President Trump’s legislation was enacted at a more appropriate period in the business cycle for government stimulus measures: the worst part of a severe recession. The CARES Act is therefore a more effective spending package than the American Rescue Plan largely because of its timing. When analyzing the American Rescue Plan, PWBM applied fiscal multipliers used by the Congressional Budget Office when output is “close to potential” rather than fiscal multipliers useful when output is “well below potential.” “Broadly, the economy is near full employment with some sectors strictly idled for the near-term,” the analysts added. In comparison to recovery periods and more normal economic conditions, government spending has a much stronger effect upon output during the troughs of deep recessions.Īs PWBM notes about the current economic status of the United States, “unemployment has been disproportionately concentrated among lower wage and young workers in specific sectors” and “most sectors of the economy now appear to be operating at near pre-recession levels.” Affected sectors are primarily limited in recovery due to “pandemic behaviors and policy restrictions which affect both consumption and production.” The primary source of the disparity arises from the fact that the American economy was in far worse a state during the spring of 2020. PWBM anticipates that President Biden’s legislation would increase GDP by 0.6% in the short term, while decreasing GDP by 0.3% over the next two decades due to the “crowding out” effect. Though the two relief packages are of comparable sizes, PWBM predicts a much more modest boost to output from the American Rescue Plan. Analysts used the same multipliers created by the Congressional Budget Office to measure the American Reinvestment and Recovery Act of 2009 - another economic stimulus package enacted during a severe recession. To complete the analysis, PWBM used “fiscal multipliers” - a figure meant to capture the “amount of additional output generated for each dollar of government spending” - to forecast the effects of the CARES Act allocations. In the long-term, PWBM’s update predicted that the CARES Act would lower GDP by 0.2% within the next decade as a result of increased government debt. The Penn Wharton Budget Model (PWBM) - an initiative of the University of Pennsylvania’s Wharton School that provides nonpartisan analysis of the economic impact of landmark public policy proposals - weighed the effects of both the CARES Act and the American Rescue Plan. The omnibus legislation passed the House of Representatives in late February.Ī White House press release states that the American Rescue Plan “is ambitious, but achievable, and will rescue the American economy and start beating the virus.” The Biden administration emphasizes the bill’s aim to “help working families, communities, and small businesses persevere through the pandemic.” Now, the United States Senate is currently debating President Biden’s $1.9 trillion American Rescue Plan, which seeks to provide an economic stimulus through additional relief and subsidies. On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which pumped $2.3 trillion into COVID-19 relief programs, an economic stimulus, education, and subsidies for various American industries. In the first weeks of his administration, President Biden is attempting to sign a similar measure into law. The final year of President Trump’s administration was marked by the passage of an enormous COVID-19 relief bill.
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