When President Joe Biden sat down with Republican senators this week, the two sides were about $1.2 trillion apart on making a deal for the next stimulus package. A White House statement following the meeting said Biden was pushing forward and rejected the smaller plan as “a package that fails to meet the moment.”
According to a new analysis by the Committee for a Responsible Federal Budget, a think tank focused on the federal budget and deficits, the White House isn’t wrong that the GOP plan falls short, but perhaps Biden’s plan “overshoots” the mark.
If the question here is “how do we get the economy back to where it was before,” said Marc Goldwein, a senior policy director at CRFB, then the government needs to spur $700 billion or $800 billion in additional economic activity in the coming years.
“The Biden plan would probably do that two or three times over,” he said, while “the Republican plan would fall a little short.”
The CRFB is often focused on minimizing deficits in normal times. But in recent months the group said now is the time for big spending. During a Yahoo Finance appearance in December, Goldwein argued that the last round of stimulus – which President Trump signed into law on Dec. 27 – “could be hugely important for preventing what could be a shallow double-dip recession.”
This time around, said Goldwein, “I’m in the camp of it’s better to go too big than too small.” But, he added, “that doesn’t mean it’s better to go three times as big than 5% too small, so we need to balance these risks against each other.”
‘A call to immediate action’
This week’s debate over relief size follows a recent report by the Congressional Budget Office, which forecasts that economic growth could jump substantially to 4.6% in 2021. That comes after a contraction of 3.5% last year. The CBO also projected that – without any changes in current law – growth would taper off and eventually fall below 2% over the following years.
The report’s conclusion implies there is an output gap of $760 billion through the end of 2023. The output gap can be thought of as the difference between how big the economy should be – if everything was operating at full potential without the pandemic – and what is actually likely to happen under current law.
Democrats focused on another finding in the report: that the unemployment rate would take longer to bounce back. They project a full jobs recovery to pre-pandemic levels wouldn’t happen until 2024 without further government action.
In a statement Treasury Secretary Janet Yellen said the report shows the U.S. “desperately” needs to pass more stimulus. The White House also pushed back on the CBO report Wednesday, saying the jobs numbers in the report calling them “dire – and a call to immediate action, not calm, not wait-and-see.”
Some of the Biden proposal ‘isn’t Covid relief at all’
“I think there probably is a middle ground where we can get the economy the support it needs, [and] at the same time spend the resources necessary to actually end the pandemic,” said Goldwein. He noted many areas that could be trimmed back from the Biden plan, like provisions around child tax credits, stimulus checks going to wealthier Americans, a bump up in unemployment benefits, and what he sees as overly generous aid to states.
“There is about $200 billion to 300 billion in the Biden proposal that really isn’t Covid relief at all,” he said.
At the moment, Democrats appear to be moving forward with the goal of enacting the full $1.9 trillion package. The prediction from Greg Valliere, chief U.S. policy strategist at AGF Investments, was that “a final bill costing at least $1.5 trillion is virtually certain.”
Democrats took a major step forward Tuesday when Sen. Joe Manchin (D., W. Virg.), a moderate whose vote would be vital for Democrats to pass it without the support of Republican senators, announced he would vote to allow the Democratic plan to move forward.
Manchin and other moderate Democratic senators still have opportunities to shape the bill in the weeks ahead. Manchin has expressed skepticism over aspects of the White House plan, including gradually raising the federal minimum wage to $15 an hour as well as the level of aid to states.
In a recent Fox News interview, Manchin emphasized that he wasn’t on board with the final bill yet and Republicans “can count on me to make sure that we do everything to make this bipartisan.”
Ben Werschkul is a writer and producer for Yahoo Finance in Washington, DC.