More Stimulus Checks May Be Coming Soon

More Stimulus Checks May Be Coming Soon

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Plus, where are interest costs heading?
Wednesday, December 16, 2020

More Stimulus Checks May Be Coming Soon: Congress Closes In on Covid Relief Deal

They’re getting close.

After stumbling through months of partisan deadlock, congressional leaders said Wednesday that they are nearing agreement on a pandemic-relief package.

They might actually get this done:
While details of the deal were not yet final, the roughly $900 billion agreement coming together would likely include $300 a week in enhanced federal unemployment payments through March and $600 to $700 in direct payments to Americans, Senate Majority Whip John Thune (R-SD) told reporters.

The package would reportedly also provide about $325 billion in small business relief, including $257 billion for the Paycheck Protection Program of forgivable loans, as well as billions of dollars for coronavirus vaccine distribution and schools.

No liability shield or state and local aid:
The deal reportedly omits the liability protections Republicans have sought or dedicated aid for state and local governments that Democrats have demanded, two provisions that have been the most contentious throughout negotiations. The new round of stimulus checks will cost about $140 billion, Sen. Mark Warner (D-VA) told MSNBC, meaning the cost is roughly on par with the $160 billion in aid to state and local governments that had been proposed as part of a $908 billion compromise framework put forth by a bipartisan group of lawmakers.

Republicans have pressed to keep the cost of any additional Covid aid below $1 trillion. Democrats said that that while the package leaves out funding for state and local governments, it would still deliver aid to states in other ways.

Timing still in question:
The progress comes after congressional leaders met in person Tuesday and continued their talks Wednesday as they race to finalize the coronavirus package and a $1.4 trillion federal spending bill before current government funding expires on Friday.

“We made major headway toward hammering out a targeted pandemic relief package that would be able to pass both chambers with bipartisan majorities,” Senate Majority Leader Mitch McConnell said Wednesday morning in a speech on the Senate floor. “We committed to continuing these urgent discussions until there’s an agreement. And we agreed we should not leave town until we’ve made law.”

But negotiators were still haggling over various details of the plan. One reported sticking point is a Democratic push to increase the Federal Emergency Management Agency matching rate for Covid-19 disasters from 90% to 100%, according to Bloomberg News. Democrats say the change would cost $1 billion, but Republicans say it would cost $90 billion, based on the proposed legislative language, and object to what they see as an attempt to funnel more money to state and local governments.

While the House could still vote on a deal as soon as Thursday, the timeline could slip, requiring a Senate vote over the weekend — and, potentially, another short-term extension of federal funding to avoid a partial government shutdown after midnight on Friday. "If we don’t get done by Friday night, I don’t want to shut down government," House Majority Leader Steny Hoyer (D-MD) said, according to Politico. "If we need three or four more days, we’ll take the time that’s necessary."

The politics at play:
Both sides have plenty of incentive to finalize a deal before they head home — and election politics are still part of the equation. McConnell reportedly told Republican senators on a call Wednesday that passing a relief deal will help GOP Senators David Perdue and Kelly Loeffler of Georgia as they head for January 5 runoff elections that will determine control of the Senate. In campaigning for Democratic candidates Jon Ossoff and Raphael Warnock on Tuesday, President-elect Joe Biden said he needs “two senators from this state who want to get something done, not two senators who are just going to get in the way.”

More signs the economy needs help:
U.S. retail sales fell 1.1% in November, the Commerce Department said Wednesday, marking the first drop since the spring. “Economists said the decline was a ‘warning sign’ that the economy was entering a rough patch and in need of a jolt from another round of government stimulus,” The New York Times reports.

Nearly 8 million Americans have fallen into poverty since June, according to data released
Wednesday by researchers at the University of Chicago and the University of Notre Dame, driving the poverty rate up 2.4 percentage points to 11.7%. And newly released Census Bureau survey data from late November and early December show that 85.4 million American adults, or 35.6%, report having trouble paying for basics such as food, medicine and rent, up from 76.5 million, or 31.9%, in early September.

