Is Biden’s Covid Rescue Plan Too Big?

By Yuval Rosenberg

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)

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