Four Major Fiscal and Budget Policy Questions Facing the 2021 Federal Government

Four Major Fiscal and Budget Policy Questions Facing the 2021 Federal Government

Introduction: While the Trump campaign continues to challenge the results of the presidential election and assorted House races are awaiting final results, the overall composition of the United States Government starting next January is clear: A Democratic president, a Democratic House, and depending on the results of Georgia's two runoffs, either a perfectly tied or slight Republican Senate. Regardless of that final result, current ongoing fiscal and budget policy issues will continue into the new government, and may become even more prevalent considering the continuation of the pandemic and related policies. The possibility of a split Congress, or one where Kamala Harris will be tie-breaking votes, plus the prevalence of several moderate Senate Democrats, significantly clouds Democratic policy ideas going into 2021, even the most moderate of ones. Nonetheless, the issues listed below will be prevalent and relevant regardless of the final outcomes. 

Main Fiscal and Budget Policy Issues:

• The Question and Terms of another Stimulus Bill: Throughout the Summer and Fall of 2020, there has been significant talk of another COVID-related stimulus bill, and despite proposals from both Senate Republicans and House Democrats, none have passed as of now (Picchi). Before the election, President Trump pledged to enact a second stimulus bill after the election, although he also expressed optimism that the Republicans would have a trifecta in Washington starting next year (Liles), which will not be the case. However, with the election signaling a shift in Washington, and despite Senate Majority Leader Mitch McConnell (R-KY) prioritizing another stimulus bill, it is being speculated that a bill might not come by the end of the year (Konish). On the other hand, the Majority Leader released a statement signifying his goal to have a second stimulus bill passed by the end of the year. Unlike the other three issues discussed below, this policy issue may become resolved prior to the seating of the new government. Regardless, the exact size of the new stimulus bill, especially unemployment insurance, is still a major disagreement, especially with the recent positive news of Pfizer's vaccine trials potentially suggesting an effective vaccine could come out soon (Picchi). 
• The Federal Deficit and Debt: Since the beginning of the global pandemic, significant socio-economic and health policies (including the CARES Act) had to be enacted to help states, cities, and individuals economically deal with the effects of necessary pandemic-related control measures (Regan et al., 4). Even in a universe without the pandemic, the Federal debt and deficit were both at a precarious position due to spending increases and tax cuts (Zarroli). Furthermore, the lack of control of rising costs of social programs (especially Social Security and Medicare) had already increased concern about the deficit ("Pre-COVID") The retirement of the massive "Baby Boomer" generation was, and continues to be projected to be a major wrench in the current and future fiscal situation, especially considering this year's trend of older workers moving out of the labor force in larger numbers than past years (Fry). Finally, the decrease in inflows, especially tax revenue, further strains the fiscal system (Regan et al., 2-3). All combined, the question for the upcoming president and Congress will be how to balance the expanding debt and deficit with the need and/or desire to implement new policies and ideas (discussed below). 
• Aside from COVID stimulus, how much will the government expand? One of the earliest things I ever learned about post-Depression American politics is that generally, under Democratic presidents, there is usually an expansion of the Federal Government, and vice-versa (or minimal expansion) during Republican administrations, depending on Congress's composition. Despite not committing to more progressive ideas, President-elect Biden campaigned on significant expansion of the Federal government, ranging from enacting a public health insurance option to investing significantly in clean energy, to forgiving student debt, among others (Haltiwanger). Without diving into specific projected numbers, how much Biden and Congress choose to expand the Federal government will likely further increase government outflows, thus creating pressure on the national deficit, as discussed above. 
• Will, and what tax rates will move up or down, be introduced, or stay constant? During the 2016 Democratic candidates, all of the major candidates committed themselves to increasing taxes on the wealthy and big corporations (Wheelwright). After becoming the Democratic nominee, Biden pledged to raise the top marginal tax rate, reverse Trump's tax cuts on corporate taxes, and close tax loopholes exploited by wealthy Americans to hide profits overseas (Rushe; Wilike). In addition, Biden has also committed to expand the Child Tax Credit and provide relief for middle-class families (Haltiwanger). Which tax plans eventually get implemented by President Biden and the incoming Congress could have significant impacts to America's fiscal and budgetary situation (detailed above), especially considering ongoing debate as to how effective his tax plans would be (Foley). 

