The bill is a major political victory for the new president, displaying his influence over a Democratic Party in control of Congress by the thinnest of margins. At the same time, the partisan divide over the bill foreshadows the difficulty Biden will have in enacting the multi-trillion dollar, longer-term economic program he wants later this year.
Most Americans will be receiving direct payments of $1,400, with the money starting to go out within days. The bill provides new health-insurance subsidies and child-tax credits, while extending $300 per week supplemental unemployment benefits into September. There’s also $360 billion for state and local governments, a bailout for troubled union pensions and funds to ramp up vaccinations and school re-openings.
Contributions to GDP From $1.9 Trillion Plan
“I join President Biden in his promise: help is on the way,” House Speaker Nancy Pelosi said as debate concluded, noting that the vote came on the eve of the one-year anniversary of the coronavirus being declared a pandemic and reciting the toll it’s wreaked on America. “This legislation puts nearly $1 trillion in the pockets of the American people.”
Biden plans a primetime address Thursday “to talk about what we’ve been through as a nation this past year,” he said at a White House event Wednesday. “But more importantly, I’m going to talk about what comes next. I’m going to launch the next phase of the Covid response and explain what we will do as a government and what we will ask of the American people. There is light at the end of this dark tunnel.”
Treasury Secretary Janet Yellen on Wednesday said in a statement that, “There will still be tough months ahead, but eventually, this law will help clear away the immediate crisis in front of our eyes, and let us start building a better post-Covid future.”
The Biden administration and Democrats are undertaking a coordinated campaign that will include the president and vice president to drum up awareness and support for the legislation by highlighting 10 ways they say it will help Americans, White House deputy chief of staff Jen O’Malley Dillon said in a Wednesday memo.
U.S. stocks climbed to record highs in February as investors anticipated passage of the stimulus bill, then tumbled at the end of that month amid worries about a surge in bond yields. Treasury yields have stabilized in recent sessions, helping the S&P 500 Index notch log the best back-to-back daily gains in a month on Wednesday. The Dow Jones Industrial Average rose to a record, closing above 32,000 for the first time.
The relief legislation passed without a single Republican vote in either the House or Senate, in sharp contrast to the bipartisan five previous bipartisan Covid-19 bills enacted under President Donald Trump, before the pandemic began retreating amid the current vaccination drive.
Representative Jared Golden of Maine was the lone Democratic no vote. He also had voted against the version that passed the House earlier.
Republicans blasted Biden, Pelosi and Senate Majority Leader Chuck Schumer for rejecting more modest proposals. With the economy already on the rebound, they said the aid bill was excessive and will escalate financial risks.
“You can’t just keep adding mountains of debt at hundreds of billions at a time” without consequence, said Steve Scalise of Louisiana, the No. 2 House Republican. “When you look at the priorities of Speaker Pelosi, it’s to spend as much money as quickly as possible on her socialist agenda.”
Republicans especially objected to the more than $360 billion in state and local government funds being provided when many states are not showing any revenue loss during the pandemic.
Senator Rick Scott of Florida issued a call to governors and majors to return to Washington any funding that’s in excess of “federally reimbursable Covid-19 related expenses.”
The bill is far bigger than initial Wall Street expectations of what could be accomplished in a closely divided Congress. Economists this week were upping their projections for growth to incorporate the impact. Morgan Stanley on Tuesday raised their 2021 forecast for U.S. economic growth to 7.3%, a pace unsurpassed since the Korean War boom in 1951.
The nonpartisan Congressional Budget Office estimated that $1.1 trillion of spending under the relief bill would go out this year, with a further $476 billion coming in 2022.
Help is targeted toward the lowest-earning Americans. A study from the Tax Policy Center found that incomes of the lowest fifth of earners will jump 20%, the highest among income groups. That will help speed money into the economy, as those in the lowest brackets spend more of their budgets on basic household needs, including health care, food and clothing.
About one-third of Americans plan to save their check, according to a survey by Morning Consult commissioned by Bloomberg News, much higher than the prior stimulus money. Around the same share said they’d purchase food, and one-quarter cited housing payments.
“This will probably hit accounts before the end of the month,” said Aneta Markowska, chief economist at Jefferies LLC. She upgraded forecasts mid-February that puts the U.S. on track to reach full employment by summer next year. “Not only does this get paid out quickly — it actually gets spent very quickly.”
The bill provides a template for a potential longer-term expansion of an American social-safety net that has long been much smaller than its European counterparts. Democrats say the near-$110 billion temporary expansion of the child-tax credit will help cut child poverty in half, while tax forgiveness on jobless benefits and student-debt relief will give help to millions more.
“This legislation represents the boldest action taken on behalf of the American people since the Great Depression,” Democratic House Caucus Vice-Chairman Pete Aguilar of California said.
The heated politics around the stimulus bill could jeopardize Biden’s hopes for a bipartisan infrastructure program, along with challenging plans for an immigration bill, voting reform, war powers reform or gun-safety measures. Such legislation is likely to be largely ineligible for the fast-track Senate procedure used to bypass a Republican filibuster, known as budget reconciliation.
“It’s a bad start, and it’s going to make it much more difficult to get things done,” said veteran Republican lawmaker Tom Cole of Oklahoma, who claimed that GOP members could have ended up backing up to $900 billion in relief. “I would hope we can find common ground, but I just look at the legislation they keep bringing up.”
Democrats counter that Republicans are dusting off their playbook from more than a decade ago, when blasting the Obama administration over deficit spending, along with a lackluster recovery, helped win control of the House in 2010.
“Partisanship is at a high level within the congressional chamber because Republicans have chosen obstruction over cooperation,” said Hakeem Jeffries of New York, the No. 4 House Democrat.
The popularity of the stimulus bill, and especially the direct payments that were first championed by Trump, are being employed by Democrats in their bid to defy historical trends during midterm elections by holding onto the House in the 2022.
While 2021 will prove memorable as a phase of “proactive fiscal expansion,” it’s far from clear this will last, Morgan Stanley analysts led by Michael Zezas wrote in a report dated March 10.
“We would not conclude this is the beginning of a long-term trend, as a change in power in the midterm elections and/or a resurgence of popular concern regarding deficits could derail the trend beyond this year,” the Morgan Stanley team wrote.