President-elect Joe Biden will take office later this month with bold plans to fight growing economic inequality. His ability to do anything meaningful about it will rest in a pair of Senate runoffs in Georgia on Tuesday.
Two of the most powerful ways to fight inequality involve distributing aid and overhauling the tax code, policy levers that require flipping the Senate to Democratic control. While other parts of Biden’s policy agenda could still be addressed in some fashion through regulation, economic policy makers close to Biden acknowledge that reshaping a force as powerful as income inequality would require substantial fiscal action that takes the reins from officials at the Federal Reserve — whose actions have helped to widen inequality by goosing the stock market.
Biden stressed the huge stakes in Georgia in a campaign speech in Atlanta on Monday. “The whole nation is looking to you to lead us forward. The power is literally in your hands,” he said, adding that Democrats winning both seats would “put an end to the block in Washington on that $2,000 stimulus check.” He also noted that his biggest plans on jobs, health care, criminal justice and the environment depend on a Democratic Senate.
Biden, who made economic justice a centerpiece of his presidential campaign, will face a wage and wealth gap made significantly worse by the Covid-19 pandemic. The coronavirus lockdowns hit lower-income workers, including communities of color and women, much harder than wealthier Americans.
Employment among high-wage workers actually rose slightly during the pandemic, while it dropped 4 percent for middle-income workers and plunged 19 percent for low-income workers, mainly in the devastated retail, travel and other service industries.
The share of wealth controlled by the top 1 percent sits at levels not seen since the 1920s with the richest slice of Americans now owning 26 percent of national wealth. The top 10 percent control around 70 percent.
Biden pledged to do something about it through his “Build Back Better” plan with a focus on racial economic inequality, which has exploded during the pandemic. Minority-owned businesses continue to fail at much higher rates than white-owned businesses and enjoy less access to federal rescue funds.
But Biden is going to have a tough time, his closest economic advisers say, without a Democratic Senate able to make major changes to policies around taxation and spending.
“You would just see so much more stimulus, job creation in infrastructure, manufacturing and the care economy, and bold relief to those now facing economic desperation,” said Gene Sperling, a top outside economic adviser to Biden who served in the Clinton and Obama administrations. “And you could see the consequential expansions of unemployment insurance not only extended but built into long-term reforms.”
Other people close to Biden put the stakes in even starker terms in private conversations, with one noting that failing to win the Senate would mean Biden would take office with massive weights draped around his shoulders.
Should Democrats sweep Georgia, Biden and Democrats will look to pass trillions more in economic stimulus targeted at lower-income Americans and the unemployed. They’d aim to pair that with an infrastructure package aimed at creating blue-collar jobs, before trying to roll back some of President Donald Trump’s tax cuts, especially on the wealthy and corporations.
With the narrowest of margins in the Senate, even with two Georgia wins, Biden’s advisers know some of their boldest plans on taxes and spending will still have a tough time getting through. Without the Senate, Biden would have to try cutting deals with Senate Majority Leader Mitch McConnell, perhaps including increasing the Earned Income Tax Credit and making child tax credits more generous. Even such relatively small-bore deals are not guaranteed despite support from some Republicans.
The $900 billion Covid relief package pushed through Congress at the end of the year will help, Biden advisers say. That package included no direct aid to strapped state and local governments, and the key benefits would start fading by March. It’s unlikely a McConnell-led Senate would approve another large stimulus package, though extending some aid could be on the table.
Without full control in Washington, Biden would have to try pulling relatively obscure levers inside the federal bureaucracy on housing, small business lending and other administrative policies that could take years to make much of a dent in the relentless trend toward a highly bifurcated American economy.
“There might be some sort of grant funds, annual appropriations where a Biden [Office of Management and Budget] could steer them a little bit more toward underserved communities,” said Ernie Tedeschi, policy economist and head of fiscal analysis at financial firm Evercore ISI. “But again, those are going to be sort of marginal changes. I don’t think that there’s anything big or fast that they could do.”
Biden aides, while hoping for a Georgia sweep, are prepared for losing one or both seats. Should that occur, efforts to battle economic inequality will include trying to engage Republicans like Sens. Marco Rubio of Florida and Mike Lee of Utah on expanding the EITC and beefing up child credits by making them fully refundable, meaning people can claim the full amount even if it’s more than they owe in tax.
More generous tax credits for those who chose to stay home to care for children are also a possibility. Democrats fear that Republicans will require any expansion of these credits to be offset by spending cuts elsewhere. Biden aides also hold out hope they could cut a real infrastructure deal with a McConnell-led Senate, though it might not include some of the green energy-related provisions that they would pursue with Democrats in full control.
Still, they hope that such a deal could help further tighten the labor market, drive up wages and open up jobs for the close to 20 million Americans still receiving some type of unemployment assistance in the wake of Covid-19.
The latest relief package also includes expansions of the Minority Depository Institutions and Community Financial Development Institutions programs aimed at pumping more lending into low-income and communities of color, which Biden aides see as possible avenues to reverse some of the disparate impact of Covid-19.
Biden aides also point to administrative powers to tie federal contracting to a higher minimum wage, some type of targeted student loan debt relief aimed at lower-income Americans and tweaking housing policy and where small business relief money goes as levers they could pull without Congress. Much of this could face court challenges, however.
The Treasury Department, expected to be led by former Fed Chair Janet Yellen, could also play a significant role in divided government.
“There are a set of things that Treasury could do for households, in particular lower-income households,” said Harvard economics professor Karen Dynan, a former Treasury Department chief economist in the Obama administration.
“There are fixes that should be made to the student loan program, so that students aren’t paying a lot for higher education that isn’t worth much.”
Still, all of these efforts will be difficult and could take years to have a major impact on economic inequality. They would have vastly smaller impacts than major changes to the tax code and big blasts of federal spending targeted at lower-income and minority communities. And they would likely fall short of Biden’s dream of leaving office with inequality getting better rather than worse.
“Ensuring shared prosperity, less economic inequality and dignity and respect for all workers isn’t an afterthought or an extra for Biden,” said Sperling. “It’s the heart and soul of his economic aspirations. And he is 100 percent aware that he is inheriting a K-shaped recovery, that without aggressive policies, could push us in the wrong direction.”
Victoria Guida contributed to this report.
This is not a CAPTIS article. Originally, it was published here.