Monday, January 18, 2021


Mr. Biden, a Long-Term Data Driven Demand Side (Consumer Spending) Plan is Better than a Short-Term One.

January 10, 2021 by  
Filed under Business, Health, Money, News, Opinion, Politics, Weekly Columns

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(ThyBlackMan.com) President-elect, Joe Biden is poised to launch a Covid-19 economic relief plan worth trillions of dollars. Here are some meaningful observations for all of us to consider in the run-up to Mr. Biden’s planned announcement of the details of his Covid-19 economic spending plan on Thursday.

It is questionable, whether Mr. Biden, the Democratic Party, and his economic team view direct payments to consumers as a Direct Consumer Tax Cut. Obviously, if they admitted it, they would have to admit to how remarkably successful CONSUMER SPENDING has been at creating jobs throughout this Economic Downturn. The Cares Act (stimulus) Consumer Tax Cut confirms, what consumption data states, that low- and middle-income Americans are more likely than higher earners to spend benefits from the government immediately and stimulate economic growth, creating millions of jobs.

Consumer Spending, as a result of the Cares Act (stimulus) Tax Cut, was a major contributor in the rate of unemployment dropping from 14.7% in May 2020 to 6.7% in November.  As the economy reopened in May with 2.5 million jobs, strong Consumer Spending enhanced the recovery. However, Consumer Spending fell in November, which was a sign that the economic impact of the Cares Act Consumer Tax Cut was dwindling.

Consumer spending 2021

Seeing that Consumer Spending was on the ropes and wanting to help their candidates win the Senate through the Georgia elections, Republicans agreed to a REDUCED consumer (stimulus) tax cut in the current Coronavirus “RELIEF” Bill. They reduced the tax cut to $600 from $1200 in the Cares Act. Republican Senate Majority Leader McConnell sought to tie down the Biden administration with a slow growth economy through the reduced tax cut. But the maneuver failed, as Democrats won the two seats.

Having won the two Senate races in Georgia, President Biden is now faced with the decision of raising the consumer tax cut to $2000 as promised by the Democratic Party senatorial candidates in the Georgia race. Raising the tax cut (stimulus) payments to $2,000 and doing nothing else, in regard to a long-term stimulative consumer tax cut plan is narrow-minded and sets up the Democratic Party for failure, just as the 2022 mid-term elections roll around.

There is no mystery or secret as to why this is a failed strategy, it is simple mathematics. The U.S. economy is in a deep hole, and hemorrhaging jobs. It needs a long-term consumer (stimulus) tax cut plan. The initial consumer stimulus (tax cut) of $1200, which amounted to an estimated $290 billion, created demand for products, and services, which lasted 8 months, to November. Raising the stimulus (tax cut) to $2,000, and multiplying it times the same approximate number of recipients, 160 million, results in $320 billion flowing into the economy, as Consumer Spending. However, the $320 billion, when it comes to creating demand for goods, and services, will probably start dwindling just as Congressional candidates gear up for the mid-term elections. At that time, there will be extraordinarily little appetite for the opposition Republican Party, and Democratic candidates in swing districts to entertain the thought of another stimulus (tax cut) for consumers.

Using the suggested Trump Tax Cut (stimulus) of $2000, it is imperative Biden, and his team think long-term. They need to ensure a successful outcome of Congressional Democrats’ races in the mid-term elections. Understanding, increasing consumer spending is what it is going to take to pull our economy out of this Economic Downturn, it behooves Mr. Biden and his economic team to consider a long-term data driven Demand Side (Consumer Spending) Tax Cut Plan, to supplement any current Consumer Spending initiative. Then, pass both the long term and current plan, as a package, so as to avoid revisiting this issue in the run-up to the mid-term elections, and beyond.

President-elect Biden, his nominee for Treasury Secretary, Janet Yellen, his Council of Economic Advisers nominees, Chair, Cecilia Rouse, Heather Boushey, and Jared Bernstein understand, what is widely acknowledged, the United States economy is 70-percent powered by Consumer Spending. When you crack open that 70% number and look inside, you will find 40% of Consumer Spending is driven by the 50 plus demographic, of which the Baby Boomer generation is the overwhelming majority ( https://www.huffpost.com/entry/the-7-incredible-facts-about-boomers-spending_b_6815876 ). This segment of our population, singularly, is the largest spending group in our economy.

Baby Boomers, as a homogeneous group, who are retiring at a rate of 10,000 a day, should be the target of any long-term consumption tax cut plan. Baby Boomers also, include rural whites and an equitable number of minorities. A 10%, $25,000 Consumer Tax Cut (The Consumer Tax Cut Explained – Jobs and Their Creation (thefixthistime.com), will drop $254 to $300 million a day or more into our economy, for businesses, both large and small to compete for, over the next 10 years, which would be the duration of the tax cut. This will bring back, by the millions, the jobs lost in the pandemic. The cost of the tax cut would be $1.5 trillion or less, which is comparable to the cost of the failed Trump Tax Cut, which was legislated to last for the same period, 10 years. This pragmatic solution to grow the economy is just what our country needs. But, having the courage to embrace new ideas, which make common sense and may take political muscle to achieve, is another matter.

Practically speaking, “symbolism” in terms of having a cabinet that reflects the racial make-up of America, will carry working class Americans and Black America, just so far, economically. A near 0% interest rate economy is an aberration that cannot be sustained over the long-term. If the Biden administration deploys our wealth and resources wisely, in the age of Covid-19, we can grow our economy. Retirees, and pension funds are under stress and need relief from twelve years of abnormally low interest rates. A 10%, $25,000 Consumer Tax Cut (stimulus) will give the Federal Reserve room to normalize interest rates, without setting back or dampening in terms of GDP growth, a Biden administration Covid-19 economic relief plan.

Staff Writer; James Davis

Mr. Davis is a leading expert and consultant in Financial Analysis and Social Dynamics. He is a graduate of Florida A. and M. University (FAMU), a former stockbroker, and a human rights activist who resides in Sanford, Florida. He was awarded the prestigious Governor Haydon Burns Scholarship to attend FAMU and while at FAMU was awarded the first Martin Luther King Scholarship. He is the author of three books, among them is “The Fix This Time,” Boost Your Retirement Income! Simultaneously Create Jobs and Spur Economic Growth (https://www.amazon.com/dp/B00MI3PD2M).

Mr. Davis can be reached through his blog @ https://thefixthistime.com.


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