Biden’s Promise of More Equal U.S. Takes Hit With Spending Plan
Biden’s Promise of More Equal U.S. Takes Hit With Spending Plan
(Bloomberg) -- President Joe Biden’s promise to reduce income and wealth disparities in the U.S. has suffered a major setback with the collapse of his social-spending bill.
Early in the pandemic, U.S. policy makers staved off a dramatic increase in inequality with an all-out fiscal response. Biden’s legislation aimed to build on that achievement with about $2 trillion of investments focused on child care, health care and early education -- delivering benefits to lower-income Americans, financed in part by tax increases for wealthier ones.
But the “Build Back Better” bill is now effectively on ice after Democratic Senator Joe Manchin of West Virginia -- whose vote is essential to the bill’s passage -- said he wouldn’t support it.
The defeat for the White House comes as the spreading omicron variant of Covid-19 weighs on the economy and the Federal Reserve pivots toward raising interest rates in order to contain inflation. It threatens to turn into a double-whammy for an economy still in the midst of a pandemic that’s hit low-wage jobs hardest.
Scaling down the Biden agenda risks widening the very gaps that the president and his Democrats promised to address, according to Shawn Fremstad, a senior policy fellow at the Center for Economic and Policy Research in Washington.
In response to the pandemic, the U.S. has “done a lot of things that keep poverty low” and “lightened the damage, and particularly the potential for long-term damage,” said Fremstad. “The next step is to build out these things that would help us make progress on inequality.”
Child Tax Credit
One key part of the Biden program was to expand a tax credit for families with children that’s provided $93 billion to U.S. households this year, and helped many Americans -- particularly working mothers and low-earners -- return to the labor market. The Treasury Department issued the last round of checks Dec. 15 and the program was slated to be renewed in Biden’s plan.
Manchin has said that more government spending could worsen the bout of pandemic inflation that’s eating into household budgets. But failure to extend the policy could prevent millions of children from being lifted out of poverty and hit the economy more broadly, according to Brett Ryan, a senior U.S. economist at Deutsche Bank Securities in New York.
“I think it’s meaningful from a forecast perspective -- for our consumption forecast for next year,” Ryan said. “And it’s certainly meaningful in terms of impacting a large number of lives, too.”
Since the pandemic began, the poorest 50% of Americans have seen their share of total U.S. wealth increase by the most on record, according to Fed data. It rose to 2.5% as of Sept. 30, from 1.8% at the end of 2019, thanks largely to unprecedented cash transfers from the government. Beefed-up unemployment benefits also helped to protect incomes for people thrown out of work, predominantly in lower-paid jobs, when Covid-19 hit.
The measures helped to lift nearly 12 million Americans out of poverty and deliver a faster economic recovery than after the 2008 crash. But despite the economy’s stronger bounce-back, structural issues remain.
Fiscal transfers underwrote robust demand, propelling the stock market higher as corporate profits surged, leading to an increase in the share of total wealth held by the top 1% as well. And homeowners reaped windfall gains from surging prices as the pandemic drove increased demand for living space amid already-tight supply.
Biden’s Build Back Better plan would increase the after-tax income of the bottom quintile by about 15% in 2022, the most among income groups and largely the result of the boosted child tax credit, according to the Tax Foundation. Meanwhile, the top 1% of earners would see a less than 1% gain.
The child tax credit expansion would reduce child poverty by about 40%, which would disproportionately help Black and Latino households, based on estimates by the Center on Budget and Policy Priorities.
Officials have emphasized that lower rates of early childhood education set Americans back and a lack of affordable childcare and home health care keeps them from entering the labor market or taking higher-skilled jobs.
Biden’s bill -- which proposes free and universal pre-school as well as expanded access to health care -- would address these issues that the U.S. is “behind the curve” on, according to Cecilia Rouse, who chairs Biden’s Council of Economic Advisers.
“The economy needs to be running healthily for everybody, but to get that last bit, we’re going to have to attack our institutions,” she told Bloomberg News in a Dec. 16 interview. “This is why the efforts in Build Back Better to be supporting the care economy are so important.”
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