Economic policy of the Joe Biden administration

It has been suggested that Bidenomics be merged into this article. (Discuss) Proposed since April 2021.

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The economic policy of the Joe Biden administration, or "Bidenomics" is characterized by goals to increase the national minimum wage and expand worker training, narrow income inequality, invest in clean energy and infrastructure, expand access to affordable healthcare, and forgive student loan debt.^[1] The March 2021 enactment of the American Rescue Plan to provide relief from the economic impact of the COVID-19 pandemic was the first major element of the policy.

Overview[]

President Biden inherited a challenging economic and budgetary situation from President Trump, due significantly to the continuing COVID-19 pandemic. As of December 2020, the jobs level was nearly 10 million (6%) below the early 2020 peak, and the unemployment rate was an elevated 6.7%.^[2] There was a record budget deficit in fiscal year 2020 of $3.1 trillion, or 14.9% GDP.^[3]

Biden presented his economic policy as the Build Back Better Plan while a presidential candidate in July 2020.^[4] By March 2021, the administration had begun preparing a legislative package estimated to cost $3 trillion over ten years, with infrastructure modernization as the centerpiece.^[5][6] The proposal would be financed largely through adding a 39.6% tax bracket on those making over $400,000 per year and by increasing the corporate tax rate to 28%, after his predecessor had cut the rate from 35% to 21%. The proposal would also tax long-term capital gains as ordinary income for households making over $1 million per year.^[7]

American Rescue Plan[]

Biden's $1.9 trillion relief package, the American Rescue Plan Act, was signed into law in March 2021. Many observers identified it to be the largest social welfare initiative undertaken by the federal government in decades, and economists predict low income households will benefit the most from the plan.^[8] Analysts also predict that the adult poverty rate could be cut by a quarter, and the child poverty rate cut by half as a result of its passage.^[9]

The key elements of the Rescue Act include:

• $1,400 direct payments to individuals earning up to $75,000 a year;
• Extending expanded unemployment benefits through the end of September 2021;
• Increased the value and expanded eligibility for the child tax credit; to $3,600 per child under age 6 and $3,000 per child ages 6-17, up from $2,000. An estimated 39 million families with children will receive the additional benefits. Payments are scheduled monthly for July to December 2021, with the remaining six months of benefits due when the tax return is filed for 2021. The credit was changed from non-refundable to refundable, meaning those with low income who previously didn't have sufficient tax liability to receive the credit, will now receive the payment. This is a one-year program, that the administration hopes to make permanent.^[10]
• $130 billion to primary and secondary schools;
• $45 billion in rental, mortgage, and utility assistance;
• Billions for small businesses;
• $14 billion for a national vaccine program, including preparation of community vaccination centers;
• $350 billion to help state, local, and tribal governments bridge budget shortfalls.^[11]

The Tax Policy Center reported that the law would cut taxes by an average of $3,000 per household and raise after-tax incomes by an average of 3.8% in 2021, with 70% of the benefit going to lower- and middle-income households. This is in sharp contrast to the Tax Cuts and Jobs Act, in which half of the benefits went to the top 5% highest income households.^[12]

American Jobs Plan[]

In March 2021, Biden proposed a $2.65 trillion infrastructure package known as the American Jobs Plan with investments over 10 years, fully paid for by corporate tax increases over 15 years. A White House fact sheet described the plan: "This is the moment to reimagine and rebuild a new economy. The American Jobs Plan is an investment in America that will create millions of good jobs, rebuild our country's infrastructure, and position the United States to out-compete China." The fact sheet further described the U.S. as ranking 13th in the world in infrastructure, with a vulnerable electrical grid. It expands the concept of infrastructure from physical assets like roads and bridges, to human infrastructure investments like caregiving and training.^[13]

The Committee for a Responsible Federal Budget (CRFB) summarized the investments as follows ($ in billions):

• Climate $782
• Transportation $447
• Health & Childcare $443
• Housing & Buildings $258
• Jobs & economic development $196
• Research & Development $159
• Manufacturing $154
• Clean water $111
• Broadband $100

CRFB also summarized the revenue elements over 15 years:

