• Beatrice Bullough

CMI Explains: Biden's Stimulus Plan

On the 14th of January, then President-Elect Joe Biden announced his plans for an economic relief package which would, in his words, 'rescue' America. The $1.9 trillion proposal includes $350 billion in state and local aid, rental assistance, expanded unemployment benefits and a direct payment of $1,400 to Americans below a certain wage line. The stimulus follows the four relief bills Congress has approved since last March totally $4.1 trillion in spending. Earlier policies, such as the decision to give $600 one off payment to Americans were slated by Biden for being 'enough to pay rent or put food on the table', not both. So, what's Biden offering that he thinks will be better?

Direct Assistance

The headline focus for many is the $1,400 cheque given directly to eligible adults. This is an increase on the previous two direct assistance bills which were $1,200 in April and then $600 in December. This increase, while criticised for not being enough by democrats such as AOC, seems to be universally popular, with analysts highlighting it as the one part of the bill most likely to go through Congress unchanged. If anything like the earlier relief, eligibility will be based on adjusted gross income which takes into account factors such as IRA contributions, interest on college loans and payments for health insurance and deducts them from the recipient's gross income. The payments would then be based on a sliding scale of lower income equalling higher relief cheques.

Supplemental Unemployment Compensation

The proposal would extend eligibility for who can claim supplementary unemployment benefits, expanding to include gig economy workers and independent contractors who have seen work diminish in the last year. It would also add an extra $400 weekly supplemental payment and these benefits would be extended until September instead of ending in March. This policy is aimed at the 18 million Americans who claimed unemployment at the end of 2020, and focuses on ending the administrative issues of long waits and gaps in support.


Biden wants $20 billion for a national vaccination program which would set up vaccination sites across the country in addition to launching a public education campaign encouraging vaccination and hiring a new workforce of 100,00 public health workers to conduct tracing and vaccinations. In order to ramp up America's response to the pandemic, the Rescue Plan proposes an investment of $50 billion to expand testing in a move to start getting the country's workforce and economy back to where it was before the pandemic.

Increased Minimum Wage

One of the more hidden, yet most important, parts of the bill is the request to double the national minimum wage to $15. This change has been championed by many left leaning democrats such as Bernie Sanders for years and would benefit around 30 million Americans. The minimum wage hasn’t been increased in America since 2009 and has failed to keep up with inflation or rent in any area of the country. The change has historically met fierce opposition from Republicans who cite job losses as a main concern. Despite this, most polls indicate that the majority of Americans support an increase to the minimum wage, hinting that a reduced version of this policy may have a shot at passing into law.

Other Parts of the Bill

Biden specified that over 1 million small businesses would be supported by the government with $175 billion in lending and investment as part of a larger $440 billion stimulus for local businesses, Tribal governments and essential workers. $130 billion is specified to help schools reopen, and various new tax credit benefits and expanded welfare programs are proposed.

The Problems

Many believe the small print proposals are nothing more than political showmanship as the bill is unlikely to get through congress intact. While the Georgia runoffs in January meant the Democrats have a technical majority in the house, bills need a 60 vote majority to pass, meaning the bill will have to appeal to Republican representatives too. One particular point of contention will be Biden’s new $15 an hour minimum wage which has repeatedly been an issue for Republicans who rely on the support of small business owners. The general opinion seems to be that a bill worth around $1 trillion will get through the house, with both Raymond James and Heights Securities predicting that a shaved down bill of just over a trillion dollars would be acceptable to many Republicans who have called for more direct Government assistance since the pandemic started. Currently, the nearly $2 trillion bill would 'over heat' the economy according to Lawrence Summers, who nonetheless believes that it could survive the hit and needs the stimulus. Other issues include concerns that the reflations predicted from the stimulus could easily slip into inflation, and worries that months of deliberation in the house will mean unemployment and direct support may come too late to achieve the impact it wants. Biden also seems determined to enact his inaugural promise of unity by working with Republican senators to pass the bill which will mean the bill will face several compromises. Many fiscally conservative Republicans have raised concerns about the amount already spent and are hesitant to contribute more to the national debt with even moderates such as Mitt Romney claiming it is too soon since the last stimulus legislation to be passing more spending bills.

The Positives

Other parts of Biden's stimulus plan such as the 'Build Back Better' scheme have been lauded for their potential to re-energise lagging areas of the American economy. This focus on infrastructure harks back to Roosevelt's new deal in the 1930s and the impact has already been seen with an initial jump in shares of manufacturing companies. Other benefits are a prediction of 18 million new jobs from such government contracts, and a $5000 increase in the middle class annual income according to Moody’s forecast. Tax credits for companies which keep production in the USA will hopefully stabilise some of the jobs increasingly moving abroad, though they will have to offset the proposed $15 minimum wage to appeal to companies. The infrastructure investment is heavily intertwined with green energy which Biden hopes will set America on the road for future success as fossil fuels increasingly fall out of favour and keep America as a new-industry leader. The bill itself seems to be in a good position. With Sanders Chair of the Budget Committee in the Senate, and actively calling for the bill to go through reconciliation (which would protect it from filibustering and excessive amendments) it’s entirely possible that a strong version of the bill will be passed into law. Even with the likely outcome of a reduced, trillion dollar bill passing, some estimates are that this could still increase growth by 1%.


Biden's plan clearly takes notes from the lessons of Roosevelt's investments in the New Deal, this time dealing with a different type of national struggle. His stimulus plan is wide ranging with short and long-term investments in infrastructure and new technology, increasing the disposable income for workers alongside support for small, American based businesses acting as the potential solution to America's modern challenges. While it currently looks unlikely the bill will pass into law whole, it is clear that whatever form of it does become law, it will be a strong and expensive response to COVID because, in Biden's words - ‘the very health of our nation is at stake’.