In his first address to Congress on Wednesday, President Joe Biden unveiled his ambitious and expensive economic stimulus plan in what is essentially the third blockbuster domestic funding proposal. Biden has already hit the road to sell his jobs, infrastructure and policing initiatives that add up to about $6 trillion and reflect a desire to restore the federal government to its old role during the New Deal and Great Society. Biden, however, faces an uphill climb trying to sell his plans--both from Republican and a cross-section of Democratic lawmakers alike.
Biden now faces bipartisan pushback against his ambitious economic plans, including from his own party particularly from powerful West Virginia Democrat, Sen. Joe Manchin, signaling the long slog ahead facing the White House's sweeping domestic agenda.
Big government is back
In his 1996 State of the Union address, former President Bill Clinton famously declared that "the era of big government is over." That declaration marked a radical shift for Democrats then trying to show attention to fiscal responsibility.
But Biden is now looking to turn back the hands of time, and has declared that Big Government is back
Biden has been unabashedly rolling out new, liberal federal programs, and has already notched one legislative achievement on his belt with the $1.9 trillion coronavirus relief bill as well as a $2.3 trillion infrastructure bill, dubbed the American Jobs Plan.
And now he wants to throw in the American Families Plan for good measure.
Related: U.S. Power Demand Won't Recover To Pre-Pandemic Level Until 2022 About a month ago, the President signed into law the American Rescue Plan, designed to provide immediate relief to American families and communities. According to the White House, ~161 million payments of up to $1,400 per person have gone out to American households. The Rescue Plan is projected to lift more than five million children out of poverty this year, effectively cutting child poverty by more than half.
However, Biden's government feels that more needs to be done, which is what the American Families Plan is meant to accomplish.
The government is now touting the $1.8 trillion American Families Plan as an investment in American families to help them cover basic expenses, lower health insurance premiums, and advance the American Rescue Plan's historic reductions in child poverty. The pay would be equal to two-thirds a worker's average weekly wages, up to $4,000 per month, with workers in the lowest wage cohort having 80% of their average weekly wages replaced.
Overall, the American Families Plan includes $1.8 trillion in investments and tax credits consisting of about $1 trillion in investments and $800 billion in tax cuts for American families and workers.
Higher corporate tax
And now, the million-dollar question: How will Biden pay for his ambitious plans?
Biden has proposed raising the corporate tax rate from 21% to 28% and forcing multinational corporations to pay significantly more in taxes.
Wall Street, however, is quite skeptical that Biden's plans will see the light of day and has adopted a wait-and-see mode as investment firms encourage clients to see how lawmakers carve up the plan.
Related: IEA: Electric Vehicle Sales Are Soaring Globally
As Evercore ISI head of U.S. public policy research, Sarah Binahci has noted, "There is a vast difference between what Biden proposes and what can eventually pass Congress."
For starters, Biden and the Democrats will have to win Sen. Manchin over.
Manchin, a pivotal swing vote in the 50-50 Senate, has raised concerns about the price tag along with the proposed tax increases, and is demanding for a bipartisan approach that will see Senate Democrats work hand in hand with their Republican counterparts.
In total, Biden has outlined almost $6 trillion in spending--a good $4 trillion on top of what Congress has already approved and a staggering sum given the country's record deficits. Democrats have managed to muscle through a COVID-19 relief bill through both chambers essentially on party-line votes. Whether they will manage to do the same with the American Families Plan in the face of mounting opposition remains to be seen.
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Comments
1- Raise corporate taxes but he may not be able to raise the full $6 trillion in additional taxes
because of opposition from multinational corporations.
2- Alternatively Congress will pass a smaller spending sums
3- Print money which has been financing economic expansion in the United States since the
Bretton Wood agreement in 1945 made the US dollar the reserve currency of the world.
Who is going to audit the finances of the United States? So the printing goes on.
On balance, President Biden will end up using the three aforementioned ways to pay for his ambitious economic plans.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London