How Biden’s Stimulus Package Could Do More Harm Than Good

If the nation’s gross domestic product (GDP) were a jogger, the costs and debts of government would be like a weighted backpack. According to the Office of Management and Budget, for fiscal year 2021 (Oct. 1, 2020 to September 30, 2021) current federal spending is nearly $5 trillion. That’s about 21 percent of our GDP.

That figure probably won’t hold if the Biden Administration piles another $1.9 trillion onto the deficit. The cumbersome debt, like any other loan, must be serviced with interest payments. That debt interest payment ($375 Billion) must be budgeted. Most of the income — about 90% — to finance all this madcap spending comes from Treasury bills, notes, and bonds. The remaining 10% comes from Treasury Inflation Protected Securities, Savings Bonds, and other securities.

So, the public debt now owed to individuals, businesses, and foreign central banks is $18 trillion so far. That’s not including what the government also owes to the Social Security Trust fund and through the fuzzy math called intragovernmental debt — which the government doesn’t have to include, because it owes that money to itself.

President Joe Biden won the last election as well as the two senate seats in Georgia with a promise to add to the debt with a $1.9 trillion COVID-19 relief package. The goal is to further prime the nation’s GDP by 0.6% in 2021. On the other hand, the additional public debt, according to a nonpartisan group at the University of Pennsylvania, will actually decrease the GDP by 0.2% in 2022 and 0.3% in 2040.

According to the study, the Biden relief plan “leads to an increase in output in 2021 as the plan’s expenditures stimulate the economy…” But the bad news is that with the stimulus spending the GDP “declines in subsequent years as the additional public debt crowds-out investment in productive capital.”

The tie breaker is that, unlike when Congress passed the March 2020 CARES Act, the U.S. economy is now much closer to its pre-crisis output. The new stimulus bill, then, would just add debt and “would generate less additional output in 2021…”

What did top earners do with those two stimulus payments last year? They held on to the money, according to the JPMorgan Chase Institute. The Institute examined 1.8 million of its customers’ checking accounts. Lowest-income earners showed quick increases in their accounts, but spent the money quickly. Top earners — people who earned over $68,000 per year — said the Institute, kept the money in their accounts.

It doesn’t take a financial genius to figure out that poorer Americans are more likely to spend their stimulus checks, and higher earners don’t need the money.

Said the Institute: “Targeting the next round of stimulus payments toward lower-income households would save substantial resources that could be used to support other programs, with minimal impact on economic activity.”

President Biden has indicated that he is open to negotiating the income limits for new stimulus checks. Republican legislators acknowledge the need for yet another stimulus package, but their cost target is well below the almost $2 trillion packed-with-pork package the Democrats want.


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