• Increase corporate tax rate from 21% to 28%, generating $1,300 billion in revenue. The rate had been lowered from 35% in 2017 to 21% in 2018 by the Tax Cuts and Jobs Act.
• Implement a global minimum tax, raising $750 billion.
• Several other elements to address corporate tax loopholes and shelters, raising $680 billion.^[14]

American Families Plan[]

In April 2021, Biden proposed "The American Families Plan", which a White House fact sheet described as: "[A]n investment in our children and our families—helping families cover the basic expenses that so many struggle with now, lowering health insurance premiums, and continuing the American Rescue Plan's historic reductions in child poverty." The plan elements include:

• Adding at least four years of free education, including two years of pre-school for 3-4 year-olds, and two years of community college. The Biden Administration estimates the pre-school program will benefit 5 million children each year and save the average family $13,000. The community college program will help about 5.5 million students per year pay $0 in fees, about $109 billion over a decade.
• Providing child care subsidies to limit spending of low- and middle-income families to 7% of income.
• Creating national paid family and medical leave program, comparable to other developed nations.
• Expanding food assistance, including in schools to reduce child hunger.
• Extending tax cuts in the American Rescue plan indefinitely, including the Child Tax Credit, Earned Income Tax Credit, and the Dependent Care Tax Credit.
• Expanding healthcare subsidies in the American Rescue plan indefinitely, including $50/month subsidies (on average) received by nine million people.^[15]

The New York Times estimated the American Families Plan would invest about $1.8 trillion over 10 years, with about $800 billion in tax credits, $545 billion in child and family support, $511 billion for education, and $80 billion to expand the ability of the Internal Revenue Service to collect taxes from the wealthy.^[16]

Biden's first budget FY 2022[]

President Biden published his first budget for fiscal year 2022, covering the FY2022-2031 decade. The Committee for a Responsible Federal Budget (CRFB) summarized it as follows: "The President's budget proposes about $5 trillion of new spending and tax breaks, reflecting the previously proposed American Jobs Plan, American Families Plan, and nondefense discretionary spending increases. These provisions would be partially offset with nearly $3.6 trillion of new revenue and over $200 billion of budget cuts and savings. The budget would also add $163 billion of interest costs.” CRFB estimated this as a net $1.354 trillion increase in the budget deficit over a decade, or $135 billion/year. This budget is incremental to the $2.0 trillion impact of the American Rescue Plan, which was enacted in March 2021 and already included in the baseline forecast used for the CRFB computations.^[17] For scale, Trump's Tax Cuts and Jobs Act represented about $2 trillion in deficit additions over a decade, or $200 billion/year.

CRFB also commented on the economic assumptions in the budget as being comparable to other major forecasts: "The budget's growth assumptions of 2.2 percent per year over the decade and 1.9 percent per year in the second half of the decade are somewhat higher than CBO's projections of 2.0 and 1.6 percent and the Federal Reserve's 2.0 and 1.8 percent estimates. However, they are in line with the Blue Chip consensus, which is also 2.2 percent per year over the next decade and 1.9 percent per year in the longer term." CRFB commented that Biden's budget is somewhat more optimistic on unemployment rates than these other forecasters.^[17]

COVID-19[]

January 2021[]

On January 22, President Biden issued an executive order intended to deliver economic relief to families and businesses. This included:

• Increasing access to food for students missing meals due to school closures and enhancing SNAP (food stamps) benefits;
• Improving delivery of direct stimulus payments;
• Request Department of Labor to clarify that workers can still access unemployment insurance if employment would have jeopardized their health due to COVID-19;
• Develop support network to help families and businesses access government benefits; and
• Require federal contractors to pay $15 minimum wage.^[18]

Minimum wage[]

Biden's COVID-19 stimulus package, the American Rescue Plan, originally included raising the minimum wage to $15 per hour, but this was later removed after moderate Senate Democrats and Republicans objected to the proposal. A CBO study in 2019 estimated that raising the minimum wage to $15 by 2025 would increase wages for 17 million directly in that year, although the number of persons with jobs could be reduced in a range of zero to 3.7 million.^[19]

Trade[]

