Why Deficits Don’t Matter: Funding Biden’s $1.9 Trillion American Rescue Plan

By Richard C. Cook for VT

President Joe Biden has signed his $1.9 trillion Covid relief act, known as the American Rescue Plan, into law. This legislation comes in addition to the $2.2 trillion CARES Act passed by Congress and approved by former President Donald Trump on March 27, 2020, in response to the initial economic fallout from the Covid pandemic.

Later, on December 22, 2020, Congress passed, and Trump signed, a second Covid relief package for $900 billion. The total cost of the two Trump bills plus the new Biden package comes to $5 trillion. By way of comparison, the entire federal government budget for fiscal year 2020 had originally been approved at $4.79 billion. So the sum of the three Covid relief bills exceeds that amount by almost a quarter of a billion dollars.

What is perhaps most notable about the Covid bailouts is that they were passed without provision for any increases in federal taxes. How can such sleight-of-hand come about?

Interestingly, both the March and December 2020 bills were approved in the Senate by votes of 92-6, which means that not too many of the senators, Republicans included, were overly concerned with the question of “How are you going to pay for it?” Oddly, Biden’s American Rescue Plan, which was much smaller than the two Trump bills combined, won the support of Republicans in the Senate of exactly 0. The same was the case in the House, where the number of Republicans voting in favor of the measure was also 0.

Perhaps the most common reason given by Republicans for their “No” votes in 2021 was that it would add to the federal deficit. Why then did this not seem to matter in 2020 for the two Trump bills? Well, obviously the only variable was that in 2020 the legislation was signed by Trump, a Republican, not Biden, a Democrat.

So we can see from this that deficits don’t matter. It’s all politics. The Republicans stand exposed as fakes as far as their so-called “fiscal conservatism” is concerned.

The Republicans have been playing this game for 40 years, ever since Ronald Reagan came on-board and immediately signed gigantic tax cuts into law that benefited mainly the rich and followed them up with a trillion-dollar military build-up. The federal deficit ballooned to the largest in history.

The deficit continued through the presidency of George H.W. Bush and paid for the war against Iraq known as “Desert Storm,” but also threw the U.S. into a recession that led to Bush’s 1992 defeat by Bill Clinton. Remember “It’s the economy, Stupid”?

Clinton’s presidency saw the beginning of a “peace dividend” due to the collapse of the Soviet Union during the 1990s. The dot.com bubble late in Clinton’s presidency was on the cusp of creating the first federal government budget surplus in modern times. Amazing.

But when the dot.com bubble burst at the end of the Clinton years, recession loomed again, so that when 9/11 took place during the first year of the George W. Bush presidency, we saw Reagan all over again: huge tax cuts for the rich and another gigantic military expansion to fight the open-ended “War Against Terror,” starting with Afghanistan and Iraq and continuing to this day. Again the federal deficit soared with the Republicans in Congress looking the other way.

Things would have been much worse except for the bloated tax revenues accruing to government at all levels that resulted from the housing bubble engineered by the Fed under Alan Greenspan. When the housing bubble burst, threatening to take down the entire U.S. financial system, President Barack Obama came along to implement the plan he had already been previewing as a presidential candidate at the Bush White House during 2008. This would become the largest bailout of the private sector ever seen with his TARP bank rescue plan of 2009-10. As with today’s Covid relief bills, it was done without tax increases, though much of the money the banks repaid.

But what did the Republicans do when TARP came along? Of course they had nothing to say against bailing out the big banks, one of the Republican Party’s core constituencies. They had nothing to say against Obama’s huge ongoing military budgets needed to keep the wars he inherited going. But they had plenty to complain about when it came to Obama’s program to expand federal health care through the Affordable Care Act. In fact, Republican hypocrisy reached such levels that it gave birth to the Tea Party movement and the reinstatement of the posture of fiscal conservatism they always adopt whenever something is proposed that would benefit ordinary working people.

Enter Donald Trump. It was Ronald Reagan and George W. Bush all over again. These people don’t even have enough respect for public opinion to come up with a new disguise for their dishonesty and hypocrisy. Out of the gate Trump signed legislation for another gigantic tax cut for the wealthiest taxpayers, set more bloated military budgets in motion, including the Space Force boondoggle, and initiated actions to destroy the Affordable Care Act that, if successful, would have been tantamount to a genocidal attack on the poor.

The Trump regime today lies in ruins. Covid saw to that. If there is one thing about the pandemic that can be identified as a silver lining, it is the way it finally exposed Donald Trump and the Republican Party as complete fiscal frauds. It’s been a long time coming.

So why don’t deficits matter? It’s because money pumped into the economy by federal government deficit spending produces enough new economic activity that it not only pays for itself over time but creates new jobs, new cash flow, and enhanced tax revenues.

This was figured out a long time ago by John Maynard Keynes, and nothing has happened over the last 100 years to change things. Of course, it has to be managed by competent people, and it requires the cooperation of public-minded individuals at the Federal Reserve and within the private sector.

But it works. Joe Biden is a competent person. The Biden program is a powerful Keynesian economic engine that has set off down the tracks. It aims to benefit everyone, not just the rich. The Republican Party just may be roadkill.

Richard C. Cook is a retired federal analyst with a 32-year career at the U.S. Civil Service Commission, the Food and Drug Administration, the Jimmy Carter White House, NASA, and the U.S. Treasury Department. While at NASA, he testified before the Rogers Commission on the Challenger disaster. Upon retirement he wrote a book on his experience entitled, “Challenger Revealed: An Insider’s Account of How the Reagan Administration Caused the Greatest Tragedy of the Space Age.” Since then he has published dozens of articles on economics, space policy, geopolitics, and the link between world affairs and spiritual trends. He has also published a book on monetary affairs: “We Hold These Truths: The Hope of Monetary Reform” and one on contemporary spirituality: “In the Footsteps of the Yogi.” He is a regular contributor to VT and recently appeared in the new Netflix release: “Challenger: The Final Flight.”