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GO BIG OR GO HOME

America’s Covid relief spending has eclipsed all of Europe’s

US president Biden visits a hardware store to highlight coronavirus aid to small business in Washington.
REUTERS/Tom Brenner
So what’s it gonna be?
By Roya Wolverson
Published Last updated

The latest Covid-19 relief package is finally coming to fruition in the US. The US House of Representatives passed the Biden administration’s $1.9 trillion bill Wednesday, as Democratic leaders won enough backing to pass the legislation onto the president to sign into law. While later versions of the bill altered Joe Biden’s original vision for the package, the remaining billions of dollars in economic relief are still a coup for US progressives.

That’s not just because concessions Democrats made to party moderates to pass the bill were arguably on the margins. The spending measures are also sweeping relative to Covid-19 relief measures in other developed economies, and they far exceed US relief measures from the last economic crisis. This chart shows where US Covid-19 relief spending falls relative to other major economies before the latest bill. With the $1.9 trillion added in, the US’s total pandemic relief spending will rise to 27.1% of GDP according to the Centre for Economic Policy Research, making the US the third highest spender globally.

Small cuts for a big stimulus bill

Many House Democrats were miffed that the president agreed to lower the income phaseout for $1,400 stimulus checks from $100,000 to $80,000 for individual earners and from $200,000 to $160,000 for couples. That cuts out an estimated 12 million adults and 5 million children, but also expands coverage for adult dependents including college students and the disabled. The president also agreed to pare back unemployment insurance from $400 a week to $300, and to cut automatic stabilizers linked to economic health and put off a federal minimum wage hike.

Still, the sheer size of the bill suggests the US is leaning into higher levels of social spending. The $1.9 trillion tab is more than twice the size of the Obama administration’s relief package during the 2009 financial crisis, when both parties cowered at the potential political fallout from the bill’s size, despite economists’ warnings that its scope was too meager. Within a few years, amid the tepid growth that followed, Democrats yielded to deficit cuts to win back budget hawks.

The US catches up with bigger spenders

The shift is even clearer when comparing the ramp-up in US spending during Covid-19 to that of other countries. In 2020 alone, the US increased its fiscal spending per person by nearly three times that of EU countries compared to the previous year, according to McKinsey Global Institute. Some of that difference comes down to the type of support European governments provide—for instance, many work with companies to keep employees on the payroll in lieu of unemployment support. The US’s sharp spending ramp-up also reflects its scant social safety net relative to Europe.

As the pandemic subsides, US politicians will face a harder decision: to invest now in a stronger safety net, or wait for the price tag of the next crisis.

This post was updated to reflect the passage of the American Rescue Plan.

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