The Wall Street Journal reported that instead of negotiating access to Chinese markets for large American financial-service firms and pharmaceutical companies, the Biden administration may focus on trade policies that boost exports or domestic jobs. U.S. Trade Representative Katherine Tai said the administration wants a "worker-centered trade policy".^[20][21] U.S. Secretary of Commerce Gina Raimondo said she planned to aggressively enforce trade rules to combat unfair practices by China.^[22]

In March 2021, Katherine Tai said that the U.S. would not lift tariffs on Chinese imports in the near future, despite lobbying efforts from "free traders" including former Secretary of Treasury Hank Paulson and the Business Roundtable, a big-business group, that pressed for tariff repeal.^[23]

Education[]

Biden has proposed paying for college tuition and pre-K for middle-class families. He also wants to forgive some or all of student loans.^[24]

Student loan forgiveness[]

Biden supported canceling student loan debt up to $10,000 during 2020, for some borrowers. Other prominent Democrats (Senators Warren and Schumer) co-authored a resolution including cancelations up to $50,000 for all borrowers. There is an active debate about whether legislation or executive order is sufficient to cancel student loans. Critics argued that canceling student loans is regressive rather than progressive, as most with student loans are college educated and earn more. Further, the impact on college tuition pricing and access is unclear.^[25]

The Federal Reserve Bank of New York reported that student loans totaled $1.5 trillion in 2019, with 43 million borrowers. The average balance was $33,500. About 14 million borrowers (33%) had balances below $10,000; 20 million (47%) had balances $10,000-$50,000, and 9 million (20%) had balances over $50,000.^[26]

The Committee for a Responsible Federal Budget reported in November 2020 that canceling student loans had several pros and cons, but was a relatively ineffective economic stimulus. While household net worth would rise by $1.5 trillion if all loans were canceled, in terms of monthly spending the typical household with student loan debt would be avoiding a $200–300 monthly payment. Re-directing this savings to other spending would have limited economic impact of about $100 billion/year. One important consideration is the tax treatment of the forgiven debt; if treated as a gain (income), it would likely be taxable in the absence of legislation negating the gain, offsetting the small positive economic impact.^[27]

CNBC reported that forgiving $10,000 in student debt for all borrowers would cost the government $377 billion, but forgiving $10,000 just for those with debt below $10,000 (about a third of borrowers) would cost $75 billion. Debtors in the latter category tend to be those struggling to pay off their debt.^[28]

Healthcare[]

Biden has proposed lowering the Medicare age from 65 to 60, and expanding the Affordable Care Act subsidies and eligibility.^[24] Some 23 million persons age 60-64 who could directly benefit, either by paying lower insurance premiums or no longer needing to obtain their insurance through an employer. There are about 1.7 million in the 60-64 age range who are uninsured, and 3.2 million who buy coverage because they are not covered by an employer. Hospitals would receive lower reimbursement rates for age 60-64 patients that enroll in Medicare. This plan would also increase the budget deficit, although the CBO has not officially scored the proposal as of January 2021. Lowering the Medicare age is popular, with one poll indicating 85% of Democrats and 69% of Republicans support lowering the eligibility age to as young as 50.^[29]

Cryptocurrency[]

In January 2021, Biden suspended any federal regulatory proposal related to cryptocurrency until they can be reviewed by the new administration. This change was part of a freeze for all last-minute regulations put in place by the Trump administration.^[30]

During Janet Yellen's confirmation hearing for Secretary of the Treasury, Sen. Maggie Hassan (D-N.H.) asked about the use of cryptocurrency by terrorists and other criminals. "Cryptocurrencies are a particular concern," Yellen responded. "I think many are used—at least in a transactions sense—mainly for illicit financing." She said she wanted to "examine ways in which we can curtail their use and make sure that [money laundering] doesn't occur through those channels."^[31]

Unions[]

Biden signed an executive order on January 22, 2021 that removed schedule F, overturning a number of Trump's policies that limited the collective bargaining power of federal unions.^[32][33] He called on Amazon workers to vote for union representation in a closely watched election in Alabama. This was stronger support than any president has given unions in decades. However the workers defeated the proposal 71% to 29%, enhancing Amazon's reputation as a leading bulwark against unionization. Labor activists said Biden's advocacy would build his support in the working class, fighting off Republican inroads there. ^[34]

Taxation and deficits[]

Individual taxes[]

Biden has pledged to raise taxes only on individual persons earning over $200,000, or $400,000 for married couples filing jointly.^[24] Treasury Secretary nominee Janet Yellen reiterated Biden's pledge in her answers during her Senate confirmation hearing process in January 2021.^[35] The individual tax cuts in President Trump's Tax Cuts and Jobs Act are scheduled to expire after 2025, for all income levels. This means they automatically revert to the higher rates of the Obama Administration, in the absence of new legislation.

