Economic policy of the Joe Biden administration
The economic policy of the Joe Biden administration, or "Bidenomics" is characterized by relief measures and vaccination efforts to address the Coronavirus pandemic, investments in infrastructure, and strengthening the safety net, funded by tax increases on higher-income individuals and corporations. Other goals include: increase the national minimum wage and expand worker training; narrow income inequality; invest in clean energy; expand access to affordable healthcare; and forgive student loan debt. 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. Biden's Infrastructure Investment and Jobs Act was signed into law in November 2021 and contains about $550 billion in additional investment. His Build Back Better Act passed the House in November 2021 and is pending in the Senate. Biden's first year in office saw robust growth in real GDP, employment, wages and stock market returns amid significantly elevated inflation. 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%. There was a record budget deficit in fiscal year 2020 of $3.1 trillion, or 14.9% GDP. Biden's first major legislative response was the American Rescue Plan Act enacted in March 2021, a $1.9 trillion package that included $1,400 checks per adult, an expanded child tax credit for a year with $250-300 monthly checks per child expected to drastically reduce child poverty, extended unemployment benefits, and expanded eligibility for healthcare benefits, among others. The primary impact was in fiscal year (FY) 2021, with  a smaller impact in FY2022. No Republicans in the House of Representatives or the Senate voted for the Rescue Act. Biden followed-up with the Infrastructure Investment and Jobs Act, signed into law in November 2021. It authorized infrastructure investment of $1 trillion total over a decade for roads, bridges, airports, sea ports, rail, broadband, water, and public transit, among others. CBO estimated the deficit impact at $250 billion total, as they considered prior infrastructure investment trends as a baseline for comparison. The law passed the Senate in bi-partisan fashion, 69-30. Real GDP grew 5.7% during  Biden's first year, the fastest rate since 1984. Amid record job creation, the unemployment rate fell at the fastest pace on record during Biden's first year, from 6.4% in January 2021 to 3.9% by December 2021. However, inflation significantly increased in 2021 relative to 2020 in the U.S. and Europe, attributed to factors such as strong consumer demand for goods (empowered by government relief programs), supply restrictions in port capacity and microchips, and lower 2020 prices. Inflation was partially offset by strong wage growth; by one measure, worker wages and benefits increased at the fastest rate in at  least 20 years. The administration noted that high inflation was also present in the Eurozone, Canada and the United Kingdom, though economists said the $5 trillion in government stimulus spending in the United States during 2020 and 2021 was disproportionately large compared to that of other countries and was a significant contributor to domestic inflation. Despite the pandemic and inflation challenges, "Bloomberg News" reported in November 2021 that the S&P 500 stock market return of 37.4% in Biden's first year (measured from election day) was the highest of any modern president. CBO forecast in July 2021 that the  budget deficit in fiscal year 2022 (Biden's first budget year) would be $1.2 trillion, versus around $3 trillion in FY2020 and 2021. American Rescue Plan Act. 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. 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. The key elements of the Rescue Act include: 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. American Jobs Plan. In March 2021, Biden proposed a $2.65 trillion infrastructure package known as  the American Jobs Plan with investments over 10 years, fully paid for by corporate tax increases over 15 years. A White House fact sheet described the plan: "This is the moment to reimagine and rebuild a new economy. The American Jobs Plan is an investment in America that will create millions of good jobs, rebuild our country's infrastructure, and position the United States to out-compete China." The fact sheet further described the U.S. as ranking 13th in the world in infrastructure, with a vulnerable electrical grid. It expands the concept of infrastructure from physical assets like roads and  bridges, to human infrastructure investments like caregiving and training. The Committee for a Responsible Federal Budget (CRFB) summarized the investments as follows ($ in billions): CRFB also summarized the revenue elements over 15 years: Infrastructure Investment and Jobs Act. The Infrastructure Investment and Jobs Act is a key pillar in Biden's American Jobs Plan. It passed the House and Senate and was signed into law on November 15, 2021. While referred to as the $1 trillion infrastructure plan, it includes $550 billion in additional spending beyond previous legislation and was scored by the CBO to add about  $250 billion to the deficit over a decade. It includes many of the spending elements summarized above by the CRFB, but in different amounts: Roads and bridges ($110B), power infrastructure ($73B), passenger and freight rail ($66B), broadband ($65B), clean drinking water ($55B), western water storage ($50B), public transit ($39B), Airports ($25B), water & soil purification ($21B), ports ($17B), electric vehicles ($15B) and transportation safety programs ($11B). 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: 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. Build Back Better Act . The Build Back Better Act, a reconciliation package including about $2.2 trillion in spending/investments and $2.0 trillion in additional revenue over a decade, passed the House of Representatives November 19, 2021 and is pending before the Senate. Most of the bill's provisions have finite duration. "The New York Times" reported that enacting the bill would fund benefits such as: The revenue or cost reduction sources include: The CBO estimated the bill would add $350 billion total to the national debt over the 2022-2031 period, excluding about $200 billion in estimated collections from stronger  IRS enforcement (bringing the net impact closer to $150 billion), overall a relatively minor net impact on the national debt. 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. 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. COVID-19. January 2021. On January 22, President Biden issued an executive order intended to deliver economic relief to families and businesses. This included: 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. Three months into office, Biden signed an executive order to increase the minimum wage for federal contractors by nearly 37%, to $15 per hour. The order went into effect for 390,000 workers in January 2022. 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". U.S. Secretary of Commerce Gina Raimondo said she planned to aggressively enforce trade rules to combat unfair practices by China. 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. At the October 2021 G20 Rome summit, the Biden administration and the European Union reached agreement to rollback the steel and aluminum tariff regime that had been imposed by the Trump administration in  2018. The agreement retained some protection for American steel and aluminum producers by adopting a tariff-rate quota regime. It also ended retaliatory tariffs on American goods the EU had imposed and canceled a scheduled tariff increase by the EU. China failed by a wide margin to purchase American goods and services as agreed under the January 2020 Phase One trade deal, which expired on December 31, 2021. The Biden administration continued to formulate its China trade policy and faced a decision as to whether to reinstate some tariffs and risk retaliation, or to ignore China's breach amid elevated  inflation that might be exacerbated by additional tariffs. 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. 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. 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. 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. 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. By the end of Biden's first year in office, the Department of Education had forgiven $15 billion in debt for 675,000 borrowers. Healthcare. Biden has proposed lowering the Medicare age from 65 to 60, and expanding the Affordable Care Act subsidies and eligibility. 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. 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. 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." 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. 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. 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. Treasury Secretary nominee Janet Yellen reiterated Biden's pledge in her answers during her Senate confirmation hearing process in January 2021. 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%. 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. 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." Budget deficit. The first year that President Biden budgeted is fiscal 2022, which runs from October 1, 2021 to September 30, 2022. CBO forecast in July 2021 that the budget deficit in fiscal year 2022 will be $1.2 trillion, or 4.7% GDP. This is a significant reduction to the budget deficits of $3.1 trillion (15.0% GDP) in FY2020 and $2.8 trillion (12.4% GDP) in FY2021, the last two fiscal years budgeted by President Trump. Those two record annual budget deficits were unusually high, primarily due to response measures to the Coronavirus pandemic. 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. OMB then published its forecast for Biden's fiscal 2022 budget, which includes ARPA plus Biden's American Jobs Plan and American Families Plan. These amounts are shown in the following table: 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. 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. 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. 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. 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" 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. Politically, liberals and Democrats have leaned toward Keynes; Republicans and conservatives favor the Chicago School. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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.