Biden’s $1.9 trillion ARPA


In spite of having won the US president’s election in November 2020 by an ultra-slim margin, President Biden launched a major multidimensional agenda leading America into a “post neo-liberal” age, representing a radically different direction than that followed during the last decades. Since Reagan became President in 1981, the governing political and economic philosophy of the both Republican and Democratic US Administrations has been neo-liberal, characterized by the view that the less the government was involved in the economy, the better, free markets know best, the government’s role should be to stay out of economic guidance to let markets operate freely. This approach also favored international trade, globalization and limiting the growth of US federal debt.

Biden’s first major legislative act was to pass in March 2021 a mammoth $1.9 trillion American Rescue Plan Act (“ARPA”), to recharge the American economy after the massive slowdown due to government-imposed restrictions over COVID. The US Economy clearly needed some help at the beginning of the Biden Administration: GDP was down by 2% in the last quarter of 2020, unemployment at 6.7% was nearly twice the pre-pandemic level, and job growth was a negative 140,000 in December 2020. Biden put together a $1.9 trillion COVID-19 Relief Package, but was unable to get any Republicans in the new Congress to vote for it. This is perhaps because the bill, similar in size to the one the Trump Administration had passed the previous year, was in fact very different in fundamental orientation. First of all, there was an important social dimension, including a large expansion of child tax credit (which led to a major decline in childhood poverty in the US, but which was not renewed a year later due to lack of support by all Republicans and one Democratic Senator) and it also had funds invested in high school and college education, to improve access to and capability in technology. In addition, ARPA included investment in infrastructure, for better broadband access and also a portion to improve water quality. Perhaps the most significant element in ARPA, signaling Biden’s new approach, was a huge $360 billion investment allocated to state and local governments for them to modernize their technology and business processes, a clear indication that the Biden Administration wanted to improve government efficiency, in anticipation of getting the government more actively involved at all levels of the economy.

ARPA was passed by Congress without a single Republican vote and signed by the President into law barely two months into his Administration, in March 2021. It was the first bill passed by the Biden Administration under “Reconciliation”, a procedure that allows passage of legislation in the Senate with a simple majority, thereby circumventing the problem of needing at least 60 votes, including 10 Republican Senator’s votes to overcome the filibuster in the Senate (in the House of Representatives, a simple majority always applies to pass legislation). But Reconciliation imposes strict constraints: it is limited to revenue, spending and debt limit items and it can be used only once per fiscal year per category, which means that Reconciliation bills tend to be huge, with the majority Party putting in as many different chapters as they can into a mammoth bill, which was certainly the case for ARPA. And Reconciliation in a 50-50 Senate meant every single Democratic Senator had to vote for the bill.

Republicans criticized the $1.9 billion ARPA as too large, but Biden no doubt drew lessons from Obama’s $787 billion economic stimulus package to pull the US out of the Great Recession of 2008-2009 which he negotiated as Vice-President and which was heavily criticized at the time by Republicans as too large. It was later viewed by many as not large enough, as it led to a slow recovery that took years to work through the economy.

Biden’s initiative in pumping money into the economy to combat the impact of COVID was similar in size to the $2 trillion CARES Act launched by Trump in 2020, the largest emergency relief bill in US history, that included $500 billion to large corporations. But Biden’s $1.9 trillion ARPA was different in scope from the CARES Act, on the one hand giving nothing to large companies, spreading its resources to individuals, small businesses and state and local governments and adding important new dimensions: social, educational and infrastructure. The crisis caused by COVID engendered a movement solidifying the legitimacy of massive government involvement in economies throughout the world, with both the Trump and Biden Administrations following the same broad “big government” model, but Biden with ARPA already introduced a fundamental change in the economic philosophy of government, preparing for government to become much more involved in the management of the economy than had been the case for the US in the past 40 years.


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