More Stimulus Checks May Be Coming Soon

By Yuval Rosenberg

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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