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Breaking down Biden's $1.9 trillion economic rescue plan

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Stocks were mostly lower on Friday as traders considered details of President-elect Joe Biden’s newly unveiled stimulus proposal and weighed the likelihood of the package getting advanced quickly through Congress. Yahoo FInance’s Rick Newman and Dean Baker — senior economist at the Center for Economic and Policy Research — join Julie Hyman, Brian Sozzi and Myles Udland to break down the details of the plan.

Video Transcript

MYLES UDLAND: This after President-elect Joe Biden last night outlined his ambitious plans for stimulating the US economy, spending some $1.9 trillion, getting hands-- or getting money, rather, into the hands of Americans, increasing child tax credits, earned income tax credits, among other measures. And let's start our conversation there.

Yahoo Finance senior columnist Rick Newman joins us now to talk a bit about the agenda, Rick, that we heard outlined from the President-elect. And we'll start with the obvious question, and it's obviously an unknowable question, but how much of this do you think is going to get done when the next Congress is seated and when Joe Biden is sworn in as president?

RICK NEWMAN: I think Congress will pass about half of it, maybe a little more than half of it. So he's asking for $1.9 trillion, as you mentioned. Biden knows that's a stretch. The analysis I'm seeing this morning suggests he could get $1 trillion, maybe as much as $1.5 trillion.

I think we're going to see Congress dial back a few things, such as $350 billion in state and city aid. The number's not going to be that high. I don't think we're going to get a $15 minimum wage, even phased in, because a lot of Republicans are opposed to that. And I think a lot of these other things, he'll get some money for them. It's just not going to be as much as he's asking for.

BRIAN SOZZI: Yeah, Rick, I think that the $15 minimum wage had quite a few folks by surprise. Even if Biden were not to get $15 an hour, do you think he will finally be able to pass through a hike in the minimum wage, which is just absurdly low right now, and it's been low?

RICK NEWMAN: It is absurdly low. It's at $7.25 per hour. It's been there for-- I think it's been there for almost 15 years. I mean, the federal minimum wage is almost meaningless at this point.

But there's a problem with raising it, which is that it would impose a burden on businesses. And let's face it-- right now, the types of businesses that have to deal with the minimum wage-- think about it-- restaurants, retailers, these are the ones that are getting creamed in the coronavirus recession. So you can get around this. You could phase it in. You could wait-- you could wait until next year or even the following year to say it begins and then raise it in tranches.

The Democrats have been wanting to raise the minimum wage for a long time. And it does need to be raised. It just needs to be raised carefully. And by the way, if this happens under the Biden administration, please index the minimum wage to inflation so it goes up on its own and we don't have to be stuck with a minimum wage that is kind of continually behind the times.

MYLES UDLAND: Yeah, we don't have to wait a couple generations and then raise it by 100% just to catch up.


MYLES UDLAND: Sort of where things are at.

All right, Rick, stick around, and let's talk a little bit more about what was unveiled last night. Dean Baker joins us now. He's a senior economist at the Center for Economic and Policy Research.

Dean, it's great to speak with you this morning. I'd love to get your thoughts on the most important takeaway from the speech we heard from the President-elect last night with respect to his economic goals as they were outlined last evening.

DEAN BAKER: Well, I have to say, I was very pleased with it. I mean, he's taking the issue seriously. I mean, first and foremost, we have to get the pandemic under control, and he said that. And that means, front and center, getting the vaccine out. And, I mean, not to harp on Donald Trump, but, I mean, his dealing with the vaccine was telling the states, get it done. Biden understands the federal government has to get those vaccines out quickly. That's front and center. If we don't get the pandemic under control, we're in really big trouble.

On top of that, he has paid sick leave. That was in the first CARES Act, not in the bill passed in December. That means people who are sick don't have to come to work and spread it. Paid family leave, same story. So those are really big things. Also, the extension of Unemployment Insurance benefits till September, upping the $300 supplement to $400, those are really, really big things. So I'm very, very happy about that.

And then he also has the aid to state and local governments. I understand that'll be controversial. Will he get $350 billion? Probably not. I think it was reasonable to ask for. Does it get knocked down to 300, 250? We'll see. But this had become kind of a joke-- Senator McConnell had openly said states should declare bankruptcy. States have been hit very hard by the pandemic, and they have greater responsibilities than ever in terms of trying to make vaccines available, have testing, trying to make workplaces safe. So I think it's-- I was very pleased with it. It's a serious step that is likely to have huge economic benefits.

JULIE HYMAN: I guess the question, Dean, is when? Because, as we've been talking about, it's going to be tricky for Congress to perhaps get this through as it stands. And so if you get some kind of slimmed-down bill with just the priorities that you were pointing to, ones that have more directly to do with coronavirus perhaps, how much time is that going to take? And is that sort of-- you know, we saw all of that unfold last year, and important time was lost where people could have used that help. Are we about to watch that movie again?

