The American Rescue Plan (ARP), a $1.9 trillion stimulus package backed by President Biden and recently passed in the House of Representatives, goes beyond its primary intention of providing direct economic relief for American workers. Besides Covid-19 relief measures, the bill contains a bundle of other programs lumped in the package that have little to do with helping individuals and businesses who were affected by COVID-19.
Of the $1.9 trillion set to be spent in the ARP, the bill only directs $825 billion to Covid-19 related spending. This includes $473 billion for $1400 direct payments to eligible individuals, $75 billion for vaccine distribution, $7.2 billion for small business relief, and an expansion of the child tax credit up to $3,600 per year, all of which are measures designed to provide some economic relief for Americans who were directly affected by the pandemic and would use the money for necessary expenses like food and housing.
While the portions of the bill that directly relate to Covid-19 will provide important relief to Americans in need, the bill also allocates considerable funds to numerous other projects that do not provide direct help to Americans. Some of such provisions include$100 million for an underground rail project in Silicon Valley, $480 million for Native American language preservation and maintenance, and $50 million for various environmental justice and climate crisis programs.
These provisions are not urgent needs, and they do not fit with the main purpose of the bill. The long list of provisions, which, individually may not seem substantial, snowball into nearly $1 trillion in extra spending that is not directly going into the hands of Americans, or 52% of the total spending in the whole bill.
Passing the ARP with the added provisions may have consequences for America’s economy in the future due to its overall cost. The bill would add $14,000 to the national debt per household, amounting to more than a 7% increase in total debt. According to the Congressional Budget Office, America’s national debt would exceed the size of its total economy for only the second time since World War II. Significant growth on the debt means inevitably higher taxes for Americans at all incomes and cutbacks on government spending down the road.
Also, large deficits are bound to boost interest payments on the debt that will consume a more substantial part of the government budget and crowd out spending on other government programs. The amount of interest paid on the debt is already expected to overtake Medicare and defense spending before the start of the next decade, and further increases will no doubt bring about this scenario quicker.
The stimulus also has the potential to overheat the American economy in the short term. As it stands right now, the “output gap” or the difference between real GDP and potential GDP, is around $380 billion, according to the Congressional Budget Office. This stimulus is big enough to close the “output gap” upwards of eight to ten times over, which is likely to lead to significantly higher interest rates that will erode the value of savings many Americans have and increase the cost of living for many households. Larry Summers, one of the Biden campaign’s economic advisors, warned the inflation rates as a result of the stimulus could be higher than anything the nation has seen in 40 years. The ARP needs to only prioritize the urgent needs of Americans and businesses adversely affected by the Covid-19 pandemic. The extra provisions will provide little to no benefit for those who actually need it in the short term and will end up being very harmful for consumers down the road. The Senate should look to eliminate provisions in the ARP that do not directly benefit American workers to avoid the dire economic consequences that will surely follow.