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President Biden’s $1.9 trillion stimulus plan: The price to be paid for relief

Though it comes as a much-needed breather for the floundering U.S. economy, there are some undesirable repercussions of the American Rescue Plan.

Vishnu Beri

Passed by the House of Representatives Wednesday, President Biden’s $1.9 trillion economic stimulus plan now just needs his signature to become law. Slated to be signed by the President Friday afternoon, the relief package – also known as the American Rescue Plan (ARP) – is expected to provide a much-needed boost to the country and its economy, ravaged by the incessant spread of COVID-19 starting early 2020. ARP is the largest aid package to be passed in the U.S. since then.

Speaking of the plan, President Biden said, “This bill represents a historic, historic victory for the American people. I look forward to signing it later this week,” he said. “Everything in the American Rescue Plan addresses a real need — including investments to fund our entire vaccination effort, more vaccines, more vaccinators, and more vaccination sites,” he added.   

A brief sketch

Though priorities include conducting tests for coronavirus and vaccine distribution, the relief package will finance a host of other measures, such as an anti-poverty program for the lower-income strata of society. The ARC will provide direct payments to Americans in this category. States, local governments and schools are also expected to receive substantial funding. The relief package will also be used to fund healthcare subsidies, jobless reimbursements and other unemployment benefits.

It will provide for those whose annual income is lower than $75,000, including children and elderly dependants, married couples whose combined income is lower than $150,000 and heads of households earning less than $112,500. Payments would gradually cease with a rise in income, that is, when it touches $80,000 for individuals and $160,000 for married couples. Federal unemployment benefits stand at $300 a week, with their duration extended by a month.

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The flip side

However, the $1.9 trillion ARP is expected to add significantly to the country’s already-burgeoning federal deficit. The Congressional Budget Office (CBO) expects it to add $1.1 trillion to spending in FY 2021 and $458 billion in FY 2022. A CBO report states, “Debt that is high and rising as a percentage of GDP boosts federal and private borrowing costs, slows the growth of economic output, and increases interest payments abroad. A growing debt burden could increase the risk of a fiscal crisis and higher inflation as well as undermine confidence in the U.S. dollar, making it more costly to finance public and private activity in international markets.”

CBO estimates also reveal that the federal budget deficit was already high, coming in at $1,048 billion in the first five months of FY 2021. This is markedly higher than $423 billion, the deficit in the corresponding period of the previous fiscal.

A report by Fitch Ratings echoes this sentiment, in which it states, “Though the $1.9 trillion stimulus package proposed by President Biden would deliver a strong economic boost, the scale of the package points to a delayed return to a fiscal stance consistent with stabilization of the government debt ratio.”

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The global rating agency projects that the country’s federal deficit will come in close to 7% of GDP in FY 2022, assuming there would be no other key spending during the fiscal.

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