Biden's $1.9 Trillion Rescue Plan Set To Turbocharge U.S. Economy

Mar 10, 2021
Originally published on March 11, 2021 5:18 am

The U.S. economy is about to get a shot of its own.

The $1.9 trillion relief package passed by Congress on Wednesday is expected to give a substantial boost to the world's largest economy once it's signed by President Biden, putting more money in people's pockets just as an improving pandemic outlook opens new avenues for them to spend it.

According to the Centers for Disease Control and Prevention, 61 million people in the United States have gotten at least one shot, with 32 million already fully vaccinated.

The rollout of vaccines offers the promise of more normal travel and entertainment options later in the year, further boosting the outlook of an economy already showing signs of improvement.

"The key engine of growth is going to be that powerful cocktail of both a healthier economy along with fiscal stimulus," said Gregory Daco, chief U.S. economist at Oxford Economics.

The Organization for Economic Cooperation and Development projects the U.S. economy will grow by 6.5% this year. That's more than twice the growth rate it was projecting in December — thanks in large part to more robust federal aid.

Daco himself believes the U.S. economy will grow by 7% this year, while also adding 7 million jobs — a level of growth not seen since about the 1980s.

"It's been about four decades since we've seen such strong growth in real GDP," he said. "But you have to remember that we're coming out of a very deep hole when it comes to the damage that's been done by the COVID crisis."

A sign is shown at a COVID-19 vaccine site in San Francisco on Feb. 8. The rollout of vaccines is raising the prospect of increased travel and spending by Americans.
Haven Daley / AP

Also helping turbocharge growth is how President Biden's plan is structured, according to experts.

The American Rescue Plan — which Democrats pushed through Congress with no Republican support — includes $1,400 payments for most Americans, extended unemployment benefits and increased subsidies for children.

The benefits are heavily weighted towards low- and moderate-income families, in marked contrast to the 2017 tax cut, which Republicans championed on a similar, party-line basis.

Lower-income families get the biggest boost from the tax benefits in the American Rescue Plan, in contrast to the 2017 tax cut which primarily benefited the wealthy.
Tax Policy Center

Rather than waiting for benefits to trickle down, the COVID relief package showers money on lower-income households, boosting income for the poorest 20% of families by an average of 20%, according to the Tax Policy Center's analysis, while top earners would see their income rise less than 1%.

Because low-income families are more likely to spend the extra money, it's expected to provide a significant lift to the broader economy.

"There was a big question about the [2017] Tax Cut and Jobs Act, whether or not it would over time have much of a stimulative effect," said Howard Gleckman, a senior fellow at the non-partisan Tax Policy Center. "This one, there's no question. Everyone agrees it will stimulate the economy. The question is will it stimulate the economy too much?"

The center's analysis looked only at the tax provisions of the latest bill, not measures like unemployment benefits or aid to cities and states.

But the question of whether it will prove too stimulative and trigger inflation has raised concerns among other analysts.

Former Treasury Secretary Larry Summers, who served in different positions in the Clinton and Obama administrations, has been one of the most prominent Democratic critics of the plan.

Summers is concerned that with consumer spending already on the rise, a surge in new federal spending could overwhelm businesses, triggering a rise in prices.

"We need to make sure we're concerned with not overheating the economy," Summers told NPR's Weekend Edition last month.

Summers also warned that deficit-financed spending now on a short-term relief package could make it harder for the Biden administration to find money later for long-term investments in things like infrastructure.

The Labor Department said Wednesday that consumer prices had risen just 1.7% in the last year — below the Federal Reserve's annual target of 2%.

While prices are expected to increase faster in the months to come, Fed officials have said repeatedly they expect that acceleration to be temporary.

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The coronavirus relief bill is likely to turbocharge the U.S. economy. The $1.9 trillion measure, which won final approval in the House today, puts a lot of money in people's pockets just as an improving pandemic outlook opens new avenues for them to spend it. Forecasters have been upping their projections of economic growth as the bill makes its way towards President Biden's desk. And for more on this, NPR's Scott Horsley is with us.

Hi, Scott.


SHAPIRO: As this bill was getting close to the finish line, a lot of economists seem to be raising expectations for economic growth. Why?

HORSLEY: They think this sets the stage for another boom in consumer spending. We got a taste of that back in January after the last relief bill passed and money started landing in people's bank accounts. A lot of them turned around and spent it. Now, this measure is more than twice as large, so the jump start could be that much stronger. Gregory Daco of Oxford Economics is one of the forecasters raising his expectations. He thinks the economy is going to grow by about 7% this year.

GREGORY DACO: It's been about 40 years since we've seen such strong growth, but we have to remember that we're coming out of a very deep hole when it comes to the damage that's been done by the COVID crisis.

HORSLEY: Daco's also projecting about 7 million new jobs this year. Now, we're still down about 9.5 million jobs, and that's one reason Democrats have been so eager to provide more federal aid. They don't want a recovery that drags on for years like we saw after the 2008 financial crisis.

SHAPIRO: Is it just the extra federal spending that is behind these positive predictions? Because Congress approved trillions of dollars in relief money last year and some of it wound up just sitting in people's bank accounts.

HORSLEY: That's right. So federal money is part of what's driving the rosier forecast, but it's also the improvements in the public health outlook. You know, new infections are dropping at the same time vaccinations are accelerating. Daco says that should open the door for additional spending.

DACO: The key engine of growth in 2021 is going to be that powerful cocktail of both a healthier economy along with fiscal stimulus.

HORSLEY: Speaking of cocktails, Ari, bars and restaurants added nearly 300,000 workers last month as COVID restrictions began to be relaxed. And we could see a lot more of that kind of growth as the year goes on.

SHAPIRO: You know, Democrats pushed this through Congress on a nearly party-line vote. And we saw kind of the inverse of that back in 2017 when congressional Republicans pushed a big tax cut through with only votes from their party, more or less. What do those efforts tell us about how the two parties approach the economy?

HORSLEY: Yeah, the nonpartisan Tax Policy Center looked at who benefits from these two bills - you know, the signature legislative win for the Trump administration and now the first bill, a big bill, that President Biden has championed - and it's a really stark contrast. Nearly half the savings from the GOP tax cut went to the richest 5% of the population. Their theory was that would boost business investment, raise productivity and eventually lead to higher income for workers. We did see a boost in business investment, although it was short-lived. And then, of course, the pandemic hit. The Democrats have a very different approach. The Tax Policy Center's Howard Gleckman says the lion's share of tax benefits in this bill will go to low- and middle-income families.

HOWARD GLECKMAN: This is not so much interested in eventually, it's really interested in putting money in people's pockets immediately. And that's clearly what it does.

HORSLEY: So rather than waiting for a trickle-down effect like the GOP tax cut, this Democratic bill showers money on lower-income families right now. A lot of those benefits are temporary, but Democrats see this as a blueprint for the kind of changes they'd like to make permanent.

SHAPIRO: OK, since forecasters have sketched out a pretty rosy scenario for the economy this year, just to hedge our bets, what could go wrong?

HORSLEY: Number one, the pandemic - there could be a hiccup in the vaccine rollout, people might reject the vaccine or the virus itself could evolve in a way that makes the vaccine less effective. We've also seen some analysts warning that this bill puts too much money out there for the economy to handle, and that could overheat things and drive up prices. So far, inflation has been really tame. We do expect to see some increase in prices later this year, but, you know, the inflation watchdogs of the Federal Reserve say that is likely to be a temporary effect and they're not too worried about it.

SHAPIRO: NPR's Scott Horsley, thanks a lot.

HORSLEY: You're very welcome. Transcript provided by NPR, Copyright NPR.