Biden's stimulus juiced the economy, but its political effects are muddled

The American Rescue Plan, which the Biden administration created and Democrats passed in March 2021, has fueled discontent among voters, in sometimes paradoxical ways. Some Americans blame the law, which included direct checks to individuals, for helping to fuel rapid inflation.
Last Updated : 18 June 2024, 13:58 IST

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Washington: The $1.9 trillion economic stimulus package that President Joe Biden signed shortly after taking office has become both an anchor and a buoy for his reelection campaign.

The American Rescue Plan, which the Biden administration created and Democrats passed in March 2021, has fueled discontent among voters, in sometimes paradoxical ways. Some Americans blame the law, which included direct checks to individuals, for helping to fuel rapid inflation.

Others appear upset that its relief to people, businesses and school districts was short-lived. The Federal Reserve Bank of Dallas reported recently that several business contacts in its district "expressed concern about the winding down of American Rescue Plan Act dollars and whether nonprofits and K-12 schools will be able to sustain certain programs without that funding."

Polls show that Americans continue to favor Biden's opponent, former President Donald Trump, on economic issues. Often, they indicate that only relatively small slices of the electorate believe Biden's policies have helped them or their family financially.

At the same time, though, the stimulus may be lifting Biden's chances for November in ways that pollsters rarely ask about.

Economists say the relief package, along with stimulus measures Trump signed into law in 2020, has helped accelerate America's recovery from the pandemic recession. The United States has grown and added jobs in a way that no other wealthy nation has experienced after the pandemic.

Supporters of Biden, and the law, say that enhanced growth has helped the president remain better positioned electorally than his counterparts across Europe. Many European leaders have seen their popularity plummet, and some have suffered party losses in recent elections or are facing the likelihood that voters will soon kick them out of power.

Price increases continue to weigh on Biden's approval ratings, and it is unclear whether he will win a second term. But he remains more popular than the leaders of France, Germany, Britain and other allies. The United States' rapid economic growth and low unemployment rate, bolstered by the stimulus, could help explain that divergence.

"One reason that Biden has better approval ratings than most other world leaders is because his policies helped produce big gains in wages and wealth that have allowed most Americans to come out ahead despite these challenges," said Bharat Ramamurti, a former deputy director of Biden's National Economic Council who has written extensively about the political and economic upsides of the rescue plan.

The plan contained money for America's response to the pandemic, including to speed vaccinations. It also had aid for people, businesses and governments hurt by the pandemic recession. That included one-time direct payments of $1,400 for low- and middle-income individuals and several months of more generous unemployment benefits for people who had not returned to work after the recession.

The law also expanded food stamp benefits, increased a tax credit for parents, provided aid to renters and homeowners, and offered hundreds of billions of dollars for state and local governments to help shore up their budgets amid slumping pandemic revenues. All of those programs were intended to be temporary, though some lasted longer than others.

Aid to local governments and schools lasted several years but has begun to run out. As a result, school districts across the country have started to cut their budgets, providing a visible sign to parents and workers of the end of pandemic money.

When Biden signed the rescue plan into law, his aides were confident that it would help accelerate the nation's recovery from the pandemic recession. Republicans and even some liberal economists screamed that the bill was too big and would stoke inflation.

A wide range of economic evidence suggests both sides had a point. Job creation and economic growth surged in the United States in the months after the law passed, powered by spending from consumers and business owners flush with government aid. The unemployment rate dropped rapidly. America's recovery remains the envy of the wealthy world, far outpacing Europe, Japan, Canada and other allies.

But Biden's team also believed the law would be a clear political win for the president. That has not been the case, in part because economic research has blamed its spending at least in small part for the inflation surge that began in 2021.

The largest estimate, from the Federal Reserve Bank of San Francisco, finds that stimulus measures signed by Biden and by Trump in 2020 contributed as many as 3 percentage points to an inflation rate that hit 9 per cent in 2022. Other estimates are more modest.

After initially cheering the stimulus as a political and economic slam dunk, Biden now finds himself forced to defend it in speeches to key voting blocs, such as Black Americans. He is blaming corporations for persistent price increases and calling out Republicans for not renewing some of the law's benefits, like an enhanced tax credit for parents that lasted only one year.

Biden is also struggling to remind voters that some of the pandemic aid they relied on came from the stimulus package that he -- not Trump -- signed into law. While Trump insisted that his signature appear on checks that went to individuals, Biden did not include his name on the payments.

"Trump takes credit for sending all the pandemic relief checks alone," Biden said at a campaign event in Philadelphia late last month. "It's a lie."

With the help of Black lawmakers in Congress, Biden added, he and Vice President Kamala Harris "passed legislation to deliver more checks in the pockets to millions of Americans, including Black Americans -- $1,400 checks from the American Rescue Plan we passed, and then $300 a month per child per family through the child tax credit, which cut child poverty in half for Black families. And I'm going to get it reinstated in the second term."

Biden aides say he will amplify that messaging in the weeks to come. "It will become increasingly evident who was responsible for passing these vital policies and who unanimously voted against them," said Gene Sperling, a senior adviser to Biden who oversaw spending from the package.

Much of the reaction to the plan follows the deep political divisions of the country.

Scott Smith, 59, a real estate agent in Canton, Georgia, said he was concerned that trillions in stimulus funding worsened inflation and added to the national debt. Smith, who voted for Trump in 2020, said he was also skeptical that everyone who received the aid needed it and that some of his friends had used the stimulus money on vacations.

"It was ill conceived," Smith said. "It's a tremendous amount of debt for the next generation to take on."

Other Americans who received pandemic assistance said they had struggled to deal with higher prices since those programs ended. Ashley DePover, 35, a paraprofessional in Inver Grove Heights, Minnesota, said the expanded child tax credit was a significant boost for her and her family after they unexpectedly became homeless for several weeks in early 2022. She said the extra money she had received as a tax refund helped pay for hotel costs, food, housing applications and a deposit on the apartment that her family later moved into.

DePover said she hoped lawmakers would expand the child tax credit again, since she has grappled with steeper grocery and rent costs in recent years. Still, she said she did not blame Biden for the stimulus aid's ending and that she was "pretty confident" she would vote for him in November.

"I would have loved for it to stick around, but we all knew it was limited when it came out," DePover said.

Published 18 June 2024, 13:58 IST

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