Update 463 — Trump’s Irregular Orders:
What’s Done and What’s Left to Congress
You can perhaps understand the frustration. Fractured Majority Leader Mitch McConnell won’t — and can’t — get a Corona relief/stimulus bill larger than a thimble through the Senate. Trump watches helplessly as the prospect of a swift and sizeable fiscal shot of stimulus fades along with prospects for economic and political recovery by November.
In desperation, Trump announces four executive actions that amount to $165 billion in relief, with taxpayers on the hook to eventually repay much of it. The relief is illusory, at best ephemeral, and certainly meager. It’s definitely not stimulus.
The ball is still in Congress’ court and time is running short. More on that Friday…
On Saturday, President Trump issued four actions to break the impasse in the Corona 5 negotiations. Through executive fiat, Trump is attempting to take the power of the purse away from Congress by instituting a payroll tax holiday, extending expanded unemployment insurance (UI) benefits, suspending student loan payments, and halting evictions and foreclosures. He claims his actions “will take care of pretty much this entire situation.”
Below, we analyze the actions, their questionable legality, and if they will in fact take care of “this entire situation.”
- Benefit: The CARES Act provided $600 per week in federal UI benefits on top of existing state UI benefits. These federal benefits expired on July 31. Trump initially claimed his UI executive action would provide $400 of additional benefits per week to beneficiaries currently receiving at least $100 per week in state benefits. The funds would come from $44 billion in Federal Emergency Management Agency (FEMA) Disaster Relief Fund money. The memo says the program can run until December 6 or when the funds run out.
- Feasibility: Originally, the administration said FEMA cost-sharing requirements meant states had to contribute 25 percent of the additional $400 if they requested the UI funds. Democratic and Republican governors alike balked at this requirement, noting that their states are already bleeding funds. The Department of Labor walked back this requirement and said that the additional state contribution would be optional. Instead, states could count their normal UI payments toward the 25 percent cost-sharing requirement, thus cutting the additional benefit from $400 to $300 if states decide not to expand their own contributions. None have offered so far.
- Impact: Estimates find that the funds will only last five to six weeks at best. Implementation could take up to a month. The requirement that beneficiaries must currently receive at least $100 per week in state benefits may render three to six percent of traditional UI recipients ineligible. It also may not cover the millions of Americans such as gig workers and the self-employed who were only receiving the expanded federal UI benefits. Even if the $400 were to come to fruition, the loss of $200 per week would be a significant hit to jobless families and the macroeconomy.
Payroll Tax Holiday
- Concept: Trump ordered Treasury Secretary Mnuchin to defer payroll tax obligations for employees making up to about $104,000 until the end of the year. The CARES Act had already deferred employers’ portions of the payroll tax. The deferred payroll tax will be owed in a lump sum at an unspecified time, likely at the beginning of next year or during tax time next year.
- Feasibility: Trump has the statutory authority to defer the payment of taxes to up to a year after a national emergency is declared. The deferral amounts to an interest-free loan. As employers are responsible for their employees’ payroll tax obligations, many will continue to withhold and pay employment taxes. While Trump has indicated his desire to make this holiday a permanent tax cut, employers likely won’t take this risk until Congress guarantees forgiveness for their deferred obligations.
- Impact: Members on both sides of the aisle are skeptical of the benefits of a payroll tax cut, arguing that it imperils Social Security, fails to put money in the pockets of those who need it most (since it does not reach the unemployed), and doesn’t provide a hiring incentive for firms. Assuming the IRS is able to collect the deferred payroll taxes, the deferral will have little impact on Social Security when all the money is finally replaced. Social Security will, however, lose some of the interest that would have been generated otherwise.
- Relief: The CARES Act provided relief to federal student loan borrowers by suspending loan payments and interest accrual through September 30. Trump’s student loan action directs the Secretary of Education to extend these policies until December 31.
- Feasibility: This is one of the more feasible actions since it doesn’t require new programs or budget tricks. Trump only has to direct Secretary DeVos to continue the suspensions.
- Impact: This action would apply to 35 million borrowers with federal loans. It’s more generous than the Senate GOP’s HEALS Act, which provided no extension of the payment and interest suspensions. But the action comes up short of House Democrats’ HEROES Act. It extends the CARES Act provisions until September 30, 2021 and cancels $10,000 worth of federal or private student loans for distressed borrowers.
- Protections: In his executive order on housing, Trump falsely claims to undertake measures to prevent evictions and foreclosures resulting from COVID-caused financial hardship.
- Feasibility: The executive order does little outside of directing the Treasury Secretary and Housing and Urban Development Secretary to review existing authorities and funding to determine whether further executive action can offer eviction or foreclosure protections.
- Impact: The CARES Act included a 120-day eviction moratorium for properties carrying a federally-backed mortgage. This provision has since expired, leaving millions of renters vulnerable to homelessness at the height of the pandemic. This order offers no relief for the millions facing an eviction.
Is It “Unconstitutional Slop?”
Not long after Trump signed the four executive actions, both sides of the aisle were quick to denounce them as Trump’s attempt to usurp Congress’ fiscal powers. Republican Senator Sasse called the actions “unconstitutional slop,” and Speaker Pelosi described them as “meager, weak, and unconstitutional.” In reality, Trump’s executive actions are largely legal, with one notable exception — the extension of enhanced unemployment benefits.
Trump’s unemployment memorandum relies on the Robert T. Stafford Disaster Relief and Emergency Assistance Act, which permits the president to provide financial assistance to victims of a disaster. While the Stafford Act has few limitations on the type or level of financial assistance the president can pursue, a provision of the bill prevents the president from providing unemployment benefits that exceed the benefiting state’s weekly unemployment compensation. Consequently, Trump may not have the statutory authority to provide enhanced unemployment benefits.
Though Congressional Democrats fiercely oppose Trump’s executive actions, they are uninterested in the optics of blocking aid to unemployed workers and the extended timeline of a legal battle. A lawsuit may be unnecessary, given that Trump’s most controversial executive actions are largely unworkable stopgaps.
A Brief Band-Aid at Best
The administration is now claiming it has the upper hand in relief negotiations. But the economic implications of the executive actions range from damaging to band-aid relief. The four combined are hardly enough to bridge struggling Americans six weeks let alone the extent of the recession.
The Committee for a Responsible Federal Budget estimates that the executive actions would cost $165 billion in the near-term, a far cry from even the $1 trillion Republican HEALS Act. This is assuming all of these actions pass constitutional muster. Mark Zandi, Chief Economist for Moody’s Analytics, believes the next package has to be at least $1.5 trillion. Touting victory for unilateral action that’s a tenth of what’s minimally needed makes neither economic nor electoral sense.
Congressional Democrats should remain steadfast in their demands that what’s needed is comprehensive relief as outlined in the HEROES Act. The spotlight remains on negotiators in Congress.
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