Corporate taxes[]

Biden has proposed raising the corporate tax rate from 21% to 28%.^[24] This rate was lowered by the Republican's 2017 Tax Cuts and Jobs Act from 35% to 21%, so Biden's proposal represents a partial reversal. The 21% tax rate does not expire, in contrast to the individual rates, so legislation would be required to raise it.^[36]

International taxation[]

Finance officials from 130 countries agreed on July 1, 2021 to plans for a new international taxation policy. All the major economies agreed to pass national laws that would require corporations to pay at least 15% income tax in the countries they operate. This new policy would end the practice of locating world headquarters in small countries with very low taxation rates. Governments hope to recoup some of the lost revenue, estimated at $100 billion to $240 billion each year. The new system was promoted by the Biden Administration and the Organization for Economic Cooperation and Development (OECD). Secretary-General Mathias Cormann of the OECD said, "This historic package will ensure that large multinational companies pay their fair share of tax everywhere."^[37]

Budget deficit[]

The first year that President Biden budgeted is fiscal 2022, which runs from October 1, 2021 to September 30, 2022. There was a record federal budget deficit in fiscal year 2020 of $3.1 trillion, or 14.9% GDP.^[3] During February 2021, the CBO forecast budget deficits for 2021-2031, based on legislation in effect as of January 12, 2021, prior to the American Rescue Plan Act (ARPA). This represents the deficit trajectory inherited by Biden; the deficit impact of his policies may be measured against that baseline. CBO later published a baseline including the impact of ARPA.^[38] OMB then published its forecast for Biden's fiscal 2022 budget, which includes ARPA plus Biden's American Jobs Plan and American Families Plan.^[39] These amounts are shown in the following table:

Federal budget deficit ($ Billions)	2020A	2021F	2022F	2023F	2024F	2025F	2026F	2027F	2028F	2029F	2030F	2031F	Total 2022-2031F
CBO February 2021 Baseline[40]	3,132	2,258	1,056	963	905	1,037	1,026	1,048	1,352	1,346	1,650	1,883	12,266
CBO Baseline Including ARPA[38]	3,132	3,423	1,589	1,083	972	1,080	1,036	1,060	1,375	1,371	1,674	1,913	13,153
Budget FY2022 per OMB[39]	3,129	3,669	1,837	1,372	1,359	1,470	1,414	1,303	1,424	1,307	1,477	1,568	14,531

Deficits in fiscal 2021 and 2022 will be significantly increased by ARPA, although the impact falls thereafter. The budget deficit is expected to fall mid-decade as pandemic-related spending fades and the economy returns to normal. Thereafter, deficits rise due to the long-term trends of an aging country (e.g., fewer workers per retiree) and healthcare costs rising faster than GDP growth.^[40]

Theoretical economic perspectives[]

In terms of theoretical economic perspectives, Bidenomics stands in striking contrast to the previously dominant economic model, known globally as the Washington consensus, or (among its opponents) as neoliberalism.^[41] Milton Friedman was the intellectual godfather, with a base in the Chicago school of economics. It was the dominant economic policy of Western nations from Ronald Reagan in the United States in the 1980s.^[42] through the presidencies of Bill Clinton, George W. Bush, and Barack Obama, as well as the British leaders Margaret Thatcher, Tony Blair and David Cameron.^[43][44]

According to Greg Ip of the Wall Street Journal, "Bidenomics Seeks to Remake the Economic Consensus: Declaring end to neoliberalism, new thinkers play down constraints of deficits, inflation and incentives"^[45] Bidenomics draws on an even older economic heritage going back to John Maynard Keynes in the 1930s, and including Americans Walter Heller, James Tobin, and Arthur Okun in the 1960s. Versions of Keynesianism were the dominant American and British economic theory before the 1970s.^[46] Politically, liberals and Democrats have leaned toward Keynes;^[47] Republicans and conservatives favor the Chicago School.^[48]

