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President-elect Joe Biden’s major spending project for a US economy still battling the pandemic is bound to meet with the pushback of Congress, where his party has failed to gain absolute control.
Biden is set to take office in January after campaigning for trillions of dollars in additional fiscal stimulus to combat the economic fallout of COVID-19. There are still 10 million fewer jobs than in February and the economy is about 3.5% smaller than it was before the crisis.
He promised to extend the enhanced unemployment benefit, which could provide an immediate boost to demand from those most likely to spend. He also wants to invest in infrastructure, green energy and childcare, which he says will increase hiring and also help long-term economic growth.
But Biden’s agenda risks running into immediate skepticism from the new Congress, whose control may depend on Georgia’s ballot elections. Right-wing lawmakers could try to block or limit the scope of Biden’s plans just as they did when he was Vice President of President Barack Obama, likely hesitating to further borrow and raise corporate taxes.
“Presidents inherit economies and President-elect Biden inherits one that is in trouble,” said Ryan Sweet, head of monetary policy research at Moody’s Analytics. “You have a very high unemployment rate, the job market is still weak. It will take time to heal. “
Moody’s expects there will be no further stimulus from Congress until after Biden’s inauguration, he said. Bloomberg Economics said the combination of a Biden victory and a divided Congress could mean direct fiscal support from $ 500 billion to $ 750 billion at most, which means three percent growth in 2021, rather than $ 750 billion. 3.5 percent possible with a trillion dollars in aid.
The biggest threat to the recovery, however, is not one that Biden can easily control through fiscal policy. It contains the virus as cases in the United States climb to new daily highs and countries like France, Germany and England resume lockdowns.
Biden said he is willing to close parts of the economy as justified to stop the spread, which would risk depressing growth. But it also supports more funding to reopen schools safely, which would allow parents to work.
To finance Biden’s proposals, the administration would increase the national debt by taking advantage of historically low interest rates. Biden spent decades in government warning of the dangers of budget deficits. But as president he will take on one of the largest in US history and has signaled that he is in no rush to downsize it.
Biden proposed raising corporate taxes to 28% from 21%, raising income taxes for those earning more than US $ 400,000 and taxing capital gains earnings in the same way as normal income for wealthier workers. A divided Congress, however, would create major obstacles to such moves.
The campaign outlined a $ 3.5 trillion economic program to fund its key goals:
- Move millions of jobs to clean energy, with the aim of reducing carbon emissions.
- Promote production by encouraging the purchase of American products and support for high-tech research.
- Expand the availability of care for younger and older Americans, including universal preschool for three and four-year-olds.
He also pledged to address inequalities through his plan, saying he will provide aid to minority small business owners. He expressed his support for a federal minimum hourly wage of US $ 15, gender pay parity, and extended sick leave.
Biden’s White House team of economic advisors could include economists Jared Bernstein, Heather Boushey, and Ben Harris, who helped create his economic platform during the campaign. They argued that more fiscal stimulus is needed and have done research and work on policies to combat economic inequality.
Overall, the economy recovered faster than expected with the reopening of restaurants, shops and businesses. But business remains sluggish and the recovery has been uneven, leaving lower-wage workers, women and people of color to bear the brunt.
Congressional stimulus packages earlier this year pushed retail spending above pre-virus levels, and Federal Reserve policies fueled a surge in home purchases.
While some more help may still be possible in the coming months, Congress has already been blocked on the issue and very broad stimulus appears less likely after the election results.
This could force Fed Chairman Jerome Powell and his colleagues to consider further ways to ease after cutting interest rates to near zero. Powell on Thursday opened the door to a possible shift in central bank bond purchases in the coming months, saying more fiscal and monetary support is needed as rising Covid-19 infections overshadow the outlook.
The S&P 500 stock index has fluctuated in recent weeks with increased virus cases, uncertainty about further aid to the economy and elections. It reached new highs amid the pandemic, supported by stimulus and Fed policy.
Internationally, Biden’s approach to trade is likely to be less heated than Trump’s.
It is unclear whether his administration will leave billions of dollars in tariffs applied against Chinese imports in place. His campaign claimed he would try to build a multilateral case for Beijing to change its practices from trade to human rights while its predecessor tended to act alone.
Biden is eager to restore trade relations with allies like the European Union after Trump’s duties and hard line disrupted supply chains and increased costs for many US companies.
On immigration, Biden has signaled that his administration will lift visa restrictions, arguing that sectors of the economy depend on contributions from newcomers. Powell told lawmakers that immigration is a “key input” for workforce size and higher growth rates.
– With the assistance of Jennifer Epstein, Magan Crane, Laura Davison, Reade Pickert and Ben Holland.
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