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American Rescue Plan

Writer's picture: Derek HuDerek Hu
Sep 6, 20213 min read

How the government gave us a little pandemic consolation prize


BACKGROUND

  • PL 117-2 AKA American Rescue Plan Act of 2021

  • Federal Bill

  • Passed March 11, 2021


HYPOTHETICAL

Pyatr recently turned 18 and is attending university. Because he makes less than $80,000 annually (and files his own taxes), he receives $1,400.


WHY THIS POLICY?

The American Rescue Plan was created in response to the high unemployment and economic instability of the COVID-19 pandemic. During the pandemic, many employers suffered financially and inevitably cut workers. This catalyzes a vicious cycle: former employees have less income to spend → demand for goods and services drop → employers suffer financially → employers cut workers-- the cycle repeats. Those who proposed this policy would argue that by giving out money, people would have money to spend on goods and services, and by giving bailouts and aid, people would remain employed.


PARTY PERSPECTIVES

The majority of the Democratic Party supports this policy with the approval of President Biden. As outlined above, they believe that the relief provided by the government in the form of bailouts and stimulus checks helps break the cycle of a stagnant economy, bringing the economy back on track. Democrats would argue that because recessions threaten immediate and permanent damage, taking on debt and potential inflation is risky but necessary.

On the other hand, the Republican Party opposes this policy. They believe that too much economic interference from the government is not only dangerous but unnecessary in an economy that is already showing signs of recovery. Opponents of the act raise concerns over the potential addition of inflation and debt. First, by giving out billions of dollars to spend, the bill may create too much demand proportional to goods and services, driving up prices and causing inflation. Employees may demand wage increases to account for inflation. As a result, production costs would increase and production of goods and services would further decrease. Second, the bill may require the federal government to take on too much debt. Increased borrowing would cause increased interest rates. As a result, businesses would have a harder time taking out loans, slowing economic growth. Republicans would argue that while the bill could create short-term economic relief, it is needlessly risky and only serves to push problems further down the road.


OUTCOME

This bill was passed through Congress 220-to-211-- largely based on party affiliations. Consequently, most Democrats would be pleased with the result, while most Republicans would remain concerned. State and local governments, homeowners, homeless persons, parents and guardians, retirees, and individuals who received stimulus checks will all be glad to have financial support. However, there is no consensus on the long-term economic impacts of this legislation, so it is impossible to conclude who the winners and losers will be in the long run.


SIGNIFICANCE

Most Americans will experience the multitude of direct effects of this legislation firsthand: individuals making under $80,000 annually will receive $1,400 stimulus checks, those supporting children will receive $3,000 per child ($3,600 for children under 6), retirees may receive pensions from otherwise failing pension plans, schools and local and state governments will receive funding, homeless persons may receive shelter, and homeowners may receive mortgage aid. These are only some of the main provisions under this legislation, all with the objective of boosting the economy out of its stagnation. In this way, this legislation has many parallels to FDR’s New Deal. Both employ government economic intervention during an era of economic stagnation and unemployment in the form of relief and bailouts. Just like the New Deal, the long-term impacts of this legislation will be contentious even decades down the road. Some economists predict that American GDP will exceed previous projections in 2021 and 2022, before continuing at a similar pace by 2023. However, the only certainty is that this legislation will have a huge impact on the economy and national budget in the upcoming years.



 
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