Standing on the Edge of the Fiscal Cliff
President Trump’s admission of the epidemic’s severity, a new fiscal bill emerging, & the end of enhanced FPUC benefits
Yesterday, President Trump held a coronavirus briefing for the first time since April to acknowledge how the outbreak has grown in its severity. He said that, “It will probably, unfortunately, get worse before it gets better.” He conceded that there were “big fires” occurring, and he encouraged social distancing and the use of masks when social distancing is not possible.
It seems now that all of Capitol Hill is finally embracing the fact that the virus will not be slowing down any time soon and that they need to implement policies that demonstrate substantial strength in their response to the pandemic.
Earlier this week, Senate Republicans and President Trump were smoothing out some of their differences for a new relief package, which may be their last shot at meaningfully addressing the pandemic and its effect on the economy before the November elections. The beginnings of these proposals and negotiations for the upcoming bill are already fraught with tension between the two parties. This bill, which would represent the Republicans’ opening bid, is estimated to be about $1 trillion when Democrats had vowed to accept no less than $3 trillion in May.
However, conflicting interests have also emerged within the Republican party itself. Some of the issues Republicans are facing in constructing this initial proposal is that President Trump has some ideas that congressional leaders are not aligned with such as funding for education on the resumption of in-person schooling and the removal of funding for testing and contact tracing.
As they work through those conflicts, Republicans likely will include programs such as tax breaks, direct payments, and jobless aid. Majority leader Senator Mitch McConnell said yesterday that he supports more direct payments to Americans.
However, Senator McConnell had previously suggested that these payments should be distributed only to those who make $40,000 or less. Republicans have also favored scaling back enhanced benefits from the additional $600 per week.
Yet, time is of the essence.
Americans know that enhanced benefits will be ending on July 31st. However, what they may not expect is that they most likely won’t be receiving that extra $600 next week. In a statement from the U.S. Department of Labor, it says, “The (Federal Pandemic Unemployment Compensation) $600 can be paid for weeks ending no later than the week ending prior to Friday, July 31, 2020… For all states except (New York), that is Saturday, July 25th. New York’s end date is Sunday, July 26th.”
In other words, that extra support that is helping unemployed households spend will vanish in a matter of days. More than 20 million Americans’ incomes will be cut in half—and maybe even more than that for some. Ernie Tedeschi, a former Treasury Department official and an economist at Evercore ISI Research, had estimated that if the enhanced benefits stopped, US GDP would be 2% smaller at the end of the year and 1.7 million jobs would be lost. Not only is the extra unemployment benefits supporting millions of Americans, they are also supporting other people, whose jobs would otherwise be on the line.
These enhanced benefits probably have had the most impact in terms of cushioning the economy during this pandemic, and taking them away, reducing them, or not renewing them in time would do more damage than good.