Biden's COVID relief plan could shrink economic growth over long-term, study shows

Stimulus, GDP growth forecast is ‘pure upside’ for economy: Former Dallas Fed adviser

King’s College professor of business and economics Brian Brenberg and Former Dallas Fed adviser Danielle DiMartino Booth on the economic impact of the Northeast snowstorm amid the coronavirus pandemic, GDP growth and inflation rates increasing.

Democratic lawmakers are poised to plow ahead with passing President Biden's $1.9 trillion coronavirus relief package, a measure that will provide an immediate burst to the U.S. economy but that could drag on growth in years to come.

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That's according to a new analysis published Wednesday by a nonpartisan group at the University of Pennsylvania's Wharton School, which found that Biden's proposal could increase the nation's GDP by 0.6% in 2021. But the additional public debt resulting from his measure would decrease GDP, the broadest measure of goods and services produced in a nation, by 0.2% in 2022 and 0.3% in 2040.

BIDEN'S COVID RELIEF PLAN COULD SEND MONEY TO WELL-OFF AMERICANS WHO WON'T SPEND IT

"The Biden relief plan leads to an increase in output in 2021 as the plan's expenditures stimulate the economy, but GDP declines in subsequent years as the additional public debt crowds-out investment in productive capital," the report said. "The increase in output 2021 is due to the immediate stimulative effect of the economic recovery plan."

Unlike the $2.2 trillion CARES Act, which Congress passed last March at the beginning of the pandemic, the U.S. economy is much closer to its pre-crisis output. As a result, Biden's $1.9 trillion plan "would generate less additional output in 2021 than it did in spring or summer of 2020 when the U.S. economy was further from potential," the analysts said.

BIDEN SPARKS BACKLASH AMONG SOME PROGRESSIVES OVER $1,400 STIMULUS CHECKS IN COVID RELIEF PROPOSAL

For instance, Biden has made a third stimulus check — worth $1,400 — an integral part of the emergency aid package. But the Penn Wharton Budget Model estimated that 73% of check recipients would stash the money away in household savings rather than spend it. Just 27% would go to increased consumption, the analysts projected.

"The economy is on its way to recovering," Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said. "More funding is warranted to assist those out of work because of the pandemic, prevent state and local government layoffs, boost economic demand, prevent a decline in household incomes, and end this pandemic once and for all. But it shouldn’t take $1.9 trillion to fill a $400 billion or $800 billion hole."

WHAT'S IN BIDEN'S $1.9T STIMULUS PLAN?

While still unclear what the framework for stimulus check eligibility looks like, if it followed a formula in House-passed legislation last year, the $1,400 stimulus checks would taper off for individuals who earn $75,000 more a year and families making $150,000 or more. But the phaseout level increases for families with more children, meaning that a family with multiple children earning more than $300,000 a year could theoretically receive some money, even if they have not suffered a financial setback during the pandemic.

Biden told reporters last week that he is open to negotiating the income limits for the money.

The proposal is also expected to increase the federal minimum wage to $15 per hour, provide $400 a week in supplemental unemployment benefits through September, increase state and local government funding by $350 billion and allocate $160 billion to accelerate vaccine distribution and expand COVID-19 testing.

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The nation's GDP grew 1% from October through December on a quarterly basis, compared with an increase of 7.48% between the second and third quarters, marking a substantial slowdown as a resurgent virus forced a fresh wave of business closures and lockdown measures.

The economy remains 2.46% smaller than at the end of 2019. Measuring 2020 output overall against the previous year, GDP fell 3.5% in 2020, the worst on record.

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