Debt and deficits will dominate US economic policy

Significance

Deficits and debt will dominate the political conversation. The new Republican-controlled House is more fiscally hawkish than its predecessor and is determined to deny Biden any substantive legislative successes ahead of the 2024 presidential election, in which he is a probable candidate.

Impacts

• Large-scale human capital investment, which was cut from the infrastructure bill, will remain unattainable for Biden.
• Even USD2tn of investment in infrastructure and competitiveness will not be transformative when spread over 50 states over ten years.
• Some provisions on green energy and corporate taxes are vulnerable to being rescinded by future administrations and Congresses.
• A divided Congress will oblige Biden to push his economic agenda through executive actions even more than in his first two years.
• Unlike the debt issued to fight the Second World War, today's debt will not be paid off during the lifetime of the generations incurring it.