President Joe Biden and Democratic legislative leaders were extremely clear about how they hoped to govern when they won full control of Washington for the first time in more than a decade. Their mantra? Be more like Franklin Roosevelt and the Congress of 1933, and less like Barack Obama and the Congress of 2009.
Well before winning the White House, Biden had begun to murmur about his desire for an FDR-size presidency, sensing that, just like the Great Depression, the coronavirus crisis not only demanded a massive government response but created an opportunity to build a different and more fair economy in its wake. In late October, he traveled to Warm Springs, Georgia—the town where Roosevelt famously convalesced from polio—for a speech in which he adorned himself in the great New Dealer’s legacy and promised to follow his leadership example. As the election drew nearer, now–Senate Majority Leader Chuck Schumer told an interviewer that the moment demanded a “Rooseveltian” response.
At the same time, Democrats were clearly dogged by the memory of the Great Recession, when the Obama administration’s failure to pass a sufficiently large stimulus package set the stage for a slow, painful, and politically damaging economic recovery that may well have helped give the country Donald Trump. This go-round, Democrats vowed to act quickly and with overwhelming force. A week before Inauguration Day, Biden’s team laid out its $1.9 trillion proposal for a COVID relief bill, the American Rescue Plan.
Schumer explained the thinking behind that massive number during a Senate floor speech in late January. “The dangers of undershooting our response are far greater than overshooting it,” he said. “We should have learned the lesson, from 2008 and 2009, when Congress was too timid and constrained in its response to the global financial crisis and it took years—years—for the economy to get out of recession. We must not repeat that same mistake today.”
The American Rescue Plan Act, on which the House will vote for the final time on Wednesday, is now all but certainly headed for Biden’s desk after passing the Senate largely intact on Saturday. It is, by almost any measure, a landmark achievement—a big fuckin’ deal, as our president once said—that, at minimum, should put to rest any concern that the party will reprise the same error that marred its response to the housing bust and financial crisis. But more than that, it suggests that despite the Democrats’ razor-thin majorities in Congress, their hopes for an FDR-style administration may not be entirely far-fetched.
It was a little difficult to appreciate the full magnitude of the COVID bill as it snaked through the Senate last week. Progressives and pundits (this one included) focused largely on what was snipped from the legislation, grumbling after lawmakers nixed a long-sought minimum wage increase, slightly narrowed who’d be eligible for the next round of checks, and pared back a plan to increase unemployment benefits in order to appease moderates.
But those changes only made a difference at the edges of the package. In the end, Congress mostly delivered what Biden asked for: a dragon hoard of cash to sustain the country through the end of the pandemic, set the stage for a brisk economic recovery, and lay the groundwork for a major addition to the welfare state.
Among its highlights, the COVID bill will provide a new batch of $1,400 direct cash payments for individuals, extend $300 emergency federal unemployment benefits into early September, and provide states and local governments $350 billion along with more for public schools, colleges, and transit.
For one year, it will also raise the child tax credit from its current level of $2,000 up to $3,600 for kids under age 6 and $3,000 for those as old as 17. For the first time, it will make the poorest families fully eligible for the credit, even if they have no income from work, effectively turning it into a broadly available child allowance of the sort parents enjoy in Canada and Europe.
How will all this help avoid the curse of 2009? One way to think about it is the sheer scale of spending. Obama’s stimulus was originally priced at at $787 billion, or 5.5 percent of gross domestic product. Inside and outside the White House, economists understood that number was too small; New York Times columnist Paul Krugman warned at the time that it needed to be twice as large to combat the downturn. But the administration was forced to keep its size down to win over moderate Democrats and Republicans in the Senate and clear 60 votes.
In contrast, the $1.9 trillion American Rescue Plan is equal to about 9 percent of last year’s GDP—likely more than enough to fill the economic crater left by the pandemic. Among its more serious critics, the most common complaint is that the bill’s size might be overkill at this stage of the pandemic, and could lead to a little inflation.
Then there’s the raw amount of money the bill is about to throw at ordinary Americans, especially parents. Between the direct payments and child tax credit expansion, a poor or middle-class couple with two young children could receive up to $8,800; the Tax Policy Center forecasts that the average family with kids will end up with $6,000 in tax benefits (that figure includes the relief checks, which are structured as IRS rebates). As a result, the poorest 20 percent of Americans could see their after-tax incomes rise by about 20 percent, and the whole package could reduce the rate of child poverty in the United States by around half for the year, according to a widely cited analysis by researchers at Columbia University.
