Biden: Between a rocket and a hard place?
Could a strong economy ironically undermine President Biden’s proposed legislative agenda? Strange as this seems, it also seems quite possible because Biden’s agenda is focused on spurring an economy that increasingly appears already spurred.
If true, Biden could find himself in the peculiar position of either being crosswise with his party who largely supports his plans, or at cross-purposes with a rapidly accelerating economy.
On 11 March, Biden secured his first major legislative victory when he signed a massive $1.9 trillion COVID-19 relief bill. While spending such a sum may appear simple, it was not. Democrats had to use Congress’s expediting reconciliation procedure, navigate both bodies’ narrow margins and they had to do it all without Republican support.
With this legislation’s enactment and momentum behind him, Biden last week proposed a $2.3 trillion infrastructure plan. Another plan focusing on individuals (children, health care and education) is anticipated shortly. Together, these two new packages would reportedly cost $3 to $4 trillion. This is roughly twice the COVID-19 relief bill that was just enacted and about the same as the $3.5 trillion Washington spent last year on COVID-19.
All told, this would amount to roughly $9 to $10 trillion in additional Washington spending in just one year. This is an enormous and ambitious sum, even including the higher taxes that Biden is proposing as offsets for the infrastructure package.
Biden’s potentially biggest problem is larger than either fiscal fatigue from spending a large sum in a short time, or political pressures arising from tight congressional majorities and partisan resistance. It even goes beyond the estimated trillions in inherently divisive new taxes (at least to those being taxed). Biden also faces a growing economy that could work against his case for more public sector support.
Usually it is weak economies that hurt presidents — Herbert Hoover and the Great Depression being the classic example. Instead, Biden must worry about one picking up steam but taking it out of his agenda.
The latest jobs report showed American payrolls growing by 916,000 in March and unemployment falling to six percent. This follows increases of 468,000 jobs in February and 233,000 in January. Combined that is 1.6 million new jobs in one quarter.
In early February, the Congressional Budget Office (CBO) estimated the 2021 real GDP growing at a strong 3.7 percent, the economy reaching its pre-pandemic peak by midyear and unemployment falling to 5.3 percent. All this before March’s enactment of the $1.9 trillion package, which should only boost the economy more. It is also well before the effects from Biden’s two additional packages.
As a result, Biden could find himself stuck between competing economic and political forces. A strongly accelerating economy could argue against his two large additional spending packages. If CBO projected recovery by midyear without the latest relief package or either proposed one, how much faster will growth be in coming months?
Politically, fiscal fatigue from COVID-19 spending enacted thus far ($5.3 trillion in less than a year) from rising spending, debt (according to CBO’s 10-year February 2021 estimate, federal debt held by the public grew over 25 percent by $4.3 trillion from 2020 to 2021, before the latest $1.9 trillion COVID relief package) and taxes (proposed in the latest package) could cause increasing hesitancy among some moderates. Congress’s stark partisan split also offers no political cover: If Republicans rejected a plan with no tax increases, the likelihood they will support $2 trillion in new revenues appears highly unlikely. And Democrats’ congressional margins remain tight.
Should the economy begin showing signs of inflation, the economic and political problems grow bigger still. To understand inflation’s devastating economic and political effects just look back to the 1970s and the back-to-back presidential incumbent defeats of Gerald Ford and Jimmy Carter. While Biden will not face voters for almost three years, the Congress he needs to pass his agenda will face them in just over 18 months.
Biden could well find himself in a highly unusual race against an accelerating economy. Although he certainly wants it to be growing when he faces voters in 2024, he needs it to not be growing too fast or too soon while his agenda is facing Congress. When it comes to the economy and politics, Biden could find himself between a rocket and a hard place.
J.T. Young served under President George W. Bush as the director of communications in the Office of Management and Budget and as deputy assistant secretary in legislative affairs for tax and budget at the Treasury Department. He served as a congressional staffer from 1987 through 2000.