 trillion to deal with that problem? I have an arithmetic problem with where we are.”

But some experts say that the problem goes beyond the relatively straightforward question of the size of the relief package relative to GDP. The Biden administration’s goal is to make up not just for the loss incurred by the coronavirus pandemic but also for years of lukewarm growth that have done little for those at the bottom and middle of the economy.

“We don’t really know what the G.D.P. output gap truly is,” Mark Paul, an economist at New College of Florida, told Irwin. “Economists for decades have erred and been too cautious, thinking that full production is significantly lower than it actually is. We’ve been consistently running a cold economy, creating massive problems for social cohesion.”

As Irwin puts it at the end of his review of the issue: “It’s hard to worry too much about getting burned after a decade-long winter out in the cold.”

Schumer Leads New Push to Repeal SALT Cap

Senate Majority Leader Chuck Schumer (D-NY) and a bipartisan group of blue-state lawmakers introduced legislation on Friday to repeal the $10,000 cap on state and local tax deductions created under the 2017 Republican tax law. Their proposal would restore taxpayers’ ability to write off the full amount of their state a local taxes, a change that would be of particular benefit to residents of high-tax states like California and New York.

“When it comes to SALT, New York families needed and deserved this money before the coronavirus took hold, the stakes are even higher now because the cap is costing this community tens-of-thousands of dollars they could be using amid the crisis,” Schumer said in a statement. “We need to bring our federal dollars back home to cushion the blow this virus—and this harmful SALT cap—has dealt so many homeowners and families locally.”

What it means:
Democrats have made repealing the SALT cap a priority in recent years, but their efforts had been blocked in the Republican-led Senate. Now that Democrats control that chamber, too, they are hoping they can push the change through, whether as part of a coronavirus relief package or in legislation later this year. But the repeal would be costly — and would primarily benefit higher-income households. Laura Davison of Bloomberg News reports: “To allow unlimited deductions just in 2021 would cost $88.7 billion, according to the Joint Committee on Taxation, Congress’s non-partisan scorekeeper. Permanently repealing the limitation would cost many multiples of that.”

Americans Overwhelmingly Pessimistic Biden and Congress Will Lower Health Care Costs

President Biden on Thursday ordered Affordable Care Act marketplaces to reopen for enrollment from February 15 to May 15, a step meant to increase access to coverage in keeping with Biden’s broader aim of bolstering Obamacare. Nearly 15 million people are eligible for coverage via the Obamacare exchanges, according to the Kaiser Family Foundation, with some 4 million eligible for bronze-kevel plans that would be free after accounting for subsidies and another 4.9 million qualifying for partial subsidies.

A new poll conducted by Gallup and West Health finds that expanding health coverage remains a priority for many Americans, but a larger share say that lowering premiums and drug costs should be a top concern for the government. Seven in 10 adults say that bringing down premiums should be a high priority for the Biden administration, while two-thirds point to drug costs and 63% call reducing the uninsured rate a high priority. The survey of 3,100 adults was conducted online from December 15, 2020 to January 3, 2021.

“Democrats are more likely than Republicans to prioritize lowering health insurance premiums and the cost of prescription drugs, but majorities of both groups agree these cost reduction goals are high priorities,” Gallup’s Dan Witters reports. “In contrast, 90% of Democrats (and 60% of independents) but only 30% of Republicans regard reducing the uninsured rate as a high priority.”

Americans are largely skeptical, though, that the Biden administration and Congress will be able to deliver on those priorities. Nearly half of those surveyed, 49%, said they were pessimistic that the government will be able to enact policies to bring down health care costs, and a similar share expressed pessimism about action on drug prices. Just over 25% say they are optimistic that the Biden administration and Congress will be able reduce costs. Overall, just 8% say that the U.S. in moving in the right direction when it comes to the cost of health care and just 12% say it is doing so on drug costs.

Chart of the Day: Super Savings

Americans recorded about $1.6 trillion more in savings than expected over the last 10 months as the pandemic closed down travel and dining options and the government provide billions in relief payments, but the money is far from evenly distributed. According to Oxford Economics, virtually all of the savings since March have been concentrated among the top 40% of earners, with the lion’s share going to the top 20%. The bottom 60% have spent most of the money they received in aid and income, and many now have a negative savings rate. “The richest 20% of America are the real pandemic supersavers,” says Gregory Daco, Oxford’s chief U.S. economist. (h/t Yahoo Finance)

Have a great weekend! Send your feedback to And please encourage your friends to sign up here for their own copy of this newsletter.

Views and Analysis