The recently passed $1.9 trillion aid package has been named “The American Rescue Plan.” A good case can be made that this package is urgently needed by the middle class and especially by millions of Americans who earn relatively low incomes. The Rescue Plan has concentrated on providing significant help to low-income families. Part of that help will be a direct payment of $1,400 to Americans who have suffered particularly from an economy that has been hobbled by the coronavirus and the steps taken to deal with it, such as closing restaurants and advising American consumers to stay home and away from crowds.
The bitter irony is that taking steps to lessen the pernicious effects of this disease has directly led to severe economic problems. Those problems have been and will be exacerbated by the attempts of various levels of government to make them less severe. Most health experts would agree that there are no easy ways to modify the deadly effects of this virus, which has already taken more than a half-million lives in the United States. There is no question that more lives will be lost before funds get into the hands of Americans. Now, extending payments for unemployment benefits into September 2021, and making the first $10,200 of the benefits nontaxable for those households earning less than $150,000 will help those who have been battered by the coronavirus. In addition, state and local governments will receive $350 billion to help them with their own economic problems.
One of the problems the current fiscal mess created is the rapidly growing federal debt. The Congressional Budget Office, a nonpartisan agency that keeps Congress alerted to the latest trends and problems with the economy, now projects that the federal debt will grow to 202 percent of gross domestic product by 2051, the result of increasing expenditures for health care and inevitably for debt service. The CBO projects the federal debt to be 102 percent of gross domestic product in 2021. That level has been exceeded only twice before in this nation’s history – in 1945 and 1946 – the result of increased spending to help win World War II. No doubt in the near future there will be louder calls for plans to reduce the federal debt and place the nation’s federal budget on a sounder fiscal footing.
One controversial proposal that was dropped from this bill was an attempt to increase the federal minimum wage from $7.25 to $15 an hour. However you look at this proposal, it collided with a basic economic truth: if the price of something you want increases, you will demand and purchase less of that good. The debate over the increase in the minimum wage (the good we are writing about) is the price of labor. Increases in the minimum wage mean that the labor you employ costs you more; therefore, you will purchase less of it.
While the debates over the minimum wage move through Congress, those in favor of increases will remind those who are skeptical that the federal minimum wage has not been changed since 2009. What will happen now on this issue is that bipartisan talks will be held and we can expect to see some increase in the minimum wage occurring in the near future.
The signing of the plan reflects the significant shift that has occurred in the political realities. Democrats now hold more power. We will see what they try to do with it.
Author and educator Dave Kaplan writes from his home in Santa Barbara, Calif.