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How Biden's $ three.5 Trillion Financial Plan compares to LBJ's Nice Society and FDR's New Deal

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President Joe Biden's $ 3.5 trillion economic agenda – and accompanying social spending – has few parallels in modern US history.

The New Deal era of the 1930s and the Great Society of the 1960s are the closest comparisons, according to economists and historians.

During these times of tremendous social expansion – led by Presidents Franklin D. Roosevelt and Lyndon B. Johnson, respectively – some of our country's most popular programs were created, such as Social Security, Medicare, Medicaid, and Unemployment Insurance.

Biden's Build Back Better reforms – which would increase spending in areas like childcare, health care, paid vacation, and education – share traits with those eras but differ significantly, experts said.

"They are all important," said Stephen Marglin, an economist at Harvard University, of the cornerstones of Biden's agenda. "They are all part of what we should see as necessary infrastructure, as social infrastructure that is important to a 21st century economy."

The hour of birth of social spending

The national government was small when the Great Depression broke out in 1929. At the time, most welfare programs were funded and administered by the local government, according to John Joseph Wallis, an economic historian and professor at the University of Maryland.

But FDR's series of New Deal programs in the 1930s fundamentally changed public expectations of Washington and the role of government in their lives.

According to economists, social security pension benefits and unemployment insurance were the most momentous and lasting reforms of the period. Some modern programs – such as the Supplemental Nutrition Assistance Program (grocery stamps) and Temporary Aid for Families in Need (aka Welfare) – have their roots in the New Deal reforms.

Later, in 1965, President Johnson's war on poverty led to the creation of Medicare and Medicaid, public health plans for the elderly and the poor.

The federal government also roughly doubled the value of social security benefits between 1965 and 1972 and began tying them to increases in the cost of living, according to Irwin Garfinkel, professor and co-founder of the Center on Poverty and Social Policy at Columbia University. (Some of these reforms took place during President Richard Nixon's tenure.)

"What we did in the 1960s, the most remarkable thing, was that we almost wiped out poverty among the elderly," said Garfinkel.

Biden's proposals come at a time of similar economic and social upheaval in the United States.

The pandemic downturn was the worst recession since the Great Depression, plunging millions into unemployment overnight. The country's simultaneous reckoning with racial inequality after the assassination of George Floyd dated back to the civil rights movement of the 1960s and highlighted the unequal effects of the recession on minorities and the poor.

While U.S. welfare programs had largely focused on the elderly, Biden's agenda would shift that focus somewhat to children and families, according to experts.

One estimate is that his proposed widening of the child tax deduction would cut child poverty in half. (Child poverty is the proportion of children living in poor households.)

"It's not quite the way we did it for the elderly, but it's not bad," said Garfinkel.

Biden's proposal would also expand programs for seniors by adding, for example, vision, dental, and hearing services to Medicare.

Program costs

Comparing the total costs and expenses of Build Back Better to the New Deal and Great Society days is challenging.

On the one hand, the budgeting instruments that the federal government uses today to estimate costs did not exist at the time. However, studying cost as a share of the US economy is one of the best ways to gauge the relative size of programs, economists said.

The $ 3.5 trillion plan proposed by Biden would spend over 10 years. That equates to around $ 350 billion a year, or about 1.5% of the country's current gross domestic product of $ 22.7 trillion, a measure of economic output.

This 1.5 point increase is a big jump from the last few decades, but less than during the Roosevelt and Johnson era.

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In 1939, the share of federal social spending peaked at 3.6% of New Deal-era GDP, according to analysis by Price Fishback, a University of Arizona professor who studies the New Deal political economy . That is 2.7 percentage points more than in 1933.

In 1963 social spending was 4.1% of GDP; In 1973 it was up 7.4%, up 3.3 points, Fishback said.

"That's quite a bunch of money," Fishback said of Build Back Better. "(But) it doesn't look like a big budget buster," he added.

A slightly different picture emerges when looking at per capita expenditure in order to take account of US population growth over the past century.

Social spending would increase by about $ 1,060 per person per year under Biden's plan, Fishback said. By comparison, New Deal spending had swelled to about $ 400 per person by the late 1930s; Spending increased by $ 2,571 per person from 1963 to 1973.

We are redefining the safety net on a higher level. It will shift public resources to more people.

William Hoagland

Senior Vice President of the non-partisan Policy Center

One caveat: The spending proposed by the Biden would go beyond the existing welfare system, Fishback said. And it is unclear how or whether the programs will grow or become permanent fixtures over time.

Social security, for example, paid few benefits in its early years, but accounted for about $ 1 trillion, or 23% of the federal budget, in 2019.

And the total price can change during congressional negotiations. A key Senate Democrat Joe Manchin, D-W.Va., Said Thursday that he would not support laws over $ 1.5 trillion – less than half the amount of Biden's proposal.

Investment vs. Expenditure

Of course, some economists view this federal spending as an "investment" in the country's future rather than a mere expense.

"I almost think the ($ 3.5 trillion) plan is more akin to LBJ's War On Poverty (rather than the New Deal) in trying to address long-term strategic issues," said Krishna Kumar, director of international Research and a Senior Economist at RAND Corporation.

Investing in children (early in life) versus seniors (late in life) is what sets Biden's plan apart, he explained.

In addition to an expanded child tax break, the plan includes lower childcare costs, two years of universal preschool, 12 weeks of paid family and sick leave, and two years of free community college.

The US lags behind other developed rich nations in the Organization for Economic Co-operation and Development in many of these categories, Kumar said.

Such “investments” can bring economic advantages in the future. For example, healthier, more educated children tend to live longer than adults to earn more, pay more taxes, and rely less on the safety net, Garfinkel said.

Investing in early childhood programs brings in $ 2 to $ 4 for every dollar invested, according to a RAND analysis.

Beyond the New Deal and big society

According to economists, Biden's plan differs in some ways from its predecessors.

Perhaps most importantly, its benefits are shared among a large segment of the American population – not just the most needy.

This brings the US closer to a social model adopted by Scandinavian countries like Norway and Sweden, possibly reflecting that childcare issues also affect middle-class families, economists said.

For example, poor families make most of the profits from the Extended Child Tax Credit, but additional funds also go to higher-income households (individuals with income up to $ 200,000 and married couples up to $ 400,000).

Overall, the expansion doubles the average family benefit to nearly $ 5,100, according to the Congressional Research Service.

"We're redefining the safety net on a higher level," said William Hoagland, senior vice president of the Bipartisan Policy Center. "It will shift public resources to more people."

This strategy can help gain political support for Biden's initiatives. A narrower focus – for example only on the poorest – is a "recipe for political catastrophe" because it undermined the base of supporters, says Marglin, an economist at Harvard.

"This is how our political system works," he said. "The great innovators got that."

"It was something Franklin Roosevelt knew in 1935, and I'm sure Lyndon Johnson knew it in 1965, and I'm sure Joe Biden knows it too," he added.

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