Update 424 — America Starts Spring Broke;
Senate Set to OK Biggest Spending Bill Ever
The COVID epidemic is far from over, as are its economic repercussions and the policy responses to them. Today, the US Senate will adopt a third relief package (stimulus would be mostly misnomer), this one bigger than any federal spending measure in American history.
The amount, $2.1 trillion (not a typo, and not a ten-year but several-months estimate), like the COVID statistics themselves, are both a shock and a glimpse into a grimmer day ahead. But for now, we have hope that the package, aka Corona III and detailed below, will work, even as we start work on Corona IV.
Stay safe and healthy.
Over the weekend, Senate negotiations on a third Corona package began and broke down over a $500 billion fund for businesses affected by the crisis. Later today, the Senate will vote on the final version package. The bill is massive; it will cost $2 trillion, or 10 percent of annual US GDP. Senate Minority Leader Schumer called it “the largest rescue package in American history.”
Part-stimulus, part-relief, part-bailout, the package is piecemeal and not entirely apt for the moment. But Democratic leadership and Treasury Secretary Mnuchin finally reached an agreement on Corona III early Wednesday morning; rapid passage in Congress and a White House signing are expected.
What is provided in Corona III?
- Cash Payments
The bill provides immediate, one-time, untaxed cash payments of $1,200 to all adults, phasing out for individuals with adjusted gross income between $75,000 and $99,000. Families would receive an additional $500 per child.
- Corporate Relief (“Slush fund”)
The $500 billion fund for business relief was the major sticking point in the negotiations. Democrats objected that the lack of oversight and conditions upon recipients rendered it a “slush fund.” The revised bill creates a new Special Inspector General and an Accountability Committee at the Treasury to oversee the $500 billion fund. When questioned about the lack of accountability in the previous iteration, President Trump declared “I’ll be the oversight.”
The bipartisan version of the bill is inarguably better but still imperfect. Following Democratic demands, businesses owned by the president, the vice president, members of Congress, or the heads of executive agencies are ineligible to receive funding under the bill. But the bill does not create limits of executive compensation nor dividends for companies receiving these funds.
- Unemployment Insurance
The bill raises unemployment insurance (UI) benefits by $600 across the board for four months and extends UI to cover contract and self-employed workers. Furloughed workers may remain formally employed while receiving UI. Republican Sens. Sasse, Graham, and Scott (SC) announced that they would oppose fast passage of the bill if this provision survives without amendment. Their concern? The UI provision is too generous and may disincentivize work. Sen. Sanders responded by threatening a hold of his own, demanding either new restrictions on the $500 billion slush fund or that Republicans support the bill as is.
- Industrial Bailouts
The bill provides $25 billion to airlines and $4 billion to air cargo carriers. Though the GOP has attempted to frame these funds as loans, there appears to be no repayment requirement owed to the government. Airline and cargo companies that receive government loans are banned from stock buybacks and from providing bonuses to CEOs, alleviating some worries that these funds could enrich executives and shareholders and do nothing for workers.
Additional big-ticket components of the bill are outlined below:
- A new tax credit for companies that maintain payroll equivalent to 50 percent of compensation costs up to $10,000 per employee
- $150 billion in increased funding for hospitals and health care services, including additional Medicare payments to all hospitals and providers
- $367 billion for small business loans. This includes $10 billion for Small Businesses Administration small business grants up to $10,000 and $17 billion to the SBA to cover payments to small businesses with existing loan agreements
- $400 billion in election assistance, including funding for mail-in and early voting, and online registration
While Senate leadership and Mnuchin expressed optimism that they had reached a deal, the objections of various Senators and House members have delayed the Senate’s vote. Meanwhile, bill text has yet to be released.
Although House Speaker Pelosi released a leadership bill on Monday, she announced her intentions to pass the Senate’s bill through unanimous consent in the next few days, after a period of “review”. Secretary Mnuchin reported that President Trump would sign the revised bill, thus assuring the bill’s passage once it reaches the president’s desk. But some House skeptics like Reps. Amash and Ocasio-Cortez may object to unanimous consent on the floor. Imperfect as it is, Americans are clamoring for economic relief, and to stand alone in stopping its passage in the House may be a suicidal act of courage.
A Comprehensive Way to Continuity
The Corona III package will enjoy bipartisan support, and Democrats will be lauded for securing many of their objectives in the bill during negotiation. But the $2 trillion ‘stimulus’ is confused in regard to its objectives. And with these a la carte bills, Congress will have to pass larger and larger stimulus every few weeks ad nauseam.
We have developed a comprehensive solution to obviate much of the well-intentioned relief package — one that’s targeted, easily administrable, and that achieves progressivity without fiscal mess. Guaranteeing income continuity to workers and credit continuity for small businesses would freeze and sustain Americans’ pre-crisis economic circumstances. Senate Minority Leader Schumer, along with Reps. DeLauro and Pocan, have all voiced support for such a program.
Instead of helicopter money in the form of $1,200 checks, workers receive whatever they would have earned absent the crisis. Funds could be issued by state Unemployment Insurance programs, already up and running. Another option would be to credit employers’ social security withholding accounts on the condition that employers remit these amounts promptly to employees.
For small businesses, a number of options exist, but there is precedent for the Fed Chair to oversee a loan guarantee company to ensure lines of credit, some of which would be low-interest, no interest, partially forgivable, and fully forgivable.
This is a wartime level of investment into our country. But it is not an economic stimulus and it should not be evaluated as such. It is relief, pure and simple. While it may be necessary given the time constraints and economic pain being inflicted, Corona III as written guarantees a Corona IV.
Income and credit continuity must be included in the next coronavirus legislation. Cash and credit are elemental to our modern economy, and sending out $1,200 checks to everyone is not the equitable, stimulative, or fiscally sound approach. Once the public health crisis is over, the economic crisis will still be upon us. Democrats are not just fighting against the spread of the virus, and they are not just fighting Republicans who advocate for no-strings-attached loans to well heeled and politically connected firms. They are fighting against bad ideas that will lock in place economic inequalities until long after the crisis’ end.