Teetering economy sparks talk of second stimulus package
The Senate returns to work Monday to take up the House-passed coronavirus relief package, but senators are already starting discussions about a second round of economic stimulus.
Lawmakers and aides expect an additional legislative package would include broader economic measures such as a tax rebate, a payroll tax cut, small-business grants and loans, expanded unemployment insurance and relief for the airlines and other hard-hit industries.
Senate Majority Leader Mitch McConnell (R-Ky.) on Sunday said he had spoken to several GOP committee chairmen “about the next steps,” such as helping Americans with financial challenges, efforts to shore up the economy and small business and bolstering the health care system.
“It is clear that confronting this virus will take boldness, bipartisanship, and a comprehensive approach,” McConnell said in a statement. “Discussions are already underway on these key pillars. The Senate is eager to work with the Administration and the House to deliver the solutions our nation deserves.”
Sen. Ben Cardin (Md.), the top Democrat on the Senate Small Business Committee, said late last week that he and his Republican colleagues are almost 90 percent of the way toward agreeing on a small-business relief package that will be broken up into two parts.
He said the first component will be attached to the House-passed coronavirus bill and the second to a broader measure that’s likely to include some of the tax-relief measures favored by President Trump.
Cardin anticipates the House-passed coronavirus measure will eventually include a $50 billion expansion in loan capacity for small businesses.
“It’s more easing the requirement for loans, those types of issues. It’s allowing the loans to be used for paid leave and telecommuting,” Cardin said. “That’s phase one.”
Cardin said he wants the second tranche of small-business relief to include grants for small businesses. That would be added to a second stimulus package expected to move next month.
“Then there’s part two, when we have a stimulus package that considers some of the tax issues the president wants to consider,” said Cardin, who is also a member of the Senate Finance Committee.
“We have businesses that are going to need grants. Loans [alone] aren’t going to work, that’s very clear. We have Republican support for that, so we’re going to have to look for a grant program for small businesses,” he said.
A senior Senate Republican aide on Friday confirmed that lawmakers will begin working on a second stimulus package soon after Congress passes the coronavirus relief package that Speaker Nancy Pelosi (D-Calif.) and Treasury Secretary Steven Mnuchin negotiated at the end of last week.
“We’re going to see a humongous spike in cases in the next two weeks as we get more and more testing available, and that will create further economic distress,” the source said.
The aide said a second package will give senators a chance to push for things “the things that Republicans want that Pelosi is saying no to now. At some point we will have to provide business relief. We will have to provide relief to airlines.”
Mark Zandi, chief economist for Moody’s Analytics who now puts the chances of a U.S. recession this year at 70 percent, said he expects pressure will grow on Congress to pass several stimulus packages.
“I think a large, timely well-thought fiscal stimulus package to avoid recession or to mitigate the severity of the recession that is now likely,” he said. “I think they could make it clear very soon that a second stimulus package is coming.”
He said quick-hitting temporary relief such as expanded unemployment insurance or tax rebates like the kind Congress passed during the Great Recession are prime candidates for the second round of stimulus.
Zandi said a payroll tax cut is “on the list” but toward the bottom.
“Much more important is to significantly expand out unemployment insurance to workers who don’t actually lose their jobs but can’t get to work because they’re sick or they have to take care of sick family members or their kids can’t go to school,” he said.
Zandi also raised concerns about grants to small businesses.
“Loans and loan guarantees are tried-and-true stimulus, and that should be part of any package, but that’s pretty modest in terms of its stimulus,” he said.
John Weaver, a Republican aide who worked on former Ohio Gov. John Kasich’s 2016 presidential campaign, said Trump will be pressing Congress hard for additional stimulus.
“He’s going to be tremendously desperate, as we’re seeing,” Weaver said, noting that Trump has hammered the Federal Reserve to cut interest rates and that “they don’t have much more room to maneuver.”
Weaver warned that Trump’s chances of winning reelection would be significantly lower if the country falls into and stays in a recession.
If the economy fails to recover, he said, “I think it will really lock him out of being reelected.”
“Presidents get the credit when things are going well and they get the blame when things don’t,” Weaver added.
“Prior to the coronavirus, he was definitely on the way to winning reelection,” said Ford O’Connell, a Republican strategist. “I do think the coronavirus puts a curveball into it and I think that he is wise to be pushing back and reminding people that the coronavirus came from China, which he’s been on for a very long time in terms of decoupling our supply chain.”
“He’s trying to make the point, ‘I’m doing the best I can for America with the hand I’ve been dealt with,’” O’Connell added.
Democrats have expressed strong opposition to a payroll tax cut, but they haven’t ruled it out if it’s included in a broader package with some of their top priorities, such as expanded unemployment insurance.
A payroll tax holiday, which Trump floated to Republican senators on Tuesday and would temporarily cut payroll taxes to zero, would cost too much to win bipartisan support. A more modest 2 percent cut, however, is still on the table.
Congress approved a 2 percent payroll cut in 2011 to bolster the economy heading into then-President Obama’s 2012 reelection bid.
“There’s been a lot of discussion about it in the sense of whether we should do it or not. I think everybody’s got a different opinion,” Sen. Mike Braun (R-Ind.) said of the discussions among his GOP colleagues.
Sen. Tim Scott (R-S.C.), a member of the Finance Committee, said “there are so many variations” of a possible payroll tax cut, noting there’s a big difference between cutting down the tax to zero and shaving it by two percent.
“I’d like to see what it is, how we pay for it,” he said.
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