Earlier this year, the federal government worked across party lines to pass a historic economic-relief bill. By most measures, it worked: Concerns about a wave of bankruptcies and permanently high unemployment have more or less receded.
Despite the lockdowns, personal incomes soared in the second quarter, cushioning household finances and avoiding a wave of defaults. While business-assistance programs such as PPP had flaws, they largely succeeded in mitigating the long-term damage of the pandemic: Commercial-bankruptcy filings have fallen below their pre-pandemic trend, and the vast majority of business closures during the lockdowns have proven to be temporary.
Now, the CARES Act has expired. An appropriately tailored follow-on bill — with small-business assistance, funding for testing and tracing, limited unemployment benefits, and state and local relief designed solely to plug fiscal holes created by the pandemic — would tide us over until a vaccine or therapeutic were widely available. Yet it seems unlikely that Washington will produce one.
The House Democrats’ $2.2 trillion spending package allocates $500 billion to states and cities directly and an additional $225 billion to state and local public-school systems — five times the amount of revenue lost due to COVID-19. By refusing to negotiate a more reasonable level of state and local assistance, and advancing a proposal to lift the limit on the SALT deduction, House speaker Nancy Pelosi is putting her high-earning constituents ahead of working Americans.
For his part, President Trump inexplicably decided to walk away from the negotiations last Monday, only to reverse course in a tweet mere hours later. His ham-handed tack only sowed confusion. The White House ultimately proposed a $1.8 trillion bill that includes enhanced unemployment benefits, checks to households, and various forms of assistance to businesses. Some portions of the bill — such as its expansion of Obamacare subsidies and sizable state and local aid — are ill-considered, but the White House is in a negotiation, and one where it doesn’t have much leverage.
The House speaker called the White House proposal “insufficient,” claiming that the president “has not taken the war against the virus seriously.” In fact, the administration’s plan includes an ample $175 billion for testing, tracing, and vaccine programs. The real disagreement comes down to state and local funding, with Democrats taking advantage of the pandemic to attempt a bailout of profligate blue states.
Rather than simply seize on that issue, GOP senators have broadly opposed coronavirus-relief spending. A critical mass of Senate Republicans has come out against the White House proposal because it would add too much to the deficit. While the federal debt remains a long-term concern, it shouldn’t foreclose economic assistance during an unprecedented public-health emergency. No less so because fiscal inaction would, according to Goldman Sachs Research, cut fourth-quarter economic growth in half, reducing long-run tax revenues and exacerbating the debt issue. The protracted economic damage of widespread business closures and high unemployment far outweighs the cost of additional spending, especially at a time of near-zero interest rates.
All of this said, Senate majority leader Mitch McConnell’s idea of simply passing what can be agreed on for now delivers urgent aid, and is preferable to the alternative.
The COVID-19 pandemic and the resulting economic disruption are far from over. Washington should act like it.