If enacted, President Biden’s $1.9 trillion American Rescue Plan would derail his presidency and cause Democrats to lose the Senate in the midterm elections. Biden can and must compromise with Republicans to solidify his reputation as the country’s uniter, and to improve his party’s chances of keeping the Senate in 2022. Compromise would also garner more public and voter support for his fuller agenda.
The president’s plan is to rescue fellow Americans from the drastically negative economic effects of the coronavirus. This is critically important because the virus has increased unemployment, reduced economic growth and claimed 454,134 lives.
The plan proposes many expenditures that would purportedly rescue the economy. These include:
- $1,400 for individuals making up to $75,000 annually;
- $2,800 for couples making up to $150,000 annually;
- $400 per month in enhanced unemployment insurance instead of $300;
- $25 billion for rental assistance, an eviction moratorium and help for the homeless;
- 15 percent increase in food stamps;
- $170 billion for K-12 schools;
- $15 per hour minimum wage;
- more money for health care subsidies;
- more funds to assist small businesses;
- and much more, including money for public transit, vaccine testing and emergency paid leave.
Even a cursory examination of these goals suggests that the plan is much wider in scope than merely helping those devastated by the pandemic. For example, increasing the federal minimum wage from $7.25 to $15.00 per hour by January 2022 seems targeted to reduce the wage gap in the U.S. and thus fight poverty. But it would not help rescue the U.S. economy. In fact, it might even reduce the demand for low-level workers, and, as a result, increase unemployment and decrease economic growth — exactly the opposite of what the president wants. The non-partisan Congressional Budget Office estimated that a $15 minimum wage would eventually cost the U.S. 1.4 million jobs.
More important is that Biden’s generous plan presupposes negotiation and compromise. Some of its fat can be cut to compromise with the Republicans and still achieve much of the president’s goals to help Americans, as well as solidify his image as a uniter and aid the Democratic Party in the midterm elections.
Examples of fat that can be trimmed is the income cutoff for helping Americans ($75,000 for individuals, $150,000 for couples) and its duration through September; the size and duration of additional unemployment benefits ($400 through September); and, of course, raising the minimum wage to $15 and hour.
The Republican plan, advanced by 10 Republican senators led by Susan Collins (R-Maine), would cost about $618 billion, or around a third of the president’s proposal. The Republican plan includes:
- $1,000 for individuals making up to $40,000 a year, phasing out at higher incomes;
- $2,000 for couples making up to $80,000 a year, phasing out at higher incomes;
- $300 per month unemployment enhancement that will not increase;
- $12 billion increase in food stamps — similar to Biden’s goal; and
- several other assistance goals similar to Biden’s but with slimmed-down budgets.
The Republican plan offers less support and shorter durations for many of the president’s goals, such as monetary benefits and the duration of aid to individuals and to the unemployed. The $15 per-hour minimum wage is gone.
Despite the gap between the two sides, they agree on the general rescue blueprint to negate the ill-effects of the pandemic on Americans. This makes compromise possible. Furthermore, both sides seem interested in compromising.
President Biden’s statements, actions and temperament indicate that he’d rather compromise. He is well aware that in Dec. 2020, when he was president-elect, the Democrats advanced a second phase of the CARES Act with a total budget of, coincidentally, $1.9 trillion, and got only $900 billion. So, in order to achieve the goals of last December, only $1 trillion would be needed now, assuming the economic situation hasn’t deteriorated since then. And there is ample evidence that this is the case.
The 10 Republican senators are experienced enough to know that their plan of $618 billion is a starting point for further negotiations. They also know that a rescue budget of $1 trillion will give the democrats what they originally wanted in Dec. 2020.
A compromise budget for the rescue plan of around $1 trillion seems sensible and workable and could be acceptable to both sides. But given the present wide budget gap between the two plans, the discussions between the president’s team and the 10 Republican senators could take some time. In this case, the president’s plan would lose momentum and possibly public support.
Biden is well aware of this danger and has enlisted the rare and full support of both the Treasury secretary, Janet Yellen, and the Federal Reserve chairman, Jerome Powell. Both seem to think that even if the president’s budget is too large, it is less risky to the economy than a paltry budget.
It behooves both sides to reach a compromise soon and declare victory. For Biden, such an achievement would establish his reputation as a healer and uniter, and improve his party’s chances in the midterm elections. For the Republicans, it would help extricate their party from the grip of the previous president.
A compromise is therefore a win-win for the president and Republicans.
Avraham Shama is the former dean of the College of Business at the University of Texas, The Pan-American. He is professor emeritus at the Anderson School of Management at the University of New Mexico.