Will Biden’s Stimulus Package Work?

Back in January, Joe Biden was inaugurated as President. At that time, there was great speculation around his proposed stimulus package for the US economy. The figure generally bandied around was an astonishing $1.9tn (£1.36tr). To put that in context, the National Audit Office in the UK is currently putting the amount spent by the Government on Covid-19 measures at £327bn, with £150bn explicitly targeted at supporting businesses.

Come May, though, $1.9tn looked like peanuts. When President Biden unveiled his budget, it was to the tune of $6tn (£4.3tn) worth of spending commitments, funded mainly by tax rises for wealthy Americans and businesses. So naturally, the Republicans immediately condemned the plans as ‘insanely expensive’ and claimed they would lead to record debt levels.

So, what exactly is the finer detail? Just what will the money be spent on, and, perhaps most importantly, will this massive level of spending actually work?

The Aim

It’s a simple goal: Biden wants to grow the US economy “from the bottom up and the middle out.”
$800bn is slated for the fight against climate change, free school places for all three and four-year-olds, two years of community college for all Americans and massive investments in both physical and digital infrastructure.

Reception

As mentioned briefly above, the plans are contentious. There is even a strong chance that some members of the President’s own party may side with the Republicans over some of the proposals.

The chief criticism focuses on debt amidst fears that the proposals could add $14.5tn of debt over the next decade. That would mean the US Government would amass debt to 117% of GDP by 203 – a level even greater than seen after WWII.

Will the plans work?

It’s hard to know! Opinion varies – and almost certainly depends on your view of Joe Biden. Republicans are always critical of Democrat policy, but all the more so, when it may take the US to a whole new level of debt. Fears of inflation will probably also be weighing heavily on their minds.

Meanwhile, the Biden administration hopes that inflation will stabilise at around 2% and that the higher taxes will see the whole programme paid for within 15 years.

In 1996 Bill Clinton said the “era of big government is over.” But, Joe Biden’s presidency has brought it back. While his plans still have to go through Congress and the Senate, it seems certain that enough of his spending commitments will remain to make the fiscal hawks in both parties wince.

 

 

 

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Written by Steve Burns

Steve is a chartered financial planner who has been with Lewis Brownlee for over 20 years, who now heads up Lewis Brownlee Financial Services. Under his directorship, the firm has established itself as a specialist provider of professional, informed and impartial advice.

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