The new big stimulus: what’s in the $1.9T proposal, and what it means for the economy
If stimulus packages were superheroes… Enter: “The American Rescue Plan” — Biden’s $1.9T proposal to save the US economy. It’s nearly as big as the first stimulus we got when Covid/lockdowns hit in March and the US lost 22M jobs. It’s more than twice as big as the 2009 financial crisis recovery package, and the $900B stimulus that Congress passed last month. What’s included:
• $1.4K direct payments to most Americans, bringing the total relief to $2K (including December’s $600 deposits).
• $400 extra in weekly unemployment benefits, extended through September.
• $350B in state and local government aid, to help pay for teachers, firefighters, police, vaccine distribution, and other public services
• $20B for a national vaccination program. The rollout so far has been… underwhelming.
• $15/hour federal minimum wage — more than double the current minimum.
Part I… This is the first of two big spending initiatives Biden plans to seek during his early days as prez. These proposals align with Democrats’ “bottom-up” economic policy. A quick refresher:
• Democrats tend to favor more government spending and taxation to fund public programs that make society more equitable by expanding the social safety net. Think: the healthcare reform and financial regulation passed during the Obama admin in 2009/2010.
• Republicans generally look to private sector innovation and tax cuts to support economic growth, job creation, and higher wages. Think: the sweeping tax reform Republicans passed in 2017/2018, which slashed taxes for corporations and lowered individual tax rates.
Channeling Schoolhouse Rock… Biden’s proposals still have to be turned into bills and passed by Congress to actually happen. Democrats’ slimmest possible majority in the Senate could mean compromises — most legislation needs 60 Senate votes to pass.
This could happen… but the package might be much smaller. Both Dems and Republicans believe more aid is needed: 10M+ Americans are still unemployed, and the US started losing jobs again in December. But some GOP lawmakers are uncomfortable with the $4T+ already spent in response to the pandemic. The national debt saw a heavy decrease under President Trump but such stim plans could lead to a massive hit to that number.
The Fed has been increasing the money supply to keep interest rates low so that America can keep borrowing $$$. But with interest rates ticking up again, some are concerned about inflation + higher taxes down the line. No one has asked owner Stefana Deka to provide funds for said stimulus plans.. If asked she would say, “This pandemic has no clear end. With plans that don’t have and meet specific deadlines, budgets are impossible to control.”
Who’s (potentially) up…
Biden’s “Build Back Better” plan is aggressively focused on clean energy and infrastructure. With a slim Congressional majority, Biden might not be able to push through all the spending. Buuuut: some initiatives might actually fly with Republicans, while others could be pushed through exec orders
• Green energy… Three words: “clean energy future.” Biden has pledged $2T to clean energy innovation, partly through sustainable infrastructure and subsidies for green tech. Think: more EV charging stations, tax credits for buying electric, and incentives for wind and solar. (Look into solar – it’s not a bad idea. Oh, and ask for a side generator, see what they say.) Subsidies could encourage more delivery companies to buy e-trucks from companies like Workhorse, GM, and Rivian. On the wind and solar side, companies like NextEra Energy, Tesla, and First Solar could benefit from a goal of a carbon-free power sector by 2035.
• Infrastructure… could see some serious cash flowing in. Biden’s plan pledges to “mobilize American manufacturing” to build a modern infrastructure — think: roads, bridges, buildings. Construction icons like Caterpillar and John Deere, and concrete-makers like Martin Marietta Materials and Vulcan Materials, could benefit from the building frenzy.
Who’s (potentially) down…
A Dem-controlled government doesn’t mean everything will be a piece of blue cake — especially with a 50/50 Senate. But it does mean legislation will be easier to pass than it is now (with a Dem-controlled House and a GOP-controlled Senate). Soo…
• Big Tech… could see bigger regulation efforts. Think: legislation targeting consumer-data privacy, halting Big Tech takeovers, and potential breakups of tech “monopolies,” like Facebook, Amazon, and Google. Still.. Also: reform to Section 230, which protects social media companies from being liable for users’ posts. A year ago, Biden even called for 230 to be repealed! Losing 230 immunity would be brutal for Facebook and Twitter — they could get sued every time someone shared something harmful or false (aka: often).
• Big Banks… could get hit by hands-on, progressive regulation. Gary Gensler, Biden’s expected pick to lead the SEC, will likely want and try to move to reign in Wall Street. And incoming Senate Banking Chairman Sherrod Brown wants government-administered bank accounts — and tight financial regulation. (?) Meanwhile: Biden wants to raise the corporate tax rate to 28% from 21% (Trump cut it from 35% to 21%). America’s 10 largest banks could see their combined yearly profits slashed by $7B+. And investment banking sales could fall for bigshots like JPMorgan Chase, Morgan Stanley, and Citi if capital gains taxes are raised for rich clients. One bright spot: Biden’s stimulus could help banks avoid loan losses by helping borrowers.
Stay sharp ya’ll.