Macroeconomics[]

The old view is that the economy is built around scarcity, because the demand for labor and capital and everything else is unlimited. The to achieve full employment and faster growth, more work is needed and more incentives to work. Monetary and fiscal policy is seldom needed, since the market system naturally produces optimum results.^[49] Bidenomics argues that not scarcity but slack is the main problem. The market system is typically stuck below optimal levels. Full employment and growth is held back by a lack of demand, and needs the stimulation of aggressive fiscal policies such as deficit spending, as well as monetary policies to keep cash flowing.^[50][51][52]

Budget deficits[]

The traditional view warned against budget deficits in time of prosperity, because the pool of savings is limited. Government deficits use cash that otherwise would be invested in the private sector, and the competition between the Treasury and corporations drives up interest rates. Bidenomics holds that the developed world is awash in surplus savings, which has produced very low interest rates. Absorbing some of this huge pool of savings through large deficits will not divert private investments, and will not raise interest rates. As for tax rates, the very low interest rates makes covering the national debt much easier. ^[53]

Welfare state[]

The old view said the welfare state is a necessary evil, and should be focused on people without other resources, such as the elderly. Unemployment insurance is allowed because it covered by payroll taxes on workers who are employed, but it should be limited so that no one is tempted to turn down a job offer. The argument is that work, no matter how poorly paid, confers dignity.^{[54][better source needed]} Bidenomics says the government should be promoting the national welfare, and a critical ingredient in our society is caring for dependents – especially children and elderly parents. It is a technical flaw in the definition of Gross Domestic Product that unpaid household care is not included, even though it is so important. The Biden American Rescue Plan that became law in March 2021 includes a greatly expanded child tax credit.^[55][56]

Taxation and globalization[]

The old view strongly emphasized the wisdom of lowering income taxes, arguing that high rates discourage work, discourage investment, slow growth, and render the U.S. less competitive in a globalized world. Furthermore the minimum wage reduces employment. The new view is that more danger comes from monopoly power, especially as exerted by the giant high tech companies such as Facebook, Google and Amazon. Taxation, regulation and anti-trust laws should be used to control them. Furthermore the status quo is creating many multi-billionaires, who largely evade taxation. The result is rapidly growing inequality that is politically and socially destabilizing.^[57] The old view warns that labor unions where the monopolies to worry about and fight against; Biden has been a strong supporter of labor unions. The new view cites research to show that people paying higher tax rates do not make less effort, and high minimum wages do not reduce employment. However the minimum wage does pull millions of families out of poverty. ^[58] As for globalization, the new view warns that globalization raises total world output by moving American jobs to China and elsewhere. The new view warns against China as a threat to long-term American economic interests. Tariffs, which were strongly opposed in the old view, now become a useful weapon. Regarding China, Bidenomics is somewhat parallel to the Trump administration policy. ^[59] Ihe old view called for lowering American tax rates to remain competitive internationally . In April 2021 Biden proposed a different approach . The United States would work with the European Community, Britain, Japan and other friendly nations to form a standardized international minimum income tax. The goal is to stop the globalization process whereby companies relocate headquarters into the international host with the lowest tax.^[60]

Unemployment[]

The traditional view warned that when fiscal policy pushes unemployment below its natural level, inflation rises and interest rates go up. The new view is that fiscal and monetary policy should be used to minimize unemployment as much as possible. The argument is that unemployment does not normally cause inflation, and if it eventually does so the social cost of unemployment is much higher than the social cost of inflation.^[61]

See also[]

• Economic policy of the Donald Trump administration
• Political positions of Joe Biden#Economic issues
• Presidency of Joe Biden

References[]

Further reading[]

• Ip, Greg. "How Bidenomics Seeks to Remake the Economic Consensus: Declaring end to neoliberalism, new thinkers play down constraints of deficits, inflation and incentives" Wall Street Journal April 7, 2021
• Watson, Garrett and William McBride. "Evaluating Proposals to Increase the Corporate Tax Rate and Levy a Minimum Tax on Corporate Book Income," FISCAL FACT (Tax Foundation, No. 751 Feb. 2021)

External links[]

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