The COVID-19 relief bill: Why compromise is back in Washington
Just when it appeared there was little hope that Congress would provide much-needed relief for COVID-19, the odds now favor passage of a bill before it adjourns this month.
The stalemate was broken on Dec. 1 when a bipartisan group in the Senate led by Sens. Joe Manchin (D-W.Va), Mark Warner (D-Va.), Bill Cassidy (R-La.) and Mitt Romney (R-Utah), among others, introduced a $908 billion proposal. If passed, it would repurpose $560 billion from the CARES Act and would include only $348 billion in new funding. Previously, there was an impasse as Democrats sought a package in excess of $2 trillion while Republicans would only consider a bill of $1 trillion or less.
A one-page summary of the bill indicates that it combines many of the priorities of congressional leaders of both parties, as well as those of President-elect Joe Biden. Key provisions include added support for the Paycheck Protection Program (PPP) of $288 billion, additional unemployment insurance of $180 billion, funding for state and local governments of $160 billion and $82 billion for education.
Following the announcement, there has been a surge in support from Democrats and Republicans alike, and President Trump reportedly has indicated that he supports a relief package. Investors, in turn, have responded to this news and promise of vaccines to combat coronavirus by driving the stock market to record highs.
This begs the question: How was Congress able to craft a plan so quickly after months of wrangling over the issue?
My take is that several factors coalesced to enhance the prospects for a deal.
First, the surge in COVID-19 cases, hospitalizations and deaths in the past month leaves little doubt that the worst of the pandemic will be felt in the next few months. The resurgence in COVID-19 already has resulted in additional restrictions being imposed on businesses in several states, and a markedly slower rate of job creation in November. While the unemployment rate edged down to 6.7 percent from 6.9 percent, it mainly reflected 400,000 people withdrawing from the labor force.
Second, the situation could become much worse for 12 million jobless workers if the Pandemic Unemployment Assistance (PUA) and the Pandemic Emergency Unemployment Compensation (PEUC) are allowed to lapse after Christmas. The PUA program covers about 7.4 million contractors, self-employed and gig workers, while the PEUC program provides an added 13 weeks of benefits to jobless workers once their state benefits lapse.
A key feature of the proposed bill is the inclusion of a $300 weekly supplement for unemployed workers for several more months. While this is one half of the $600 weekly supplement contained in the CARES Act that Democrats sought, it represents a concession from Republicans, who did not favor any added benefits because they believed it discouraged laid-off workers from seeking employment.
But the proposed bill does not contain any stimulus checks, which could be a stumbling block. It would be a key concession from the Democrats, who included provisions of $1,200 per taxpayer and $500 for dependents in the HEROES Act that was passed by the House in October. Democrats may be willing to hold off on this for the time being to gain assistance for those in greatest need. However, Biden has indicated that the package “at best, is only a going to be a down payment.”
Another priority is assistance to small and medium sized businesses such as restaurants, hotels, airlines and transport that have warned of mass layoffs and dire consequences if federal support is not forthcoming. While PPP was intended to deal with this issue, one critique is that one quarter of the funds that were provided went to the top 1 percent of applicants. To redress this, firms applying for PPP henceforth will be required to demonstrate substantial declines in revenues to qualify for assistance.
One other area of compromise relates to assistance to states and municipalities. The second version of the HEROES Act drafted by Democrats pared back the tally for state and local aid for coronavirus to $436 billion from more than $ 1 trillion in the first version. Another $208 billion was specified for education spending and $32 billion for mass transit. By comparison, the compromise bill allocates roughly half of the total to these areas.
Finally, assuming a bill is passed this month, the question remains whether it signifies that a new spirit of compromise is possible or is merely a one-off extension of the CARES Act.
My conclusion is that it is too early to tell. A lot is riding on the two Senate elections in Georgia on January 5.
Should Republicans keep control of the Senate, the Biden administration will be hard-pressed to get through its ambitious fiscal plan that calls for significant increases in government spending funded by tax increases. However, if the Democrats gain control, President Biden and House Speaker Pelosi are likely to press for increased government spending to bolster the economy.
That said, a breakthrough on the congressional stalemate is encouraging in one respect. Namely, it shows that both parties can still reach a compromise when failure to do so spells disaster for those directly impacted by the worst public health crisis in 100 years.
Nicholas Sargen is an economic consultant and is affiliated with the University of Virginia Darden School of Business. He is the author of “Investing in the Trump Era: How Economic Policies Impact Financial Markets.”