Works Cited:

Foley, John. "Breakingviews - Joe Biden’s tax plan has a flaw: too many losers." Reuters, 19 Oct. 2020, www.reuters.com/article/us-usa-election-tax-breakingviews/breakingviews-joe-bidens-tax-plan-has-a-flaw-too-many-losers-idUSKBN27421B. Accessed 12 Nov. 2020. 

Fry, Richard. "The pace of Boomer retirements has accelerated in the past year." Pew Research Center, 9 Nov. 2020, www.pewresearch.org/fact-tank/2020/11/09/the-pace-of-boomer-retirements-has-accelerated-in-the-past-year/. Accessed 12 Nov. 2020. 

Haltiwanger, John. "Where Biden stands on the most important issues in 2020." Business Insider, 3 Nov. 2020, www.businessinsider.com/joe-biden-policy-positions-most-important-election-issues-2020-9. Accessed 12 Nov. 2020. 

Konish, Lorie. "It could take until January before more coronavirus stimulus relief is finalized." MSNBC, 9 Nov. 2020, www.cnbc.com/2020/11/09/why-more-coronavirus-stimulus-aid-may-not-come-until-january.html. Accessed 11 Nov. 2020. 

Liles, Jordan. "Did Trump Promise ‘Tremendous Stimulus Package Immediately After the Election’?" Snopes Fact Check, 10 Nov. 2020, www.snopes.com/fact-check/trump-stimulus-package-election/. Accessed 11 Nov. 2020. 

Picchi, Aimee. "What's the status of a second $1,200 stimulus check?" CBS News, 11 Nov. 2020, www.cbsnews.com/news/second-stimulus-check-status-update-2020-11-11/. Accessed 12 Nov. 2020. 

"Pre-COVID, Social Security and Medicare Faced Insolvency." Committee for a Responsible Federal Budget, 22 Apr. 2020, http://www.crfb.org/blogs/pre-covid-social-security-and-medicare-faced-insolvency#:~:text=The%20Trustees%20project%20that%20Social,percent%20of%20payroll%20by%202095. Accessed 12 Nov. 2020. 

Regan, Dawn Sauter, Jennifer Shand, and Jon Sperl. "Monthly Budget Review:

Summary for Fiscal Year 2020." Congressional Budget Office Monthly Budget Review: Summary for Fiscal Year 2020, 9 Nov. 2020, www.cbo.gov/system/files/2020-11/56746-MBR.pdf. Accessed 11 Nov. 2020. 

Rushe, Dominic. "Big tech and corporate tax cuts: the targets of Joe Biden's urgent economic plans." British Broadcasting Corporation, 7 Nov. 2020, www.theguardian.com/us-news/2020/nov/07/joe-biden-most-urgent-economic-plans-key-elements. Accessed 11 Nov. 2020.

Wheelwright, Tom. "How the Top Five 2020 Democratic Candidates' Tax Plans May Impact Entrepreneurs." Entrepreneur, 21 Jun. 2019, www.entrepreneur.com/article/335544. Accessed 12 Nov. 2020. 

Wilkie, Christina. "Biden proposes a tax penalty for offshoring and new credits for manufacturing investments." CNBC, 9 Sept. 2020, www.cnbc.com/2020/09/09/biden-proposes-tax-penalty-for-offshoring-tax-credit-for-us-investment.html. Accessed 12 Nov. 2020. 

Zarroli, Jim. "$3.1 Trillion: Pandemic Spending Drives The Federal Budget Deficit To A Record." National Public Radio, 16 Oct. 2020, www.npr.org/sections/coronavirus-live-updates/2020/10/16/924582156/-3-1-trillion-pandemic-spending-drives-the-federal-budget-deficit-to-a-record. Accessed 12 Nov. 2020. 

     Nathan Parmeter

     Author and Host, The Parmeter Politics and Policy Record