Trump's Big U-Turn: A $1.8 Trillion Stimulus Offer

Trump's Big U-Turn: A $1.8 Trillion Stimulus Offer

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Plus, the cost of interest on the national debt
Friday, October 9, 2020

Trump's Big U-Turn: A $1.8 Trillion Stimulus Offer

He calls her a “nut job.” She questions his mental health. Together, they have to work out a roughly $2 trillion package to rescue the economy.

It might sound like a pitch for the worst rom-com ever, but it’s actually, sadly, the current state of affairs between President Trump and House Speaker Nancy Pelosi.

Just days after cutting off negotiations on a comprehensive coronavirus relief package, Trump on Friday appeared as eager — or desperate — as ever to get a deal done, tweeting: “Covid Relief Negotiations are moving along. Go Big!” Later, in a phone interview with Rush Limbaugh, Trump said: “I would like to see a bigger stimulus package than, frankly, either the Democrats or the Republicans are offering.” The president acknowledged that his latest position is “the exact opposite” of his previous one.

The White House, reportedly scrambling to revive the talks that appeared dead earlier this week, put together its largest proposal yet for Treasury Secretary Steven Mnuchin to present to Democrats, a $1.8 trillion package, up from an earlier $1.6 trillion.

The package, approved by Trump, isn’t bigger than what Democrats have offered. House Democrats last week passed a $2.2 trillion bill, and Pelosi has steadfastly refused to go below $2 trillion, so the two sides still have a way to go on both the overall cost of the package and, more importantly, many of the details.

The White House offer reportedly includes some $300 billion for aid to state and local governments, for example — an increase from earlier proposals but still shy of the $436 billion Democrats want. It also would reportedly extend the duration of the $400 in weekly enhanced unemployment benefits the White House has proposed and would provide $1,000 per child in direct payments, up from the $500 Congress provided in March.

“Today, the Secretary returned to the table with a proposal that attempted to address some of the concerns Democrats have,” Pelosi Deputy Chief of Staff Drew Hammill tweeted. “Of special concern, is the absence of an agreement on a strategic plan to crush the virus. For this and other provisions, we are still awaiting language from the Administration as negotiations on the overall funding amount continue.”

The big question:
Even as the negotiators make progress, reaching a deal and getting it passed into law are very different things, as Politico points out.

Senate Republicans, who haven’t been part of the ongoing talks, are nowhere near as eager as Trump now says he is to “go big,” with many firmly against a deal on the order of $2 trillion. “I’ve got a significant percentage of my members who think we’ve done enough and who are alarmed by the amount of national debt,” Senate Majority Leader Mitch McConnell (R-KY) said Thursday.

So even if the White House and Pelosi reach a deal, securing 60 votes in the Senate won’t be easy and time will be tight as the Senate prioritizes the confirmation hearings of Judge Amy Coney Barrett to the Supreme Court. “It’s going to be hard to get through the House with many Republican votes, and it could land in the Senate as late as the end of this month or on the doorstep of early November,” Politico suggests. “What do they do with a bill at that point? Probably ignore it.”

Trump could still change all that. He is reportedly now engaged in the process, reaching out to Republican senators to drum up support. “The direct involvement of Trump himself and his willingness to put down an offer far above the preferences of congressional Republicans adds a dynamic new element to long-stalled negotiations,” CNN’s Phil Mattingly and Ted Barrett wrote.

Even as Trump presses for action, though, McConnell on Friday cast doubt on the chances of something getting done as negotiators “elbow for political advantage” before the election. “I’d like to see us rise above that like we did back in March and April, but I think that’s unlikely in the next three weeks,” he said.

In the meantime, Trump and Pelosi are still questioning each other’s mental faculties, which may not matter but probably doesn’t help.

The bottom line:
Pelosi and Mnuchin have spoken every day this week and the negotiators reportedly plan on working through this weekend, and potentially through next weekend as well, to reach an agreement. So there’s a renewed sense of urgency to get a deal done and this week’s neck-snapping turns have yielded some genuine progress. But the chances of another stimulus bill passing before the election may not have shifted much.

Cost of Interest on National Debt Falls Despite Surging Deficit: CBO

The federal government estimates that it has paid billions of dollars less in interest on the national debt in the 2020 fiscal year, despite an increase in the size of the debt on an annual basis.

“Net outlays for interest on the public debt decreased by $46 billion compared with the same period in 2019,” the Congressional Budget Office said in its latest monthly budget review, released Thursday.

The reason for the decrease? “[L]ower interest rates and lower inflation more than offset the effects of a larger federal debt.” (H/t to former Council of Economic Advisers head Jason Furman for noticing this detail; we’ve replicated his marked-up chart from the CBO report below.)

The Wall Street Journal’s Kate Davidson also noted the reduction in outlays on interest: “Lower interest rates reduced the cost of servicing the debt in fiscal 2020, giving policy makers more capacity to finance the recovery effort. The yield on the 10-year Treasury note was 0.779% late Thursday, down from 1.732% a year ago.”

A long-term trend. Joseph Brusuelas, chief economist at the consulting firm RSM, said Friday that “long-term interest rates have undergone a profound structural shift that is likely to keep yields at extremely low levels in the near to medium term.” According to his firm’s model, the long-term downward pressure on interest rates will continue, keeping the 10-year Treasury below 1% through at least 2025 (see the chart below).

“Most important,” Brusuelas said, “our interest rate models imply that under current economic conditions, debt accumulation does not provide the outsized risk to the economic outlook through an interest rate shock, inflation and lower growth than previously thought.”

As a result, the U.S. likely has more room to spend as necessary to boost an economy still struggling amid the coronavirus pandemic. Or, as Brusuelas puts it: “the United States has the fiscal space to adopt the required policy changes to increase productivity and long-term growth.”

A new report from the Brookings Institution also makes the point:

"[T]he fact that rates are so low despite the recent increase in debt does mean that the amount of debt that the U.S. can easily sustain is a lot larger than people used to think. That means there should be much less fearmongering about the debt, and more focus on other national priorities. Furthermore, with interest rates this low, now is a great time to increase public investment, because there are likely many investments the government can make that will yield returns greater than the interest rate that will have to be paid on the debt. Such investments make future generations better off, not worse."

Health Care Stat of the Day: More Uninsured Children

The uninsured rate for children has been climbing every year of the Trump administration, according to a new report from the Center for Children & Families at Georgetown University.

“After reaching a historic low of 4.7 percent in 2016, the child uninsured rate began to increase in 2017, and as of 2019 jumped back up to 5.7 percent,” the report says. “This increase of a full percentage point translates to approximately 726,000 more children without health insurance since the beginning of the Trump Administration when the number of uninsured children began to rise. Much of the gain in coverage that children made as a consequence of the Affordable Care Act’s major coverage expansions implemented in 2014 has now been eliminated.”

RIP, Whitey Ford. The angels have put together quite a pitching rotation this year. Tom Seaver, Bob Gibson and now the Chairman of the Board. Tonight, another Yankees ace has a chance to become a legend. Will Gerrit Cole, he of the $324 million contract, send the Yankees to an ALCS matchup against his old Astros teammates? Oh, and LeBron James has a chance to bring a championship back to Los Angeles.

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