In May 2021, President Joseph Biden released his proposed U.S. budget for 2022, where he outlines spending levels for the next ten years. The proposal focuses on the Build Back Better (BBB) plan encompassing rescue, recovery, and rebuilding. Since its release, the program has been modified during congressional negotiations throughout the year, as the actual cost of some policies could prove to be excessive. This article discusses the most recent version of the BBB, what remains of the original proposal, and its impact on the U.S. economy.
The BBB published in May 2021 on the White House website dictates a series of spending and investments worth more than $6 trillion aiming at sustained economic growth and increasing productivity to compete with China and other countries in the world. The original BBB (more) had three components. First, with a $1.9 trillion expenditure, the Rescue Plan to supplement household income, the safe resumption of economic activities, and strengthen the vaccination program. Secondly, a Labour Plan with a $2.3 trillion investment in construction, civil infrastructure and clean energy research. Finally, a Family Plan with a $1.8 trillion expenditure in education, medical and health care, child care and tax reform.
In August 2021, however, the U.S. Congress took up a concurrent resolution for the BBB plan after months of negotiations, published on the Congressional website. It agreed to reduce the plan's resources from $6 trillion to $3.5 trillion, a decrease of more than 40% of the proposed amount. The new total of $3.5 trillion had, in turn, three components. Congress allocated the major expenditures firstly to the Finance Committee with 51% to invest in families, ageing and the environment. Secondly, 21% for the Health, Education, Labour and Pensions Committee, with priority on investment in preschool and college education, expansion of health coverage and investment in gender equity; and thirdly, the 28% remaining balance, allocated to housing and urban affairs, with little spending on science, technology, energy and natural resources.
In November 2021, the latter structure was again modified for a second time in the Build Back Better reconciliation legislation, the outcome of which is awaiting a vote in the House of Representatives. As outlined in the Committee for a Responsible Budget (CRFB) paper, based on preliminary White House figures, the plan stands at $2.4 trillion in spending through 2031, a further 44% reduction on the first adjustment. It leaves BBB 60% below the original proposal. However, the amount remains subject to change as negotiations continue, and there may be unanticipated changes in some appropriated funds and changes in the total cost of immigration reform.
In this new set of spending, 26% goes to "family benefits," including universal pre-kindergarten, a child care program, and a family and medical leave program; 24% on "climate and climate infrastructure" to advance the energy transition, climate research, and combat climate change. The remainder is distributed across health care to extend health care coverage (15%), the state and local tax deduction (13%), individual tax credits and tax cuts, primarily the child tax credit (9%), and home construction.
The U.S. government's constant deficit has not favoured the country's economic growth. The increase in public debt at an average annual rate of 7% between 2010 and 2021 resulted in a 1.9% GDP annual growth rate over the same period. According to congressional resolution estimates, its growing debt issuance will continue. However, with the BBB plan and the already approved Infrastructure Bill, the government will try to reverse this situation, creating favourable conditions for sustained economic growth and social development by stimulating effective demand and its effect on consumption multipliers and public investment.
Suppose the third Build Back Better plan is approved. In that case, the question is not only whether these expenditures and investments impact national income and are capable of stimulating private investment amid the post-pandemic recovery. The U.S. must also solve the financing problem plaguing public finances. If it maintains high levels of public debt growth, dollar depreciation and inflation will be far from a transitory problem. Even if its policies allow the U.S. economy to grow in the coming years, it still cannot compete with China because of high costs. At some point, it will have to address its structural flaws to recover macroeconomic equilibrium.
