Stimulus Failure Sets Up Post-Election Clash
With a coronavirus relief bill now pushed to the back burner, it looks like Congress will have to address two major fiscal issues in the lame-duck session following Election Day: the roughly $2 trillion relief package still being hashed out by House Speaker Nancy Pelosi (D-CA) and Treasury Secretary Steven Mnuchin, and legislation to prevent the government from shutting down when a stop-gap funding deal expires on December 11.
As Roll Call’s Jennifer Shutt reports Wednesday, lawmakers kept the stimulus and government funding packages separate earlier this year, with Congress successfully passing a bill at the end of September that extended funding for the federal government until mid-December. But in the lame-duck session following the election, that may change.
Pelosi has signaled that the two issues may end up being addressed at the same time. “In the lame duck we’ll have to pass stimulus or we’ll have to put provisions in the appropriations bill to keep government open,” she said earlier this month.
Trouble ahead? President Trump has predicted that he will sign “the best stimulus package you’ve ever seen” after the election, but there are serious questions about how those negotiations could play out, with much depending on how things go at the ballot box. If Trump loses, it may be difficult if not impossible to come up with a deal, given the president’s sometimes erratic behavior, which could become more pronounced following a bruising defeat. (“He throws fits almost every day as it is; it'd be hard to tell the difference,” Sen. Patrick J. Leahy, a Vermont Democrat, said last week.)
If conditions in Washington — including a Republican-controlled Senate that has shown little interest in passing another multi-trillion-dollar relief bill — make it impossible to pass a stimulus bill in the lame-duck session, lawmakers may follow Pelosi’s lead by including crucial relief spending such as unemployment aid and small business loans in the government funding bill.
That may simply set up another clash, with lawmakers fighting over funding levels for both the government and the relief package. House Republicans opposed the inclusion of $250 billion in pandemic relief funds in the stop-gap funding bill a few months ago, and while some have signaled that they would be willing to change their minds, negotiating final numbers could be difficult and time consuming — a particularly challenging task during a lame-duck session.
Threat of a shutdown: A major clash between the two sides could result in a government shutdown. “If party leaders and the White House can’t reach agreement on at least another stopgap measure before Dec. 11, a partial government shutdown would begin,” Shutt says. “That would be more disruptive than the 35-day shutdown in late 2018 and early 2019 that began over a border wall funding dispute.”
Another way out: G. William Hoagland of the Bipartisan Policy Center tells Shutt that he doesn’t think Congress will pass either a relief package or a full government funding bill this year. “It's too much too quickly,” he said. But that doesn’t mean a shutdown is likely. Instead, Congress could follow the time-honored tradition of punting on a difficult issue by passing another stop-gap funding bill, sweetened with a little bit of relief spending. “Something in my gut tells me it's a continuing resolution with an adjustment for COVID,” Hoagland said.
What Trump and Biden Would Mean for Social Security
After years of warnings about the financial challenges facing Social Security, the coronavirus pandemic and its economic effects mean that the time to get serious about ensuring that full benefits keep flowing is now, writes Tara Siegel Bernard in The New York Times: “If nothing is done to shore up the program, all benefit checks would need to be cut by roughly one-quarter in perhaps 11 years — or, if the recession is protracted and severe, maybe even sooner.”
Siegel Bernard notes that President Trump has talked about terminating the payroll tax the funds Social Security and having the program funded through the general budget, though the White House says that he only meant he wants to forgive payroll taxes deferred under an executive action he announced in August.
Experts warn that, while eliminating the payroll tax is unlikely, any such change would represent a monumental shift that could undermine Social Security. “We have a very crowded budget as it is,” Shai Akabas, economic policy director at the Bipartisan Policy Center, tells the Times. “And having Social Security in the mix with everything else puts the program at risk in the future.”
