The $1.9 trillion stimulus plan that President-elect Joe Biden outlined on Thursday has raised concerns among investors that its funding will mean higher taxes.
The plan includes increasing direct aid to families and unemployment benefits, raising the minimum wage and allocating additional resources to fight the coronavirus epidemic.
The markets expect Biden to present in February an additional package of measures that would include an investment plan of some 3 trillion dollars (2.5 trillion euros) focused on the development of infrastructures and the promotion of renewable energies.
According to the analysis department of Renta4Banco, the financing of these stimulus packages will basically come from greater indebtedness -debt that, in their opinion, would be bought by the Federal Reserve- “and not so much from an increase in taxes or a cut in spending.”
However, the analysts at Renta4Banco acknowledge that the markets have shown “some concern about whether financing is finally needed via tax increases.”
“The stimulus package maintains optimism about further economic recovery, but raises concerns about how the United States will pay for it,” notes Sergio Avila of IG.
In his opinion, among investors “there are additional doubts about how the tax increases needed to finance this high expenditure will be.”
In addition, the IG analyst adds, “a strong increase in public debt is expected,” which could raise interest rates on bonds, “a negative factor at a time when the economy is still struggling.”
Renta4 Banco believes that the main points of friction with Republican congressmen will be aid to local governments and the rise in the minimum wage.
The Democratic Party has secured control of both houses of Congress, the Senate and the House of Representatives.
The stimulus plan presented yesterday includes 465 billion dollars ) to increase direct aid to families – which will reach 2,000 dollars – and 350 billion dollars to raise unemployment benefits by 400 dollars per week, according to data collected by the Committee for a Responsible Federal Budget.
Biden will allocate $350 billion in emergency assistance to state and local governments and a further $170 billion to reopen schools and colleges.
Meanwhile, $160 billion will be devoted to combating the coronavirus epidemic, including a vaccination program; and $120 billion to expanding child tax benefits.
This large economic aid package could help solve specific situations for families in need, although in the long term there are fears it could lead to the closure of businesses and the loss of thousands of jobs.