What it all means:
A deal now appears all but certain. The price tag being discussed amounts to nearly double what Republicans had proposed but far less that the $2 trillion or more that House Speaker Nancy Pelosi had sought for months. Still, while the cost of the package has come down, it would still be the second largest emergency spending package in U.S. history, behind only the CARES Act passed in March. And lawmakers are expected to renew their debates on state and aid a liability shield in the new year.

Biden reiterated Wednesday that more aid will be needed. “The stimulus package is encouraging. Looks like they’re very, very close and it looks like there are going to be direct cash payments,” he told reporters. “But it’s a down payment, an important down payment on what’s going to have to be done at the end of January, the beginning of February.”

Reviving the Pandemic Economy

With the U.S. economy headed for another slowdown as the coronavirus surges to record levels, The New York Times gathered a group of experts “to debate the priorities for economic policy in the months and years ahead.” Topics included the damage the pandemic is causing to the economy, the size of the coronavirus stimulus package, and what to do with the trillions in new debt being issued to help fight the recession.

Some highlights from the discussion:

It’s going to be a bleak winter: “We’re about to have a crater, again, sort of like we had in the second quarter. It’s going to be very serious. And we need to sort of bridge to the other side of that.” – Kevin Hassett, former chair of the Council of Economic Advisers under President Trump.

The economy has a big hole to fill: “By my estimate the gap between where GDP is going to be in 2021 and where it would have been if we had stayed on the path where we were pre-pandemic ... is about a trillion dollars next year without more fiscal relief, and I think it will be about a half trillion dollars in 2022. So, for us to fill that hole and get us back onto the pre-pandemic path by the middle of next year, we need a package of about $2 trillion.” – Wendy Edelberg, senior fellow at the Brookings Institution.

Infrastructure is a good place to start: “[Infrastructure investment] has the advantage that it touches upon many of the subjects that we discuss here — in the ways that you can do it, in terms of bringing additional wealth equality and things like that. There are the obvious things, which everybody mentions when they think about infrastructure, which are roads, tunnels and things like that. I think that you have to add our I.T. infrastructure, which in the pandemic we saw how reliant we are on it and how those gaps really come back to haunt us, for the business community, for the educational community, for all sectors of society and the economy.” – Félix V. Matos Rodríguez, chancellor of the City University of New York.

It's time to borrow more, and deal with the debt later: “Responsible fiscal policy is borrowing like crazy right now. Things that are targeted, things that are smart, to goose the economy. But once we stabilize the economy, be willing to bring that debt back down so it’s not growing faster than the economy.” – Maya MacGuineas, president of the Committee for a Responsible Federal Budget.

Chart of the Day: Looking at Interest Costs

How much will the growing pile of national debt cost the federal government in the years ahead? The answer depends in large part on what happens to interest rates, as a new analysis released by the Congressional Budget Office illustrates.

In its latest report, the CBO projects rising interest rates by the end of the decade: “Over the long term, CBO projects a substantial increase in interest costs, in part from a projected rise in interest rates. Because debt is already high, even moderate increases in interest rates would lead to significantly higher interest costs. Moreover, federal borrowing is projected to rise significantly, further driving up interest costs.”

Relative to the size of the economy, interest costs are projected to rise from the current 1.4% of GDP to 2.2% of GDP by 2030 — a level that is “generally in line with the 50-year average of 2.0 percent.”

Deficit hawks warn that it’s extremely risky to bet that interest rates won’t rise, and that if rates rise even slightly more than projected, the long-term costs would be tremendous.

However, as critics have long pointed out, CBO’s track record on interest rate projections is pretty bad, and the new report admits as much: “CBO’s forecasts of interest rates have exhibited larger mean errors than its forecasts of other economic indicators. In particular, CBO has overestimated interest rates during their persistent downward trend that began in the early 1980s.”

CBO could be wrong in the same way again, as some economists argue, and interest rates could remain stuck at historically low levels for years to come. If so, interest costs for the federal government could continue to fall (see the bottom line in the chart below).

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