A Coronavirus Depression??

A Coronavirus Depression??

Printer-friendly version
Plus: A $1 trillion stimulus may not be enough
Friday, March 20, 2020

Senate Leaders Scramble for Deal on Massive Stimulus Plan

Top lawmakers and the White House scrambled Friday to negotiate a massive, bipartisan stimulus package to address the widespread economic fallout of the coronavirus pandemic, aiming to bridge some deep divisions on specific proposals. The negotiators hope to reach a deal before an ambitious end-of-day deadline set by Senate Majority Leader so that the bill can be ready for a vote on Monday.

McConnell took procedural steps Friday to prepare for that vote.

The negotiations are reportedly being conducted by four bipartisan task forces covering rebates and tax breaks to help individual Americans; aid for small businesses; health care issues; and relief for specific industries most affected by the crisis.

Stimulus likely getting bigger: The package being negotiated is reportedly likely to exceed the $1 trillion cost of the Senate GOP plan released Thursday evening, with both lawmakers and the White House reportedly pushing to make it bigger and to change the structure of the direct payments to Americans laid out in the Senate proposal.

Treasury Secretary Steven Mnuchin reportedly has been pressing to spend more on direct payments to Americans while Democratic leaders also are looking to spend more on workers as well as hospitals and other health-care facilities. Democrats reportedly are pushing to bolster unemployment insurance for workers who are furloughed or laid off as businesses close or scale back.

As of Friday afternoon, Sen. John Thune (R-SD) said two main sticking points remained in the talks: whether or not to bolster unemployment insurance and funding for hospitals, according to The Hill.

Pushback on smaller payments for the poor: The 247-page coronavirus relief package unveiled by Senate Republicans on Thursday, called the CARES Act, would provide payments of up to $1,200 per person and $2,400 per married couple. Those payments would phase out for those earning between $75,000 and $99,000, based on 2018 tax returns, with individuals earning over $99,000 and married couples making more than $198,000 not eligible. But people with incomes up to $2,500 would get a minimum payment of $600 (or $1,200 for couples).

That regressivity drew bipartisan scorn. “We are beginning to review Senator McConnell’s proposal and on first reading, it is not at all pro-worker and instead puts corporations way ahead of workers,” Pelosi and Schumer said in a joint statement Thursday night. GOP Sens. Mitt Romney of Utah and Josh Hawley of Missouri were also among those criticizing the regressivity of the direct payments. “The current bill has promise but it shouldn’t give lower earners smaller checks,” Romney tweeted. “We need to fix this to ensure lower earners get equal payments.”

The final package is reportedly likely to ensure poorer Americans don’t receive smaller payments.

President Trump, at a White House briefing Friday, said that the direct payments Americans would be “much more” than $1,000 and that he’d be open to coming back to Congress for more. “I want to get workers money,” he said, adding that if more stimulus is needed, “we’ll do something later, I’m sure.”

Why a Coronavirus Stimulus of More Than $1 Trillion May Not Be Enough

As Congress scrambles to prepare a package of $1 trillion or more to help counter the vast economic destruction of the coronavirus pandemic, a growing chorus of economists is warning that much more will be needed.

“They should be doing much more than they are thinking about and doing it much quicker, at least $2 trillion with the promise of more to come,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, tells Politico’s Ben White.

He adds: “This will be the biggest economic hit that any developed economy has ever seen outside wartime.”

The risk of doing too little: The economic toll of the pandemic is growing by the hour as efforts to prevent the spread of the virus force more and more businesses to cut back or close altogether. California Gov. Gavin Newsom on Thursday ordered the state’s nearly 40 million residents to stay home except for essential purposes. Illinois Gov. J. B. Prtizker is expected to issue a similar order to take effect Saturday. And New York Gov. Andrew Cuomo on Friday ordered all non-essential workers to stay home. New York City’s typically bustling Times Square now resembles a ghost town.

Economists expect jobless claims to quickly soar into the millions.