If Democrats were actually raising taxes to do this, it would be a historic act of one-time income redistribution. Given that it will be deficit-financed, you could say they are essentially taking out a giant, low-interest loan on the government’s account and using it to share the wealth.
The amount of cold hard currency this money will pour into poor and middle-class bank accounts is both politically and economically important. On the political front: Americans like checks, and unsurprisingly, polling suggests they overwhelmingly like this bill. Democrats have learned from Donald Trump’s example and put together a piece of legislation that people will remember, if for nothing else, for handing them some money. This is a stark contrast from the 2009 stimulus, which included a major tax cut that was literally designed to be invisible so that households would be more likely to spend it. It was arguably an American high-water mark for clever policy and terrible advertising, and allowed the bill to be portrayed as pork-barrel spending run amok.
Economically, the money this time should ensure that most families stay relatively secure until the late summer or autumn, by which time most Americans will hopefully be vaccinated. It’s entirely possible that these payments will largely be saved or used to pay down debt—which is how Americans appear to have used most of the $1,200 checks included in the CARES Act last spring. In that sense, the cash may not be great short-term “stimulus,” since it won’t be spent immediately back into the economy. But it will help Americans fix up their finances so that they are ready to spend later on. We shouldn’t have to worry about a prolonged, 2009-style balance sheet recession where consumer spending stalls because families find themselves stuck paying down obligations they can’t afford, which is appropriate given we’re all plodding through a national disaster at the moment.
Finally, the legislation sets up Biden to achieve a legacy-defining accomplishment. The expansion of the child tax credit is only set to last for one year. But if Democrats eventually make it permanent—which, as of now, seems to be the goal—it will mark a major turning point in the history of the American welfare state, by guaranteeing support for every single lower-income child whether or not their parents work, and massively reducing youth poverty for the long term. It would bring an end to the era that followed Bill Clinton’s welfare reforms, during which much of our approach to defeating need has been focused on nudging parents into jobs.
Suffice to say, Democrats are elated over all this. Ohio Sen. Sherrod Brown said on Saturday when the bill passed that it was the best day of his Senate career. Despite losing his battle to include a $15 minimum wage in the bill, Vermont’s Bernie Sanders went even further, tweeting that it was “the most significant piece of legislation to benefit working families in the modern history of this country.”
Sanders is probably going a bit overboard—after all, everything in this bill is still temporary. He and his colleagues didn’t just create Medicare or Medicaid. But politically, it could foreshadow something momentous, and shows how far we’ve come from the Obama era. As New York’s Eric Levitz notes, Democrats have shown that with just 50 votes in the Senate, they are able to do what Democrats could not in 2009 with almost 60. In part, that’s because we’ve lived through a decade of low interest rates that have made deficit concerns seem quaint, not to mention the free-spending Trump administration. In part it’s because lawmakers are essentially treating the COVID response like a wartime effort. And partly it’s because Democrats are willing to play procedural hardball, using budget reconciliation to pass legislation on a party-line vote rather than waiting on Republican votes. (The GOP offer for a compromise bill was laughably small.)
If they can continue to hold together in this way, Democrats may be able to pass a transformative agenda despite having just a bare legislative majority. As Schumer put it, “If we have unity, we can do big things.” Whether they actually will is an open question. It will depend on whether moderates like West Virginia’s Joe Manchin decide to allow reforms to the filibuster—so far, he’s only cracked the door to the possibility—or turn hawkish on the deficit again and demand that infrastructure or climate spending be fully paid for, which could crowd out other priorities. It depends on whether Republicans ever stop talking about Dr. Seuss long enough to fight back against the next big Democratic bill. (They may stay fixated on culture-war distractions if Democrats continue to push ideas that are, you know, popular.) But as of now, there at least seems like there’s a possibility of bold action.
That brings us back to the Roosevelt comparisons. Barring a truly massive effort to, say, decarbonize the economy, Biden is unlikely to enact anything as revolutionary as the New Deal, which essentially created the modern American administrative and welfare state. But he can at least follow FDR’s example of how to leverage a calamity into reform. Roosevelt showed how to take the helm in a crisis, combated the challenges before him in ways Americans could easily appreciate and experience personally (relief jobs, bank reforms, aid to farmers), and then moved on to longer-term goals. He spent his first 100 days trying to put out the flames that were engulfing the economy; he gave us the programs that he is best remembered for, like Social Security, later on as part of the “Second New Deal,” of 1935.
Obama tried to emulate the model of crisis management followed by reform. But hemmed in by the politics of the time, he only partially succeeded. With the coronavirus bill, Biden has taken an important stride toward following in FDR’s footsteps. The hardest part of the journey comes next.