The Continued Tale of Two Economies

As we approach the beginning of the Trump administration, I want to take the time to review the economic record of the Biden administration. This will help provide context to changes in policy expected under Trump, and how that may affect economic growth. But first! A check-up on our usual economic metrics that we’ve been monitoring:

Overall inflation rose 0.04% over the month of December, with a yearly change that ticked up to 2.9%, driven mostly by gas and energy price increases. Core inflation rose 0.02% (less than expected) to an annual rate of 3.2%. 

Real GDP growth in the 4th quarter of 2024 is estimated at 2.3%, with the growth rate estimated to be 2.8% for the full year.

The labor market added 256,000 jobs in December, exceeding most economists forecasts. The unemployment rate fell to 4.1%, and the labor participation rate remained unchanged at 62.5%. For the full year 2024, the U.S. economy added an estimated 2.2 million jobs.

The Biden Administration - The Continued Tale of Two Economies

The Biden Administration took office during January of 2021. The United States was still very much in the midst of the COVID-19 pandemic. The economy was on the path of recovery via the $2.3 trillion CARES act, but there was a lot of work to be done. The stock market had fully recovered by this point, but unemployment remained elevated at 6.4%, and GDP still had not recovered to its pre-pandemic level. The vibes alone were horrible. The Biden Administration had some lofty goals in mind to invest in and restructure the economy from “the bottom, up.” You could write an entire PhD thesis on the ramifications, effects, pros, and cons of all the legislation enacted over these 4 years. I won’t be doing that. But I do want to summarize the four ‘main’ bills of his presidency. More detail can be found here if you’re interested:

American Rescue Plan: A $1.9 trillion relief package signed in March 2021. It included:

• $1,400 in direct payments to individuals making less than $75,000 a year

• Expanded and extended unemployment benefits through September 2021

• Increased the value and expanded the eligibility of the child tax credit; $3,600 per child under 6, and $3,000 per child between 6-17. An estimated 39 million families received this

• $130 billion to primary and secondary schools

• $45 billion for rental, mortgage, and utility assistance

• Additional money for small businesses

• $14 billion for a nationally coordinated vaccine program

• $350 billion for state and local governments to help bridge budget shortfalls. 

It’s estimated that 70% of the benefits in this bill went to lower and middle-income households. The bill continued to provide support to people and small businesses who were still being affected by the pandemic. An argument can be made that the vaccine program had the highest ROI. By vaccinating the public as quickly as possible, the economy could return to ‘normal’ levels of activity, and support could be scaled back.

Infrastructure Investment and Jobs Act: The $1 trillion bill was signed into law in November 2021. It invested significant sums of money to both repair and update the nation's crumbling infrastructure. This bill was the first major step in the administration's goal in investing in clean energy and water projects. It also expanded broadband access to many parts of the country that have been neglected by private wireless investments. The bill intended to spur both private and public investment, thus creating high paying jobs throughout the country. By November 2024, about 47% of the funds had been allocated to over 68,000 projects. The White House was publishing an interactive map of the progress, but has since been taken down by the new administration.

CHIPS and Science Act: The $280 billion bill was signed into law in August of 2022. It was a combination of direct investment through grants, and layers of tax credits, to invest in the semiconductor industry in the United States. Most of the world’s semiconductors are manufactured by one company in Taiwan. The purpose of this bill was to increase the redundancy of the chip supply chain by encouraging companies to open up manufacturing plants within the U.S. This was in response to inflation caused by the chip shortages during the pandemic. This was also a strategic initiative to diversify global chip manufacturing away from Taiwan.  

The Inflation Reduction Act: This bill was passed through budget reconciliation and signed into law in August of 2022. There is not a precise dollar value assigned to this bill, but the CBO estimates that it will raise $738 billion in new revenue through tax and pharmaceutical reform, while authorizing $891 billion in new spending on climate change and healthcare subsidies. Key attributes include:

• Tax credits and rebates in green technology with the specific goal of lowering carbon emissions

• Extend coverage and affordability of the ACA (Affordable Care Act) through the extension of subsidies

• Lower healthcare costs by allowing Medicare to negotiate prices directly. It specifically capped insulin prices for Medicare recipients at $35 a month

• Enhance tax enforcement on businesses and wealthy individuals by allocation $80 billion in funds to the IRS over the next decade to update systems and hire more personnel 

• Increase corporate taxes by applying a 15% minimum tax on all accounting income and a 1% tax on all corporate stock buybacks

The CBO estimates it would decrease the budget deficit by $100 billion over a decade, or $300 billion if IRS tax enforcement is successful. The Tax Policy Center estimated that the bottom 80% of tax filers would receive a net benefit, if you include the ACA tax credits. It's a large debate whether the bill would actually reduce inflation, but the goal of reducing costs of energy and healthcare, two of the largest contributors to inflation, is prominent in its objectives.

Since the introduction of ‘Reagan-omics’ in the 1980s, the general consensus among economists was that if you could lower taxes and decrease the number of regulations on corporations, they would take these savings and invest in labor and capital. Corporations would spur investment, which would spur productivity, which would spur hiring and job creation. This economic growth would eventually ‘trickle down’ to the working class. The entire pie would get bigger, and everyone would have a larger share of that pie. After four decades of this economic experiment, what are the results?

The top 9% of the U.S. population owns more wealth than the bottom 90%. The top 1% of the population (inclusive of the 0.1%), owns almost as much wealth as the top 9%. 

The Biden Administration was far from perfect. The economic bills that became law were not the original vision they had in their first drafts. That's the reality of the democratic process. We can argue until the cows come home if these policies were ‘correct’ or ‘successful’. But we cannot argue that for the first time in 40 years there was a genuine desire to invest in the average american. I haven’t even touched on Biden’s support for labor unions, and his dedication to actually attempting to break up Monopolies (shout out Lina Khan). These policies were a callback to Keneysian economics - direct government intervention through policies can be an extremely effective way to stabilize the economy. Through progressive social and tax policies, the government can help build the economy from ‘the bottom up,’ and everyone will be better off.

As we look forward to the Trump Administration, it’s back to the same policy handbook that got us here. Cut the corporate tax rate further from 21% to 15% and fund this decrease in revenue through decreases in spending and increase in economic growth (it won’t). Place tariffs on all our trading partners (effectively just a tax on the consumer). Deregulate corporate america. Cut funding from the federal government to agencies, state, and local municipalities. Cut funding to (or even remove completely) the Affordable Care Act. Cut funding to social security. Reduce the size of the federal government and its agencies as a whole. Reduce the funding of the IRS and other compliance based agencies. Cut and reduce social programs across the board.

Tax cuts for corporations and the 1% does not raise the standard of living for the bottom 90%. Deregulation does not increase competition and innovation. Austerity through decreased federal spending does not increase economic growth. Tariffs and trade barriers will not bring back or create jobs in certain industries that are not possible to replicate in the U.S. These policies are not for you. These policies are for them.