Joe Biden doesn’t take office for another 56 days, but he and House Speaker Nancy Pelosi should move ASAP to strike a deal with Republicans for another big economic relief package.
Why the rush? Why horse-trade now, after House Democrats stood firm for months on their $2.2 trillion stimulus plan while obstructionist Senate leader Mitch McConnell wouldn’t budge from his stingy $500 billion spending limit?
“Going big” on pandemic stimulus is good politics but bad economic policy — at least right now. The Democrats have refused to compromise progressive principles as they try to mitigate the damage caused by President Trump and the GOP’s botched response to the coronavirus crisis. That will only hurt the people Democrats are trying to help, and some party leaders are starting to realize it.
Come the end of December, the federal emergency unemployment checks that supported millions of families through the pandemic will disappear. Millions of small-business owners need a cash cushion as new restrictions are imposed across the country to slow the crush of COVID-19 cases. And the Treasury Department is slated to pull the plug on several Federal Reserve lending programs that could bolster small businesses and cash-strapped state and local governments during the rough winter months.
Meanwhile, the powerful economic recovery that took off in May is weakening. While a “double-dip” recession is hardly inevitable, the prospect of more financial pain for many of the most vulnerable Americans is certain without action by Congress.
“Speed is more important than size when it comes to the next fiscal rescue package,” said Mark Zandi, chief economist at Moody’s Analytics. “The economic recovery is struggling with the intensifying pandemic and the expiration of what fiscal support remains, and threatens to stall out or even backtrack.”
Unless the Democrats win the two runoff elections for Senate in Georgia — a tall order — McConnell and the GOP will cling to control of the Senate, making it impossible for Democrats to dictate terms of a stimulus agreement. So there’s little sense in waiting until after Biden is sworn in on Jan. 20 to get to work.
“They will have to negotiate with McConnell to get anything done,” said Megan Greene, an economist and senior fellow at the Harvard Kennedy School’s Mossavar-Rahmani Center for Business and Government. Waiting only increases the amount of money Congress will need to spend, she said.
But Greene points out one big reason why Democrats are reluctant to scale back their stimulus proposals. When Barack Obama became president in the midst of the Great Recession, he compromised with Republicans to pass the $830 billion American Recovery and Reinvestment Act in February 2009. Many Democrats argued that he should have pressed for more, and that the party took the blame for the anemic rebound that followed.
“Obama knew it was insufficient. The administration thought they could ‘top up’ later. But they couldn’t get it done later,” Greene said.
Here’s a second reason: “It would set the worst possible precedent for the Biden administration,” said Robert Shapiro, a Washington consultant on economic and security issues. “If they are going to cave to the Republicans on this, Mitch McConnell will have no incentive to compromise on anything.”
Shapiro, a longtime adviser to Democratic presidential campaigns, said the Democrats shouldn’t “push aside the politics to help people; they need to use the politics to help people.”
But there are alternatives to the extremes of caving in, or digging in.
The Democrats’ plan is ambitious but weighed down by measures that don’t address the most urgent economic needs: bolstering incomes, protecting jobs, and shoring up municipal finances. A few examples: The $2.6 billion earmarked for rural electric cooperatives can wait. So can the $400 million set aside for the Census Bureau and the $350 million for the Animal and Plant Health Inspection Service to “ensure continued inspections of agricultural products in order to keep pests and diseases from entering the US.”
Instead, lawmakers must build a package around the spending both sides agree is needed, including direct stimulus checks to households, a second round of forgivable loans for small businesses under the Paycheck Protection Program, extending federal jobless payments through next year, and money for airlines and K-12 schools and colleges.
In return for the GOP priority of coronavirus liability protection for businesses, Democrats should get a big chunk of the $57 billion they are seeking for child care, which is more than Republicans want to spend. Instead of restoring the $600 a week in extra unemployment pay that expired in the summer, Democrats should accept $300 to $400 — which is more in line with GOP thinking — as long as it remains in effect for all of next year or until the jobless rate returns to pre-pandemic levels.
“I just hope that we can get agreement. It may not be everything that everybody wants but at least if we can get some significant relief to people,” House majority leader Steny Hoyer told CQ-Roll Call last week.
“Let’s get something done that is significant, do what we can achieve now,” Senator Dick Durbin, the chamber’s second-highest-ranking Democrat, said in a recent CNN interview.
Of course, there are sticking points, and the biggest is aid for state and local governments. Democrats have proposed $436 billion to make sure they can pay first responders and health workers and balance their budgets despite declining tax revenues. McConnell calls this a “blue state bailout” and has offered exactly nothing.
Here’s where Democrats should hang tight. Government layoffs and cuts to human services and transportation are the next big shoe to drop in this crisis. Congress needs to get ahead of the problem, and that’s where Biden and his nominee for Treasury secretary, former Federal Reserve chair Janet Yellen, will need to push hard.
Yellen is an economist who understands the importance of using stimulus to preserve jobs during tough times. But she also knows the give-and-take of politics, having served as head of the White House Council of Economic Advisers during the Clinton administration.
Hopefully, she will make a convincing case for a rescue package that is both big enough and delivered quickly enough to be effective.
“If lawmakers wait until after President-elect Biden’s inauguration in late January to come to terms, I suspect the economy will be weak enough to generate enough political will for a bigger rescue package,” Zandi of Moody’s Analytics said. “But this will be too late for many renters, small businesses, and . . . government employees.”