Pelosi's $3 Trillion Stimulus Plan

Pelosi's $3 Trillion Stimulus Plan

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Plus: a record April deficit
Tuesday, May 12, 2020

Pelosi Unveils $3 Trillion Stimulus Plan

House Speaker Nancy Pelosi says she has been encouraged to “think big” for the next coronavirus relief package, and it looks like she has taken that advice to heart. House Democrats on Tuesday released the Health and Economic Recovery Omnibus Emergency Solutions Act — or HEROES Act — and it comes with a very big price tag: $3 trillion.

If passed, the bill would become the largest piece of legislation in U.S. history.

The bill — all 1,815 pages of it — may pass the House when it comes up for an expected vote on Friday, but there’s little chance it will become law any time soon. Senate Majority Leader Mitch McConnell, who says Republicans want to “take a pause” on further efforts to provide relief in the midst of the coronavirus crisis, gave the new bill a cool reception, describing it as a little more than a “big laundry list of pet priorities.” A spokesman for Senate Finance Chairman Chuck Grassley (R-IA) said the legislation is "DOA in the Senate.”

Pelosi defended the bill and its unprecedented cost. “We must think big for the people now because, if we don’t, it will cost more in lives and livelihoods later,” she said. “Not acting is the most expensive course. We face the biggest catastrophe in our nation’s history.” She noted that low interest rates, which have helped Wall Street rebound, can be taken advantage of to fund the proposed programs, which aim to help ordinary Americans.

Some highlights from the bill:

  • A second round of $1,200 stimulus checks for both adults and children, with a $6,000 limit per household;
  • The $600-per-week supplement for unemployment benefits extended through January;
  • $540 billion for state governments, including Washington D.C. and tribal territories;
  • $375 billion for local governments;
  • $200 billion to provide hazard pay to essential employees, including health care workers;
  • $175 billion to help renters and homeowners cover housing costs;
  • $75 billion for testing and tracing efforts;
  • $25 billion for the U.S. Postal Service;
  • $10 billion for the Economic Injury Disaster Loan program that provides grants to small businesses;
  • $3.6 billion to beef up federal election infrastructure;
  • Two-year rollback of the $10,000 limit on state and local tax (SALT) deductions.

Disappointment on the left: Leaders of the progressive wing of the Democratic Party charged that the bill doesn’t go far enough to help Americans struggling with an economic crisis. For example, Reps. Pramila Jayapal (D-WA) and Mark Pocan (D-WI) had pushed for a “Paycheck Guarantee” program to be included in the bill, but it was reportedly left out by Ways and Means Committee Chairman Richard Neal (D-MA) on the grounds that it would be too complicated and expensive, with a cost of $600 billion over six months.

Still, progressives are expected to support the legislation, heeding Pelosi’s recent assertion that “we can't do everything in this bill.”

Skepticism on the right: Republicans reiterated their view that it’s time to stop and assess the previous relief efforts. "I don't think there’s any sense of urgency until we see how some of these programs that are already authorized and funded are working, and it seems like, at least right now, they’re working pretty well," Sen. John Thune (R-SD) said Tuesday.

What comes next: The bill is best seen as an opening offer from Democrats, who are hoping to pass another massive round of coronavirus relief spending. Negotiations with reluctant Republicans could stretch on for weeks, though, and there’s good reason to think that the final relief package will end up looking quite different than the HEROES Act introduced Tuesday.

April Deficit Soared to Record $737.9 Billion Thanks to Covid Relief

The U.S. government’s budget deficit for April rose to a record $737.9 billion, the Treasury Department said Tuesday, as spending surged and tax receipts plunged due to the coronavirus pandemic and economic shutdown.

As we noted here last week, the federal budget typically runs a surplus in April as tax payments come in mid-month. Last April, the government recorded a surplus of $160.3 billion. But with the tax filing deadline pushed to July 15 this year — and with the devastation in labor market resulting in tax withholdings from employee paychecks also falling — total tax receipts fell nearly 55%, to $241.9 billion. Withheld individual income taxes fell by more than 30% compared with April 2019, from $113.9 billion to $79.6 billion.

Spending, meanwhile, jumped by more than 250% to $979.7 billion, driven by coronavirus relief efforts, including $217 billion in Economic Impact Payments to individuals and families.

For the first seven months of fiscal year 2020, the budget deficit was nearly $1.5 trillion, up from $530.9 billion for the same period last year. The Congressional Budget Office has estimated that the deficit for the full year will total $3.7 trillion, or about 18% of gross domestic product, with federal debt held by the public rising to 101% of GDP by the end of September.

Chart of the Day: Debt Soars, Treasury Yields Don't

“Simple laws of supply and demand suggest that when there’s an abundance of something, the price of that thing falls,” says Jared Dillian at Bloomberg, before noting an apparent exception to the rule: “The bond market seems to have been the exception, with yields — which move inversely to bond prices — having steadily declined to next to nothing despite the amount of U.S. marketable government debt outstanding having risen to $18.5 trillion from less than $5 trillion before the financial crisis.”

Dillian speculated Tuesday about whether the enormous increase in supply of Treasuries in the coming months will overwhelm demand, forcing interest rates higher — a “black swan” event that would have enormous implications for the cost of servicing the U.S. national debt. So far, though, as the chart below indicates, there are few signs of that happening, with interest rates remaining near record lows.

Tweet of the Day: Trump Calls for Negative Rates

Those historically low rates aren’t good enough, according to President Trump, who has long expressed his belief that the U.S. should pay negative interest on its debt. Trump reiterated that desire in a tweet on Tuesday, calling negative rates a “gift” the United States should accept. Federal Reserve officials have expressed skepticism about negative rates.

Quote of the Day: Looking to Year Two

“The first year is not the worst in any crisis. It’s the second year where you have to do the harder stuff, and spending is usually easier to cut than taxes are to increase.”

– Tracy Gordon, senior fellow at the Urban-Brookings Tax Policy Center, discussing the choices states could face as they contend with revenue shortfalls, as quoted in a New York Times article about potential long-term economic damage from the coronavirus recession in both the private and public sectors. The Times’s Neil Irwin and others note that state and local governments face a funding crisis that could last for years, creating another obstacle in the effort to return to pre-crisis levels of growth.

Op-Ed of the Day: Primary Care After Covid-19

Michael L. Barnett is a primary care doctor at Brigham and Women’s Hospital in Massachusetts and an assistant professor of health policy and management at the Harvard T.H. Chan School of Public Health. He writes in today’s Washington Post that the pandemic is changing assumptions and providing new insights into how primary care can work without traditional office visits: “Across the country, covid-19 is providing a vivid illustration that not every patient needs to be seen in person for every health-care issue,” he writes. “Good riddance. The dominance of the office visit, driven purely by how we pay for health care, distorts so much of what doctors do.”

While office visits and in-person interactions between doctor and patient will obviously always be essential, the pandemic is demonstrating just how much can be done in other, less cumbersome or costly ways:

“Healthy patients can mostly be managed by phone, or even with occasional patient portal messages. Much preventive care, including screening for colon cancer or even cervical cancer, can happen at home. Patients with chronic illness can use common devices such as home blood pressure cuffs and glucose monitors to gather basic data. And up to one-third of referrals to specialists could be resolved with ‘eConsults’ without an additional appointment. All of this is possible with the right payment system that rewards doctors for providing the level of care that patients need, not what insurance will pay for.”

Read the full piece at The Washington Post.

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