Biden Stimulus Could Make 2021 Even Stronger

President-Elect Biden outlined what he hopes will be the first half of an economic stimulus plan. In addition to $350 billion in state and local government aid, $170 billion for K-12 schools and higher ed institutions, $50 billion for COVID-19 testing, and $20 billion toward a national vaccine program, here are the highlights of the $1.9 trillion American Rescue Plan that would impact individuals:

• Enhanced Checks: An additional $1,400 to households that qualified for the first $1,200 payment under the Cares Act and the second ($600) round, enacted before the end of 2020. The proposed $1,400 would be available for individuals with income (wages, Social Security, and/or pension) under $75,000 ($150K MFJ).
• Money for Older Dependents: The Biden plan would expand eligibility for dependents. The first two extra payments for dependents were only available for kids under age 17, while the proposed money would go to all dependents, regardless of age.
• Increased Supplemental Federal Unemployment Benefits: $400 per week (on top of state unemployment programs) through the end of September. The $300/week supplement from the December plan only runs through March 11.
• Extension of Eviction and Foreclosure Moratoriums: Until September 30
• Increase Federal Minimum Wage: $15/hour from current $7.25/hour and expand paid sick and family leave.
• Increase the Child Tax Credit: $3,000/kid ($3,600 under age 6) and make it fully refundable (meaning even those who don’t owe taxes will get the money) for 2021.

These measures seem more important as data continue to illustrate the slowdown in economic growth since the cases of COVID are spiking across the nation. On Friday, the Commerce Department released the December Retail Sales report, which showed a third consecutive negative month. Despite a surge in online spending for goods, the COVID recession has wreaked havoc on retail, for the entire year, total sales increased at the slowest pace since the Great Recession in 2009. The Biden plan attempts to brighten the dim outlook for the economy in the coming months, or at least until a large portion of Americans are vaccinated.

Although the near term looks ominous, economists are expressing great optimism about the second half of the year. Jennifer McKeown of Capital Economics believes that 2021 growth “in many major economies will surprise on the upside,” as consumers will be eager to spend some of their built-up savings accumulated since last March. Similarly, Alicia Levine, the Chief Strategist at BNY Mellon Investment Management points to a recovery “by the middle of the year,” as Americans unleash “a large amount of pent-up private demand.”

In fact, after shrinking by 3.6 percent in 2021, the consensus among economists is that the U.S. economy will grow by more than 4 percent this year, which would be “the strongest pace in 20 years,” according to Diane Swonk, Chief Economist at Grant Thornton. With a boost of additional stimulus in the range of $750 billion - $1 trillion, economists at Morgan Stanley and Goldman Sachs are predicting an even stronger pace of 5.9 and 6.4 percent, respectively.