By Nick Sammarco-Research Assistant
This week, President Joe Biden unveiled his COVID-19 response plan. The proposal can be broken down into two parts: Spending items pertaining to the pandemic response and general progressive causes the incoming administration hopes to package with much-needed relief. Let’s first examine the COVID side of the plan. According to the Committee for a Responsible Federal Budget, Biden’s COVID-related requests include:
- Increasing direct aid to individuals from $600 to $2000 at a cost of $465 billion.
- $160 billion for a national vaccine rollout program, increased testing, and enhanced contact tracing.
- An extension of federal unemployment benefits (and an increase in the federal supplement to $400/week), which will cost approximately $350 billion.
- $30 billion in rent support for landlords unable to evict delinquent tenants due to federal, state, and local moratoriums.
- Financial support totaling $25 billion for daycare and other childcare providers.
- $170 billion to reopen schools and increase federal assistance to colleges and universities.
Several of Biden’s requests are eminently reasonable, like the $160 billion requested for vaccination, testing, and contract tracing enhancements. Despite the miraculous pace at which Operation Warp Speed delivered an effective COVID vaccine, the speed at which the US has administered the vaccine has been far from breakneck. As of January 15, America lags far behind other developed nations, having vaccinated only 3.71 out of every 100 citizens. President Biden wants to speed up vaccinations by spending more on syringes, needles, glass vials, and vaccine storage.
Additionally, the Biden plan calls for federal vaccination centers where retired doctors would administer shots. To end the pandemic as fast as possible, we need to get Americans inoculated at a much faster pace than we are currently. At the current vaccination rate, it could take years before Americans are immune to the point we can return to “normal” life. Of course, lawmakers should not give the Biden administration carte blanche in vaccine spending, but they should approach efforts to get shots in the arms of Americans with long-term finances taking a backseat to the short-term goal of inoculating the American public.
The same can be said for extensions of UI benefits, aid to reopen schools (presuming that the funds go to school reopenings and not in the pockets of teachers’ unions), support for childcare centers to ensure they can operate safely, and aid to landlords. These aspects of the proposal are reasonable stopgap measures to keep the economy afloat while America and the rest of the world transitions out of lockdowns and a lethargic market in 2021. As always, the devil is in the details of these proposals, but on a surface level, those worried about government overreach disguised as pandemic assistance need not fret.
The same cannot be said about the economically damaging or superfluous components of the proposal. For example, increasing the federal UI supplement to $400 is a significant misuse of government funds. As BHI reported in our examination of the CARES Act in 2020 (which had a federal supplement of $600), “The vast majority of workers receiving some combination of state-run UI or PUA benefits and the $600 FPUC bonus are receiving more on government assistance than they earned while working. According to economists from the University of Chicago (citation in the CARES Act Study), “68% of those eligible for UI will gain more money from the program than from lost earnings” with an estimated replacement rate, or % ratio of benefits compared to past earnings, of 134%. In Massachusetts, the median unemployment-eligible worker can expect to earn 125% of their former salary on these benefit regimes.”
Biden also seeks to expand the child tax credit to $3,000 per child. One year of such expansion will decrease federal tax revenues by $120 billion alone. That’s not the only regressive part of Biden’s progressive plan. According to The Dispatch, “Other proposals to significantly expand the Earned Income Tax Credit (EITC), child care subsidies, family leave benefits, and Supplemental Nutrition Assistance Program (SNAP) benefits would also likely be made permanent, considerably raising the cost [of the total plan].”
While other progressive wish list items in the Biden plan will irresponsibly increase the deficit and slow the recovery, nothing compares to the damage a federal $15 minimum wage would do to the labor market post-COVID. A 2019 study conducted by the Congressional Budget Office found that the median estimate of jobs lost from such a hike would total 1.3 million by 2025 (this figure was calculated before the pandemic). The last thing a labor market that lost jobs for the first time in eight months this past December needs is a destructive, artificial hike in wages.
Presumably, President Biden is aware that the likelihood of such a measure passing a 50-50 Senate is low, but lawmakers interested in getting as many workers back on the job as fast as possible should vote against this measure as part of the larger COVID relief bill or as a separate policy. Not only do they stand to harm the economic recovery, but the enactment of a dramatic increase in the federal minimum wage, coupled with expanded tax credits, subsidies, and benefit programs also represents a substantial increase in the size and scope of government.
Notably absent from the Biden COVID proposal is any mention of the 800-pound gorilla in the room-our ballooning national debt and skyrocketing deficit. For the first time since the end of World War Two, the CBO projects that American debt will surpass gross domestic product. Though the US economy has not experienced an economic downturn directly attributable to fiscal policy in the 21st century, this is worrying. Evidence suggests that debt is inversely related with economic growth. The Biden administration and future administrations must deal with the burdensome debt and cannot ignore the growing deficit while crafting relief policy in a responsible, prudent manner.
The views and opinions expressed in this blog post are those of the author alone and do not necessarily represent the views of The Beacon Hill Institute.
