The Brawl Over Unemployment Benefits

By Michael Rainey

The Brawl Over Unemployment Benefits

Unable to agree on a variety of important details, Republicans
have pushed the release of their still-developing coronavirus
relief package to next week, and the delay all but guarantees that
the bill won’t be ready for President Trump’s signature until next
month. Chris Krueger of Cowen Research said Friday that “mid-August
is not out of question for timing now,” and even that might be
optimistic, given the internal divisions among Republicans and the
distance between the two parties on many of the key issues.

One of the central points of contention between Democrats and
Republicans will be what to do with the expanded unemployment
benefits established by the CARES Act in March. The $600 per week
payments will expire in a few days, without an extension or
replacement waiting in the wings. As we told you yesterday, while
Democrats want to extend the payments until next year, the current
Republican plan is to provide a significantly smaller payment that,
when combined with the usual state-level aid, equals roughly 70% of
workers’ pre-pandemic wages.

Dueling views on jobless aid: Most mainstream economists
see the unemployment payments as an important source of support for
both the economy and for workers whose jobs have been eliminated
amid widespread fear of illness and death from the coronavirus.
Joseph Brusuelas, chief economist at the consulting firm RSM,

said this week that the “lapse in aid to 20
million Americans that pumped roughly $116 billion into the economy
in June alone will result in a slower rebound in overall economic
activity during the current quarter.” He added that the data “shows
just how critical that aid is to supporting the economy. Because of
the inability of the political sector to put in place another round
of aid in a timely manner, investors should anticipate a
significant slowing in household spending and another round of
permanent job losses.”

Brusuelas said the political wrangling over benefits means there
will be no deal until halfway through August at the earliest, with
an additional few weeks required to get the unemployment system
back up to speed to handle whatever agreement lawmakers can make.
“While we anticipate that Congress will approve a fifth round of
fiscal aid to support the economy as the pandemic intensifies,” he
said, “it is now clear that this aid will not be put in place in
time to prevent an ‘air pocket’ in the economy later this
summer.”

Mark Zandi, chief economist at Moody’s Analytics, told Politico
that the failure to act quickly could bring the recent recovery to
an end. “The economy bounced back in May and June but it’s now gone
sideways and I would not be surprised to see a net job loss in
July,” Zandi said. “I don’t expect the economy will go anywhere
until the pandemic is over and there is a widely adopted vaccine.
And if lawmakers wait more than a week or two to act there’s a very
good chance we are back in recession.”

Democrats are generally aligned with the mainstream economic
view and warn that ending the jobless payments could have dire
consequences for the economy and for millions of families reliant
on the aid. Rep. Don Beyer (D-VA) looked to John Steinbeck to make
the point in more literary terms. “So far we’ve avoided the 'Grapes
of Wrath' scenario of millions of Americans going hungry — of
people losing their homes, people losing their cars, people just
desperate,” Beyer
told Politico. “That’s what we’re facing if we
don’t re-up the unemployment insurance.”

In sharp contrast, many Republicans say that the generous
unemployment benefits themselves are a contributing factor to the
slowing recovery, and maintain that the economy would be stronger
without them. Earlier this week, Sen. John Barrasso (R-WY) summed
up the view, saying that the $600 per week increase in benefits
acted as a “heavy wet blanket on our economy” that discourages
“people from getting back on the job.” Sen. John Cornyn (R-TX) put
it more bluntly: “We should never pay people not to work.”

Outside White House adviser Stephen Moore hammered the theme
this week. “These benefits are not a ‘life preserver,’ but a job
killer,” Moore said Thursday. “Our studies find that these high
benefits will mean 10 million fewer workers on the job by the end
of the year, thus killing any chance of a ‘V-shaped recovery.’”

What’s next: Republicans first have to agree on their own
proposal before they can start negotiating with Democrats. One
significant hurdle Republicans have to clear is the inability of
state unemployment systems to handle the complicated analyses
required to link unemployment benefits to income. Slashing the
weekly payment to a flat $200 may serve as a backup plan.

The GOP senators also have to agree on an overall price tag for
the coronavirus package, of which unemployment aid is a significant
component. Senate Majority Leader Mitch McConnell (R-KY) is facing
increasing pressure from fiscal conservatives to limit the cost of
the proposal. At the same time, lawmakers facing tough reelection
battles and plunging poll numbers may be more interested in a more
robust aid package, with a higher price tag. “This may be
McConnell's toughest challenge as majority leader," conservative
economist Brian Riedl
told NBC News.

Once Republicans agree on their approach, they then have to
hammer out a deal with Democrats, who will push for more
substantial support for the unemployed and much higher spending in
the relief package.

Given the many constraints, the negotiations could take some
time. McConnell said he could see the process dragging on well into
next month. “Hopefully we can come together behind some package we
can agree on in the next few weeks,” he
said Friday at an event in his home state.

Layoffs Loom as Small Business Loans Run Out

Small business aid is likely to be another important component
in the next coronavirus relief bill. Lawmakers are expected to
extend the $660 billion Paycheck Protection Program, which provides
forgivable loans to small business owners, with the goal of keeping
workers on the payroll. The PPP still has more than $100 billion to
loan, and Congress may add more to the fund while extending the
deadline for participation.

However, some economists and business owners are questioning the
design of the program, which was intended to provide a short-term
bridge across a brief recession. Now, as the economic slowdown
persists, some small business owners are finding that their loans
are running out before their revenues have recovered, forcing them
to lay off workers once again.

One small business owner described the program to The Washington
Post this way: “It was just a Band-Aid on a bullet wound. All it
really did was prolong the agony of having our workers file for
unemployment.”

Diane Swonk, chief economist at Grant Thornton, told the Post
that policymakers made a mistake with the program’s design. “It was
the wrong bet. This wasn’t just a transitory event.”

One possible solution under consideration is to change the rules
and allow small businesses to take out a second loan through the
program. But the bigger and more disturbing question remains: What
if millions of small businesses are unable to survive until the
economy recovers, a process that could take years?

For more details on the PPP and small business owners struggling
around the country,
see The Washington Post story here.

Trump Signs Executive Orders on Drug
Pricing

President Trump signed a set of executive orders Friday aimed at
lowering drug prices. The orders would require discounts on insulin
and EpiPens that some hospitals receive to be passed onto
consumers; allow wholesalers and pharmacies to import drugs from
Canada; eliminate some types of rebates provided by middlemen; and
tie some Medicare drug prices to the prices paid in other
countries.

The orders are not expected to have an immediate effect,
however, with regulatory issues delaying them possibly until after
the election. Trump also said he would delay the order on Medicare
drug prices for a month in order to give pharmaceutical executives
an opportunity to propose an alternative.

Even so, the National Association of Manufacturers kicked off an
ad campaign Friday that takes aim at the proposed price limits.
“Want to lower drug costs? Some in Washington wrongly think price
controls are the solution. Price controls dictated by other
countries are a hidden tax on manufacturers that harms innovation,
competitiveness and investment in new cures,” the ad
says.

Number of the Day: 12.3 Million

A moratorium on evictions provided by the CARES Act expires
Friday. “In late March, the national stimulus legislation put in
place a moratorium of 120 days on specific types of properties,
including those with federally backed mortgage loans,”
says Scott Helberg of RSM. “According to the Urban
Institute, over 12.3 million units were protected, amounting
to 28.1% of the total rental housing stock nationwide.”

Although state and city regulations will continue to protect
tenants in some of those properties, local courts are expected to
see an influx of eviction filings in the coming weeks following the
expiration of the federal rules.

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