Update 423 — Senate Poised to Vote Tonight
on Largest Stimulus Bill in American History
Befitting the worst economic and civic crisis confronting the nation in nearly a century, the GOP Senate leadership is preparing legislation in scope and scale that could spare vast material wreckage, or make it inevitable, or worse.
What happens on the Senate floor or in the cloakroom just off of it, between now and Mitch McConnell’s deadline of midnight tonight, represents not the first, but maybe the last, chance to forestall massive economic dislocation of full-blown depression-era proportions.
The 20/20 Vision team has developed a comprehensive economic policy proposal in response to the COVID-19 economic crisis, for your consideration, especially if you are a member of the U.S. Senate tonight.
Good weekends and health, all…
This week, J.P. Morgan Chase announced a projection that the U.S. economy will contract by four percent this quarter, followed by a 14 percent drop next quarter. Treasury Secretary Steven Mnuchin floated a $1 trillion stimulus package on Wednesday in an attempt to set the terms of the debate. Senate Majority Leader Mitch McConnell dropped a bill based on the proposal last night, “Phase 3” of the federal government’s effort to stem economic losses and protect public health.
With the House in recess this week, Secretary Mnuchin has been developing the package mainly with Republican Senators. The bill comes after relief measures were signed into law Wednesday, expanding social safety net programs including paid sick leave, unemployment insurance, and food assistance.
Below, we examine the current stimulus proposals and offer a program that will more effectively staunch the economic bleeding from its two main sources, lay-off and loan defaults.
Corona III Proposals
Democrats and Republicans have laid out plans for a third round of federal assistance. On Thursday night, McConnell released the CARES Act, which builds upon Mnuchin’s proposal. McConnell is giving Senators until midnight tonight to finalize the details, as he aims to pass the bill on Monday.
- Senate GOP and White House Plan: Republicans, skeptical of stimulus during the Great Recession, are now proposing a $1 trillion stimulus package to help prop-up the economy. The GOP plan includes assistance to both big and small businesses. The bill provides $58 billion in loan guarantees for cargo and passenger airliners and $150 billion to other large firms affected by the crisis that have yet to be defined.
Senate Democrats will push back against any bill that does not include conditions on big businesses. Senator Elizabeth Warren raised concerns about providing “no-strings-attached” bailouts to businesses and outlined eight conditions for businesses receiving federal assistance. The GOP plan also proposes $300 billion in targeted loan guarantees for small businesses to help them maintain payroll. There is bipartisan support for the small business provision.
Direct cash payments feature prominently in the Republican proposal after Trump backed off on calling for a payroll tax cut. Mnuchin originally proposed two rounds of $1,000 direct payments to taxpayers. On Thursday, Senate Republicans revised this plan by proposing $1,200 per adult and $500 per child for those with qualifying tax income below $75,000. Payments phase out for those making $99,000. The Republicans’ hope that a one-time cash payment can help make workers whole and jumpstart the economy is short-sighted at best.
House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer criticized the GOP plan saying, “it is not at all pro-worker and instead puts corporations way ahead…” On Thursday, Sen. Schumer outlined his plan that he said puts “workers first.”
- The Schumer Plan: The New York Senator’s proposal is mostly a relief bill, light on economic stimulus. The package will cost an estimated $750 billion and would increase unemployment insurance to match 100 percent of a worker’s lost wages. The plan would also expand paid leave and provide assistance for small businesses. He stated that any plans to bail out big businesses must make compensating workers a priority. Ranking Members Patty Murray and Sherrod Brown, as well as Sen. Warren, fought to include a provision canceling student loan debt payments for the duration of the crisis.
The House will be back in session on Monday, March 23. Following Wednesday’s passage of Corona II, Speaker Pelosi tasked the Democratic committee chairs to develop and submit their plans, which she will compile into a comprehensive stimulus package. So far, House Financial Services Committee Chair Maxine Waters is the only one to publicly release a proposal.
- The Waters Plan: Chair Waters released her proposal late Wednesday evening. The Waters plan would provide $2,000 for each adult and $1,000 for each child, every month, for the duration of the crisis. It would suspend various forms of consumer and small business credit payments (e.g. student loans, credit cards, small business loans, and personal loans), and would prohibit debt collection, credit rating downgrading, repossession, evictions, and garnishment of wages throughout the pandemic. Beyond the substantial support for small businesses, Waters’ plan notably does not provide relief for affected industries.
Comprehensive Salary Continuity
The Administration’s $1 trillion price tag for their package grabbed headlines, but it does not meet the demands of this crisis. The current economic crisis is unprecedented and won’t be fixed by a $1,200 check.
As the virus forces an ever-increasing number of Americans to stay home, demand for non-essential goods and services shrinks, devastating businesses. In turn, businesses have no choice but to close operations and lay off their workers. One-off checks will do little to reverse this vicious cycle; layoffs need to stop. An effective stimulus package must provide comprehensive salary continuity for Americans and lines of credit for small businesses:
- Salary Replacement: Workers would be eligible for cash transfers equal to their pre-crisis salaries. At the same time, workers would remain formally employed, retaining their health insurance and other workplace benefits.
- Layoff Prevention: Businesses would not layoff workers during the crisis — instead, they would report monthly costs of maintenance and payroll and receive payment from the federal government.
- Retroactivity: Businesses who laid off workers on or after March 1 would be eligible for financial support to rehire those workers with back pay reinstated.
- Credit Continuity: Small businesses could apply for zero or low-interest bridge loans from the federal government equivalent to the value of lost lines of credit from the crisis.
Cash payments like those proposed by the Administration may help alleviate temporary economic hardship, but they are poorly targeted and insufficient given the extent of this crisis. This program would also mitigate the need for greater unemployment insurance by preventing lay-offs in the first place. The cost of this plan over three months could total $600 billion.
No Time for Half Measures
Workers and small businesses in particular need substantial assistance from the government to make it through this crisis. A $1,200 check will help a laid-off bartender pay her rent in April, but this crisis will extend far beyond next month.
The piecemeal approach of the GOP — crafting a package to help out the loudest and best-connected firms and sectors — bailout for some is more accurate — means revisiting the issue and recalibrating constantly while Rome burns. Focus on continuity of compensation and credit and Americans will be able to cross the bridge financed on the strength of our fundamentals and good faith.