https://www.washingtonpost.com/politics/2020/09/25/finance-202-biden-would-create-stronger-economic-growth-more-jobs-economists-find/
A Democratic sweep that puts
Joe Biden in the White House and the party back in the Senate majority would produce 7.4 million more jobs and a faster economic recovery than if President Trump retains power.
That’s the conclusion Moody’s Analytics economists Mark Zandi and Bernard Yaros reach in
a new analysis sizing up the two presidential candidates’ economic proposals.
And they are not alone in finding a Biden win translating into brisker growth: Economists at Goldman Sachs and Oxford Economics conclude that even a version of Biden’s program that would have to shrink to pass the Senate would mean a faster rally back to prepandemic conditions.
All three see the higher government spending a Biden administration would approve — for emergency relief programs, infrastructure, and an expanded social safety net — giving the economy a potent injection of stimulus.
The economic outlook is strongest if Democrats sweep Washington, the Moody’s team finds.
“In this scenario, the economy is expected to create 18.6 million jobs during Biden’s term as president, and the economy returns to full employment, with unemployment of just over 4%, by the second half of 2022,” they write.
Real after-tax income for the average American household would increase by $4,800 by the end of Biden’s first term, the economists project, and house prices and homeownership rates both would nudge upward.
On top of the extra federal spending, an all-Democratic government would translate into stronger growth by reengaging in freer trade and loosening immigration restrictions. And while a Biden administration would seek to offset some of his proposed $7.3 trillion in new spending over the next decade with $4.1 trillion in higher taxes on corporations and the wealthy, “the net of these crosscurrents is to boost economic activity,” the economists write.
But the Moody’s team sees that blue-wave scenario as only the third most likely election outcome. The most likely, they say, sees Biden winning while Republicans retain their hold on the Senate; narrowly less likely is a Trump win and that same split control of Congress he confronts now.
The economists don’t perceive major differences in economic outcomes under those scenarios, since a split Congress would choke off the ability of either Trump or Biden to advance major tax or spending changes.
A Republican sweep — which they give a 5 percent probability, their least likely election outcome — would produce the weakest economic returns. In this case, they see 11.2 million jobs added in Trump’s second term, with the economy only returning to full employment in the first half of 2024. With a weaker job market, the average American household’s real after-tax income wouldn’t budge much.
Trump has not spelled out his second-term economic agenda in detail, so the Moody’s team is left to fill in gaps by making some assumptions based on the president’s first-term record.
They see the president offering “much less expansive support to the economy from tax and spending policies.” Specifically, they conclude Trump would more than offset a trillion-dollar infrastructure proposal with cuts to other non-defense programs; and he would cut taxes but also effectively raise them elsewhere by resuming his trade war with China.
Altogether, the team sees a Democratic sweep yielding 4.2 percent annual growth over the next four years; the pace slows to 3.5 percent over that time if Biden faces a split Congress. Meanwhile, a Republican sweep would mean 3.1 percent growth, while an election that preserves the status quo would mean a 3.2 percent pace.
A scaled-back Biden plan would still goose growth, the Oxford and Goldman analyses find.
The Oxford team divided Biden’s tax and spending proposals in half to reflect the difficulty of guiding an ambitious package through a closely divided Democratic Senate. They find such a plan would still provide a “welcome boost” to the recovery, delivering 5.8 percent economic growth next year.
By they end of Biden's first term, they project disposable income would be 2 percent higher and the jobless rate would approach 3 percent.
Goldman economists, like those at Moody’s, see Biden presiding over a burst of new spending, higher taxes, and lower tariffs. And like those at Oxford, they assume only half of Biden’s program would become law, “since Democrats will at most have a narrow majority in the Senate and would therefore have to win over their most centrist members,” they wrote in a note earlier this week.
Either way, they see a Biden administration providing a meaningful lift to economic growth. They plot it here in a graph that depicts their expectations for the so-called output gap, which measures the difference between the economy’s potential under Biden against what it would otherwise achieve.
Beneath these headline numbers,
“lower- and middle-income households benefit more from Biden’s policies than Trump’s,” Zandi and Yaros of Moody’s write. “Biden ramps up government spending on education, healthcare and other social programs, the benefits of which largely go to those in the bottom half of the income distribution. Meanwhile, he meaningfully increases taxes on the well-to-do, financial institutions and businesses to help pay for it. Trump largely does the reverse.”