“Given the sharp rise in unemployment we will likely see in coming weeks, there is an enormous risk that our fiscal policy response will be too small to cushion the blow to individuals and families or to significantly affect the downward trajectory of the economy,” the left-leaning Center on Budget and Policy Priorities said in a report published Thursday. “The risk of an inadequate response — resulting in significant hardship to families that can’t make ends meet and a considerably deeper and longer recession — vastly exceeds the risk of doing ‘too much.’”

Expecting the pandemic to persist: The concern isn’t just the size of the hit, but how long it may last.

Torsten Slok, chief international economist at Deutsche Bank Securities, tells Politico that a $1.2 trillion stimulus would only cover about two to three weeks of economic activity — not a more protracted economic downturn in which small businesses are forced to shut down and mass layoffs from companies small and large leave millions of workers without income.

Former Minneapolis Federal Reserve President Narayana Kocherlakota warns in a Bloomberg column that the economic drag from the pandemic could last well into next year.

“Responding to this kind of protracted slowdown will require a bigger stimulus than the 6% of gross domestic product proposed by the administration. Instead, policy makers should be planning for two years in which, in the absence of a fiscal intervention, the output gap will be significantly negative -- possibly as much as 6% of GDP, or on the same scale as the recession caused by the 2008-09 financial crisis. It’s going to take a much larger fiscal infusion to make up for that shortfall -- something more on the order of $2.5 trillion rather than $1.2 trillion.”

Goldman Sachs Forecasts Stunning Drop in Economic Activity

Economists at Goldman Sachs are forecasting a 24% drop in gross domestic product in the second quarter, according to a research report released Friday.

The stunning drop is expected to follow a 6% contraction in the first quarter, the analysts said, and will be followed by a gradual return to growth in the rest of the year, with 12% growth in the third quarter and 10% growth in the fourth. (All rates are on an annualized basis.)

All told, that would put full-year growth at -3.8% in 2020.

“Over the last few days social distancing measures have shut down normal life in much of the US,” the economists said. “News reports point to a sudden surge in layoffs and a collapse in spending, both of which appear to be historic in size and speed. We are therefore making further large downward revisions to our economic forecast.”

In a separate report, analysts at Bank of America asked Eric Feigl-Ding, an epidemiologist and health economist at Harvard University, for his outlook on the likely duration of the Covid-19 crisis in the U.S. "Americans do not understand what has happened in Wuhan and the rest of China,” Feigl-Ding said. “Some Americans think everything is going back to normal in a month, and that is delusional. The US doesn't have the manpower for the containment and contact tracing/quarantine approach [used in China]. We are not looking at a one month recession but a 2-3 month depression at least."

Tax Filing Deadline Pushed Back to July 15

The IRS will delay the federal tax filing deadline by three months, Treasury Secretary Steven Mnuchin said Friday.

“We are moving Tax Day from April 15 to July 15,” Mnuchin said in a tweet. Filers will have until July 15 to file and pay taxes, with no interest or penalties. The delay is capped at $1 million in taxes owed for individuals and $10 million for businesses. Taxpayers who are owed refunds are encouraged to file sooner.

The announcement updates an earlier plan that would have delayed the payment deadline by three months but still required taxpayers to file their forms by April 15.

The Treasury secretary has said that the delay will add as much as $300 billion in liquidity to the economy, providing individuals and businesses with a cash cushion as they struggle with the dramatic slowdown caused by the coronavirus pandemic.

Your Prize for Making It Through the Week

Looks like we’re going to be spending a lot more time at home. Fast Company has rounded up some of the funniest memes about our new way of working. And if we’re going to be stuck indoors, these guides to the best movies, tv shows, podcasts and books from The New York Times, Politico, The AtlanticVulture and Boston Magazine may help us get through it.

We hope you're staying safe! Send your questions, tips and feedback to yrosenberg@thefiscaltimes.com. And please tell your friends they can sign up here for their own copy of this newsletter.


Views and Analysis