COVID Response in Congress

Update 421 — COVID Response in Congress 
Stimulus: What Works, How Much is Enough?

The President’s churlish, sententious address to the nation on Wednesday night regarding his efforts to combat and contain the COVID-19 crisis inspired little confidence and precipitated the worst one-day drop in the capital markets in 33 years on Thursday. 

Democrats in Congress are considering an emergency relief and stimulus bill. Trump just now completed a lengthy Rose Garden event but said little beyond critiquing the bill broadly, ensuring delay. Congress cannot yet estimate how much federal aid will ultimately be needed, but we know what kind of aid works, regardless of degree.

Before the package is complete, Mitch McConnell and the Senate GOP will no doubt have something to say about it. Below, we assess the proposals on the table and try to sort out the stimulative from the superfluous.

Good weekends and stay safe, all…



This afternoon, House Speaker Nancy Pelosi announced a second stimulus bill in two weeks and her intention to bring the bill to a vote tonight. Congress passed an $8.3 billion funding measure last week to develop a vaccine. Members are already talking about a third round of stimulus. After Speaker Pelosi’s press conference, President Trump officially declared a State of Emergency and invoked the Stafford Act, opening more federal aid to states and localities on the frontlines of the coronavirus pandemic. 

Administration Offering Off-Target

President Trump’s initial demand for a payroll tax holiday was left on the negotiation room floor, stymied by strong bipartisan resistance. Trump tried a similar gambit before the 2018 midterms in an unnecessary and politically-motivated scheme to juice the economy in the short-term; such a move would be just as unwise today. The assistance bill should provide restitution for victims and stimulus for the economy.

An example of the most stimulative policy options — one resulting in immediate and on-spending known as the multiplier effect — would be increasing the federal minimum wage. Paired with a key additional unemployment insurance benefit, it would support low-income workers during the recovery, provide high octane economic stimulus, and have no fiscal costs.

Source: Moody’s Analytics

Congress Negotiates Stimulus

Speaker Pelosi and Senate Minority Leader Chuck Schumer laid out their party’s priorities earlier in the week, economists and public health experts alike praised the Democratic plan. The House bill provides three months of paid leave for workers who are infected, in quarantine, taking care of children, or caring for a loved one who is infected by coronavirus. The paid leave component would replace two-thirds of wages, capped at $4,000 per month. 

Beyond paid leave, the Democrats’ plan provides additional block grants to communities hit hardest by the virus, direct grants to small businesses, and assistance to public transportation systems, among other initiatives. 

It also includes:

  • Free universal coronavirus testing
  • Supplemental unemployment insurance 
  • An eight percentage point hike in the state’s share Medicaid payments 
  • Increasing federal food assistance
  • A six-month holiday for federal student loans and mortgages

Before its House passage, Senate Majority Leader Mitch McConnell told reporters that the Schumer/Pelosi proposal was an “ideological wish-list,” rather than a targeted approach to the economic crisis. McConnell announced yesterday that the Senate would not take up the House bill and instead leave Washington for a recess week but backtracked on Thursday afternoon after facing enormous public scrutiny. 

While Democrats focus attention on workers, families, and affected communities, Republicans, led by Treasury Secretary Mnuchin, fought to include some bailouts for big business. Mnuchin testified Wednesday that Trump was considering low or no-interest loans for specific firms, raising eyebrows about potentials for self-dealing and grift. “We are not looking for bailouts,” he said. 

Payroll Tax Holiday?

Since the summer, Trump has toyed with the notion of a payroll tax cut as a follow up to his 2017 tax bill. Now, in the wake of a potential coronavirus-induced recession, Trump is repurposing this idea as economic stimulus. 

On Tuesday, Trump proposed cutting the payroll tax rate to zero through the 2020 election. Such a policy would cost more than the 2008 Wall Street bank bailout or the 2009 stimulus bill passed by President Obama and would add approximately $1 trillion to the federal deficit. 

Consumer spending may be entering a sharp decline, but not because people are losing their jobs at ‘08 levels or seeing their retirement accounts disappear. Those who would spend extra dollars immediately would be unreached by a payroll tax holiday: unemployed workers, workers taking unpaid sick leave, and low-income retirees — they are also the groups most at risk from the coronavirus.

Trump’s broad-based tax holiday would be seen mainly as a gratuitous corporate giveaway. Businesses would view an employer-side payroll tax holiday as a windfall for their shareholders, rather than using those saved dollars to boost employee wages. As stimulus, employee-side payroll tax cuts are far superior to employer-side payroll tax cuts and get a much greater return on investment. Moody’s Analytics finds that while employer-side payroll tax holidays get a return of $1.05 for every dollar invested, employee-side payroll tax holidays get a return of $1.27 for every dollar invested.

No Crisis Unexploited 

Trump has not offered a broad legislative response to the crisis. Congress is at work on it as we speak but without much help. As of this writing, the House floor vote is pending.   

Will the final product responsibly offer aid and stimulus or backdoor industrial bailouts with politically connected firms and Republicans demagoguery? Speaker Pelosi is holding tough and not yielding to such demands. All eyes on Senate Majority Leader McConnell, who manages a legislative funeral home. 

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