Joe Biden, meanwhile, has proposed expanding both the payroll tax and benefits. The 12.4% tax, split between employers and employees, currently applies to the first $137,700 in earnings. Biden would have it also apply to earnings above $400,000 a year — and, as Siegel Bernard notes, because the $137,700 cap is set to rise with inflation, the tax would eventually apply to all income up to $400,000.
“What is commendable about Biden’s plan is that he actually has one, taking the financial challenges facing Social Security seriously,” Richard Johnson, director of the program on retirement policy at Urban Institute, a nonprofit think tank, told MarketWatch recently.
An analysis published this month by Johnson and his colleagues at the Urban Institute found that Biden’s proposals would close about a quarter of Social Security’s long-term funding shortfall and add about five years to the expected life of the trust funds. The analysis also projected that Biden’s proposals would cut the poverty rate for adult Social Security beneficiaries by more than half over the coming decades.
Critics note that Biden’s proposals don’t factor in the impact of the pandemic — and don’t do much to solve Social Security’s long-term problems. “Social Security would become insolvent in 2040 instead of 2035,” Andrew Biggs of the American Enterprise Institute wrote in The Wall Street Journal earlier this month. “Further tax increases would surely be demanded down the road.”
Akabas of the Bipartisan Policy Center told the Times that action is needed now to avoid more painful changes — bigger tax increases or cuts — down the line. “The longer we wait to fix the problem,” he said, “the fewer people who can play a role in the solution.”
Read more at The New York Times, MarketWatch or the Urban Institute.
Quote of the Day
“No central bank wants to admit that it’s out of firepower. Unfortunately, the U.S. Federal Reserve is very near that point. This means America’s future prosperity depends more than ever on the government’s spending plans — something the president and Congress must recognize.”
– Bill Dudley, former president of the Federal Reserve Bank of New York, writing at Bloomberg Wednesday.
Number of the Day: $14 Billion
The 2020 elections are by far the most expensive in U.S. history, with total spending projected to reach $14 billion, double the previous record set in 2016 (even after adjusting for inflation), according to estimates from the nonpartisan Center for Responsive Politics.
“In fact, this year’s election will see more spending than the previous two presidential election cycles combined,” the center said Wednesday. “The massive numbers are headlined by unprecedented spending in the presidential contest, which is expected to see $6.6 billion in total spending alone. That’s up from around $2.4 billion in the 2016 race.”
Eight of the 10 most expensive Senate races ever are also taking place this year.
- New Polling Shows How the Pandemic Is Hobbling Trump’s Reelection Chances – Philip Bump, Washington Post
- That Big GDP Number Won’t Be as Big as It Sounds – Justin Fox, Bloomberg
- Sarah Kliff Grades Biden’s and Trump’s Health Care Plans – Vox (podcast)
- Joe Biden’s Health-Care Plan Is More Than a Half-Century in the Making – Guian McKee, Washington Post
- Trump vs Biden on Medicare: How Each Wants to Modify the Insurance Program – Sarah O’Brien, CNBC
- IMF in Fiscal Policy Fantasyland – Desmond Lachman, The Hill
- The Fed Is Really Running Out of Firepower – Bill Dudley, Bloomberg
- Surprise: Biden and Trump Both Back a Modest Middle-Income Tax Cut – Howard Gleckman, Tax Policy Center
- Permanently Extending the Tax Cuts and Jobs Act, President Trump Would Cut Taxes by $1.1 Trillion Through 2030 – Robert McClelland and Mark J. Mazur, Tax Policy Center
- The Spectre of Pension Failures Haunts This Election – Karen Friedman, The Hill
- Biden Wants to Restore Democracy. He Won’t Be Able to Without Fixing Capitalism – Roger McNamee, Washington Post
- Stop Waiting on New Covid-19 Treatments. Wear a Mask – Max Nisen, Bloomberg
- Many Americans Still Don't Have Internet Access — Congress Should Help – Chris Shelton and Angela Siefer, The Hill
- Nationalization of 5G Is Not the Way Forward – Sen. Marsha Blackburn (R-TN), The Hill