Sen. Joe Manchin’s opposition to the Build Back Better plan is starving the country about $60 billion in gross domestic product, Insider calculates based on Goldman Sachs’ projections.
What little hope Democrats had of passing their social-spending package evaporated on Sunday when the centrist West Virginia senator declared on Fox News that he wouldn’t vote for the proposal in its current form. While Senate Democrats haven’t completely thrown in the towel on passing another spending plan, Manchin’s statement signals it will need to be dramatically different to garner his support.
Economists are already forecasting what a BBB-free economy will look like, and early projections are gloomy. Goldman Sachs economists led by Jan Hatzius now expect US GDP to grow 2% in the first quarter, 3% in the second quarter, and 2.75% in the third quarter, according to estimates published Monday. Those projections are down from 3%, 3.5%, and 3%, respectively.
If the revisions ring true, the difference in growth should add up to roughly $60 billion in economic losses over the next three quarters. Insider calculated the sum by taking the US’s annualized GDP growth rate and calculating the differences in Goldman’s prior and updated expansion forecasts.
The economic impact might not be so negative, the team noted. There’s a chance Congress approves “a much smaller set of fiscal proposals” targeting manufacturing bottlenecks and supply-chain pressures, according to the economists.
Still, the most important element of BBB for economic growth is likely to wither. Extending the child tax credit would’ve played a major role in keeping spending strong through 2022, Goldman said. Yet Manchin made clear in a Monday radio interview that he wouldn’t back an extension of the program as it currently stands. The senator told West Virginia’s MetroNews that he’d want to see a work requirement and additional measures to better target families in need and keep wealthier Americans from collecting the monthly payments.
Many other Democrats, however, have fervently pushed against work requirements, leaving the tax credit to expire this month. Removing the CTC will lead to government aid in 2022 that’s “somewhat more negative than we had expected,” Goldman said. There’s “still a chance” that Congress retroactively extends the program, but the odds of that are “less than even,” the bank added.
The death of BBB might also throw a wrench in the Federal Reserve’s plans to fight inflation, according to the team. Most central bank officials likely expected Congress to pass the spending package, and those assumptions probably showed up in the Fed’s economic projections published last week. Failure to pass BBB “would introduce some risk” to Goldman’s expectations for the Fed to raise interest rates in March and start cooling inflation, the team said.
The economic boom seen through the summer is suddenly on the ropes. The Omicron variant’s rapid spread is quickly reviving some economic restrictions across the country, and early signs point to consumer spending already starting to ease. With BBB likely off the table, the US recovery is entering the new year with far less juice than economists anticipated just days ago.
Source : Businessinsider