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Biden’s Spending to Drive Faster U.S. Recovery, Economists Say

Published 24/09/2020, 20:23
Updated 24/09/2020, 21:09

(Bloomberg) -- Joe Biden’s plans to boost government spending would help the U.S. economy bounce back faster from the coronavirus slump if the Democratic challenger beats President Donald Trump in November’s election, according to two new reports that crunched numbers from the candidates’ platforms.

The pickup in growth will be quickest if Democrats win the Senate as well as the White House, removing an obstacle to increases in social spending and infrastructure that would be “deficit-financed in significant part,” according to a study by Mark Zandi and Bernard Yaros at Moody’s Analytics.

In that scenario, the U.S. economy could grow at a 4.2% average pace during Biden’s first term, the economists found. That compares with a likely rate of between 3.1% and 3.5% if Republicans keep the White House, the Senate or both, the report predicts.

Higher income taxes under Biden likely wouldn’t hold back private consumption too much, Moody’s said, because they would only apply to wealthier households, which typically save a big chunk of their income -- while social spending would benefit poorer Americans who have a higher propensity to spend. Democratic plans to increase corporate taxes would curtail business investment, but that impact would be smaller than the amount of funds that the government would raise.

‘Biden-lite’

Even a scaled-back version of Biden’s election platform would speed up economic growth, according to a separate study published Thursday by Nancy Vanden Houten and Gregory Daco at Oxford Economics. They envisage a “Biden-lite” program that’s more likely to get passed by the Senate, which would increase taxes and spending by roughly half the amount that the candidate is proposing.

That would spur economic growth of 5.8% next year compared with a baseline forecast of 3.7%, the economists wrote. Pursuing those policies would likely lead to interest-rate increases by the Federal Reserve as early as 2023, with the economy close to full employment again, Oxford said.

Biden, who leads in opinion polls, is promising trillions of dollars of additional spending on clean energy, care for pre-school children and the elderly, and manufacturing. Trump has put more emphasis on extending the tax cuts he passed during his first term.

©2020 Bloomberg L.P.

 

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