DEAN BAKER: I think with unified control, you know, controlling both houses and obviously the White House-- you know, Biden understands-- this guy's been in Washington forever. So he understands you don't just put something on the table and expect to get it. He also understands the urgency.

So, you know, we had the discussion of the minimum wage. I also would love to see the minimum wage raised to $15 an hour. Just to be clear, that's not overnight. That's phased in to 2025. So he's not naive that way. But if that's going to hold that up, I-- you know, I'm not anxious to see that drop, but, on the other hand, I think he could get that approved later, because it is very popular.

Anyhow, long and short, I think he's prepared to negotiate. He understands how this is done. And he understands very much the urgency. So if there's something in here that's holding it up and it's not essential-- I mean, there's no-- there has to be money for state and local governments. Mitch McConnell just says, oh, no money for state and-- that's a nonstarter. But does it have to be $350 billion? No, it could be less than that. So I'm confident he'll get something through quickly. It won't be this package, as he's laid it out, but everyone understands that.

RICK NEWMAN: Dean, you understand how Washington works and how Congress works. And Biden could probably get a bigger stimulus package if he used the reconciliation process. But you only get to do that once. So that means a simple majority vote in the Senate rather than the 60 to overcome the filibuster. But if he does that, then he doesn't have reconciliation for further legislation. So what's your best guess about the approach he's likely to take? Go as big as he can on stimulus and use reconciliation, or keep reconciliation in his pocket for what might be tax legislation or health care legislation later this year?

DEAN BAKER: Yeah, my expectation is, he's throwing this on the table, and he'll see the response of the Republicans. And if it turns out that they're just adamant, you know, so maybe they'll say no money for state and local governments or they'll obstruct some of the other aspects of this bill that are really front and center, then he'll go the reconciliation route. But I think he'd rather not do that, both because, as you say, he wants to save it for health care, for other issues, tax changes, but also because he's-- you know, he's said he wants to be bipartisan. He wants to negotiate. He's not naive that way, because he remembers-- obviously, he was there with President Obama. When he said, oh, I want the stimulus to pass with 80 votes, he had to fight and claw to get three Republicans in the Senate to sign on.

So Biden's not going to fall into that same trap. I think he's going to say, let's see if we can do this together, do it bipartisan, have some compromise. But at the end of the day, if he finds that the Republicans are adamant in opposing key provisions of the bill, reconciliation is the way out.

BRIAN SOZZI: The $15 minimum wage, Dean, is that pro-growth policy? Because Rick correctly mentioned, you know, on the other side of the coin here is, that could really hurt the bottom line of small businesses, medium-sized businesses, and certainly large businesses.

DEAN BAKER: Well, there's been a lot of research on this, and I've changed my thinking. I mean, I've generally been supportive of higher minimum wages, but I always had reservations that you could have them be too high. And we've seen big increases in the minimum wage in New York and California, a number of other states, and some cities, Seattle, other cities have raised them, and really no negative impacts on employment.

Now, that doesn't mean that there's not going to be some business that's hurt by it, some business that will go out of business. That happens. But the question is, what's the net effect? And all the evidence is that the net effect, from this sort of increase in the minimum wage-- again, if we were to say $20 in 2025, I'm sure that would have negative impacts, but the sort of increase we're talking about, that should not have negative impacts economy-wide.

And, again, I don't mean to say no business is going to be hurt. Some will be. There's no way around that.

MYLES UDLAND: And, Dean, I want to finally ask about direct payments to Americans. We've seen $1,800 sent out so far this year. Joe Biden now calling for an additional $1,400. Does this change the future of how policymakers think about fighting downturns? Is there no going back from, oh, the economy's in recession, now we start sending out checks? Because I think people like getting a check in the mail from the government, and it's now been employed twice in one year after, you know, I guess, what, a 17-year break between that policy being used.

DEAN BAKER: Well, it was used-- the Obama tax credit, the make work pay tax credit-- which the way he structured it, no one saw that as a check, but that's what it was. It was unfortunate, I think a very, very bad political move for him.

But it is very popular. I have to say, it's not the best targeted. It's not the best way to stimulate the economy. I mean, the reality is that a huge portion of that money was saved, which isn't necessarily bad for those people. People used it to pay down credit card debt, pay down student loan debt. So that's not a bad thing.

But if the point was to get spending in the economy, it didn't do that, and also to help the people who were most badly hit, because the fact is, most people have not lost their jobs in the downturn. And a lot of people refinanced mortgages, saved thousands of dollars a year in interest. So they didn't need a check, but they're happy to get one. So the politics on it are clear, but the economics, I think it's not the best way to help the economy in this sort of situation.

MYLES UDLAND: All right. Dean Baker, senior economist with the Center for Economic and Policy Research. Dean, really appreciate you taking some time this morning to join the program.

DEAN BAKER: Thanks a lot for having me on.