Analysis

Comparing Trump And Biden’s COVID Relief Bills

   DailyWire.com
This combination of pictures created on September 29, 2020 shows US President Donald Trump (L) and Democratic Presidential candidate former Vice President Joe Biden squaring off during the first presidential debate at the Case Western Reserve University and Cleveland Clinic in Cleveland, Ohio on September 29, 2020.
JIM WATSON,SAUL LOEB/AFP via Getty Images

The final year of President Trump’s administration was marked by the passage of an enormous COVID-19 relief bill. In the first weeks of his administration, President Biden is attempting to sign a similar measure into law.

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which pumped $2.3 trillion into COVID-19 relief programs, an economic stimulus, education, and subsidies for various American industries.

Now, the United States Senate is currently debating President Biden’s $1.9 trillion American Rescue Plan, which seeks to provide an economic stimulus through additional relief and subsidies. The omnibus legislation passed the House of Representatives in late February.

A White House press release states that the American Rescue Plan “is ambitious, but achievable, and will rescue the American economy and start beating the virus.” The Biden administration emphasizes the bill’s aim to “help working families, communities, and small businesses persevere through the pandemic.”

The Penn Wharton Budget Model (PWBM) — an initiative of the University of Pennsylvania’s Wharton School that provides nonpartisan analysis of the economic impact of landmark public policy proposals — weighed the effects of both the CARES Act and the American Rescue Plan

For a variety of reasons, the analyses show that Biden’s bill does not measure up to that of his predecessor.

GDP

CARES Act

The Penn Wharton Budget Model predicted that the CARES Act would help to significantly slow the drop in America’s gross domestic product (GDP) — an economic measure that reflects the total output of an economy.

Without the CARES Act, PWBM projected that the United States GDP in 2020 would plummet 37% on an annualized basis. With the CARES Act, PWBM initially anticipated that the drop in output would only reach 30% — a 7% improvement over the base scenario. However, a later update revised this estimate to a 5% improvement.

When federal, state, and local governments borrow excessively, public debt “crowds out” productive investments. In other words, investors purchase government debt instead of financing private companies’ ventures, which limits the economic growth that would have resulted from higher production and innovation. 

In the long-term, PWBM’s update predicted that the CARES Act would lower GDP by 0.2% within the next decade as a result of increased government debt. 

To complete the analysis, PWBM used “fiscal multipliers” — a figure meant to capture the “amount of additional output generated for each dollar of government spending” — to forecast the effects of the CARES Act allocations. Analysts used the same multipliers created by the Congressional Budget Office to measure the American Reinvestment and Recovery Act of 2009 — another economic stimulus package enacted during a severe recession.

American Rescue Plan

Though the two relief packages are of comparable sizes, PWBM predicts a much more modest boost to output from the American Rescue Plan.

PWBM anticipates that President Biden’s legislation would increase GDP by 0.6% in the short term, while decreasing GDP by 0.3% over the next two decades due to the “crowding out” effect.

The primary source of the disparity arises from the fact that the American economy was in far worse a state during the spring of 2020. In comparison to recovery periods and more normal economic conditions, government spending has a much stronger effect upon output during the troughs of deep recessions. 

As PWBM notes about the current economic status of the United States, “unemployment has been disproportionately concentrated among lower wage and young workers in specific sectors” and “most sectors of the economy now appear to be operating at near pre-recession levels.” Affected sectors are primarily limited in recovery due to “pandemic behaviors and policy restrictions which affect both consumption and production.”

“Broadly, the economy is near full employment with some sectors strictly idled for the near-term,” the analysts added.

When analyzing the American Rescue Plan, PWBM applied fiscal multipliers used by the Congressional Budget Office when output is “close to potential” rather than fiscal multipliers useful when output is “well below potential.” 

The CARES Act is therefore a more effective spending package than the American Rescue Plan largely because of its timing. President Trump’s legislation was enacted at a more appropriate period in the business cycle for government stimulus measures: the worst part of a severe recession. 

Government Bailouts

CARES Act

President Trump’s COVID-19 relief package provided $150 billion — equivalent to 6.5% of the bill’s expenses — toward direct aid to local and state governments. 

According to the Penn Wharton Budget Model, these allocations were meant to “increase spending from state governments scrambling to mount a fiscal response to coronavirus outbreaks.” In comparison to other portions of the CARES Act, PWBM expected the bailouts to perform among the weakest in terms of boosting economic output. Analysts anticipated the $150 billion in bailouts to increase GDP by $105 billion over the next two years.

American Rescue Plan

Ignoring the lackluster effect of government bailouts upon economic growth, the American Rescue Plan devotes $350 billion to state and local governments — a figure representing 18.4% of the legislation’s total, as well as a 233% increase over the CARES Act’s allocation in the same category.

Democrats in Congress have been aggressive in their attempts to increase government bailouts through omnibus spending packages.

For instance, the Democrat-controlled House of Representatives passed the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act in May of 2020. One-third of the $3 trillion package was earmarked for bailing out state and local governments.

After backlash from Republicans, Speaker Pelosi proposed an updated version of the HEROES Act in September of 2020. The new proposal reduced overall spending to $2.2 trillion — a revision largely caused by state and government handouts falling from nearly $1 trillion to $436 billion.

The Democrats’ emphasis on government bailouts leads their spending bills into the same pitfall — failing to spend stimulus dollars in manners that meaningfully boost GDP.

As PWBM explains, “the greatest multipliers are attached to provisions that provide money for government purchases and transfers of cash into low-income and recently unemployed households.” 

“These types of programs typically get cash into the hands of households who are most likely to spend it quickly, which generates the most aggregate demand and the greatest stimulative effect,” noted the analysts. “By contrast, putting money into the hands of people and institutions who are more likely to save it is not as likely to generate an immediate short-term boost to the demand for goods and services.”

President Biden’s American Rescue Plan is limited in its macroeconomic effects partly because it allocates money to sectors that do not contribute to short-term economic growth.

The views expressed in this piece are the author’s own and do not necessarily represent those of The Daily Wire.

Create a free account to join the conversation!

Already have an account?

Log in

Got a tip worth investigating?

Your information could be the missing piece to an important story. Submit your tip today and make a difference.

Submit Tip
Download Daily Wire Plus

Don't miss anything

Download our App

Stay up-to-date on the latest
news, podcasts, and more.

Download on the app storeGet it on Google Play
The Daily Wire   >  Read   >  Comparing Trump And Biden’s COVID Relief Bills