The biggest thing standing in the way of a coronavirus-targeted economic stimulus package could be the Trump administration’s proposed payroll tax cut.
House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer would rather prioritize expanding benefits and delivering relief directly to American workers and families hit by the coronavirus, and making testing free, than imposing a tax cut that’s likely to benefit only companies and a subset of workers.
Some Democrats said they’re especially concerned a payroll tax cut could leave out workers who have already been laid off, given that coronavirus-related layoffs are already happening. Even Senate Republicans aren’t convinced it’s the correct course of action.
“One of the dilemmas with the payroll tax is if you’ve lost your job or you’re in the gig economy, you’re not going to get anything,” said Rep. Don Beyer (D-VA), vice chair of the US Congress Joint Economic Committee. “Or if you’re like so many Americans — making $25,000 or less — it ends up being $10 a week, not enough to really do anything.”
Some Republicans are skeptical of the payroll tax cut idea, too, which could limit the administration’s leverage in negotiations. “I certainly want information on this. Obama did a payroll tax; I’m not sure how well that worked. I think this president is planning something more dramatic than that,” said Sen. Ron Johnson (R-WI).
Trump acknowledged this in a press conference Monday. “I was just with the Republican senators and they were just about all there,” Trump said. “There’s a great feeling about doing a lot of things, and that’s one of the things we talked about.”
Sen. Ron Wyden, the top Democrat on the Senate Finance Committee, mentioned concerns about exactly who would benefit from these policies. “A payroll tax cut can be an effective tool, but it’s not the best answer in this case,” he told Vox in a statement. “A payroll tax cut would do little to help workers without paid sick days or those who have lost shifts and tips.”
Claudia Sahm, a former Federal Reserve economist who is now head of macroeconomic policy at the Washington Center for Equitable Growth, has been echoing Wyden’s concerns on social media for days, calling for direct payments to all individuals. Similarly, “if we are doing stimulus too, per person checks much better than payroll tax cut,” tweeted Jay Shambaugh, a former member of Obama’s Council of Economic Advisers and now director of the Hamilton Project at the Brookings Institution. “If people miss work, can’t do gig work, or are unemployed: no payroll tax cut.”
Pelosi is negotiating a stimulus deal directly with Treasury Secretary Steven Mnuchin; the two met Tuesday afternoon and Pelosi later told reporters Democrats are “ready with our legislation.” Senate Majority Leader Mitch McConnell said Pelosi and Mnuchin have worked well together in the past and he’s hopeful they can reach a bipartisan deal.
Congress and Trump have a very tight timeline. The House was already scheduled to be on recess next week, and members are scheduled to fly out on Thursday. The Senate, too, is slated to be on recess from March 16 to 20.
“Coming up with something is likely; having it voted on this week is going to be challenging,” said Rep. Dean Phillips (D-MN), adding that Congress could potentially stay longer or come back next week to vote on a package.
Democrats want to prioritize public health and relief for workers
Whether it’s paid sick leave or free coronavirus testing, there’s a common theme to Democrats’ proposals. They want to make sure cost doesn’t impede workers from getting the health care they need, or taking the time off from work to quarantine if they suspect they have coronavirus.
“For the families, we want to be sure from the standpoint of being tested if need be that there be no cost to the families,” Pelosi said at a press conference Monday night.
“If people don’t go for that — go for testing — if they can’t go to get tested and can’t go to get the treatment because they are afraid they can’t afford the bill, this will get worse,” Schumer added.
Here is what’s likely to be in Democrats’ proposal, based on what Pelosi and Schumer have so far outlined. Both have continued meeting with their members and are likely to release a full proposal in the coming days.
- Paid sick leave: Sick leave would be directed to those workers impacted by quarantine orders, or those who must stay home to care for their children. Some lawmakers expressed concerns that not doing so would result in those infected with coronavirus continuing to go to work, thus continuing to spread the virus.
- Enhanced unemployment insurance: Democrats want to expand unemployment benefits for workers laid off due to the coronavirus, which is already happening in the US.
- Expanding food security: Expanding access to programs like SNAP, WIC, and school lunch programs throughout the coronavirus outbreak. Progressive economists have long believed that expanding existing safety net programs is a highly effective way of stimulating the economy because the sorts of low-income people who benefit from them are highly likely to immediately spend any extra money they get — helping stabilize economy-wide demand. The 2009 stimulus bill featured many provisions along these lines. Conservatives, who are critical of those programs in general, tend to be highly skeptical of putting more money into them.
- Free coronavirus testing: Democratic leaders are proposing making coronavirus testing free to increase access. Free testing is being offered in a number of states, but there’s no federal regulation mandating it so far.
- Increasing the capacity of the US medical system and ensuring affordable treatment: Pelosi and Schumer are calling for insurance providers to reimburse coronavirus patients for any non-covered costs related to coronavirus. Again, they’re hoping this gets more people treated and makes it so people don’t put off going to the doctor because they are worried about costs.
Trump is focused on tax relief. Republicans are still weighing their options.
Trump met with Senate Republicans during the party’s weekly lunch on Tuesday and presented a proposal featuring a couple of priorities, including a payroll tax cut. It’s a plan that Republicans have said they’re open to hearing, though many said that a lot of details still needed to be ironed out.
“The administration is seriously considering a fiscal stimulus. What that will be, I don’t think anybody has decided yet,” Sen. John Kennedy (R-LA) told reporters following the lunch.
The policies — which Trump first laid out in remarks on Monday — were just broad outlines, according to Republican senators. His statements this week, however, touched on a couple of areas:
- Payroll tax cut: A payroll tax cut would reduce the amount of taxes that both workers and companies contribute, putting money back in the pockets of both corporations and their employees in the near term. Given the lack of specifics we have so far, it’s unclear whether companies or workers would benefit more from this move. A payroll tax cut was used as part of a stimulus package the Obama administration negotiated in 2010, but Jason Furman, one of Obama’s top economic policy hands and lead negotiators on the stimulus deal, tweeted Monday that “it was far from optimal then and would be even further from optimal now.” The key drawback of payroll tax cuts is they dribble out slowly over time, bit by bit, in each paycheck and fail to reach the people most in need of help — those who have lost their paychecks entirely.
- Loan expansion to small businesses: Small businesses are among those that could be hit hardest by short-term changes in consumer behavior, and Trump has hinted that expanding access to such loans could help cushion some of these shortfalls.
- Aid for hourly workers: There’s some potential overlap between this idea and the expansion of paid sick leave that Democrats have proposed. Trump has signaled that he wants to ensure hourly workers have a safety net they can rely on if their wages and work are compromised by illness — which a paid sick leave program would specifically help provide.
Efforts like this have historically faced Republican opposition, and those same roadblocks could come up again. “I like the idea as long as it’s the choice of the company,” Sen. Mike Braun (R-IN) said, signaling that he wasn’t supportive of a measure that would mandate such benefits.
- Airline, cruise, and hotel industry support: We don’t know much about what this assistance would look like, but Trump has said his administration intends to help these industries given the dips in travel that have taken place in the wake of the coronavirus. Sahm counters that what businesses really need is customers, so the right approach is to “help everyone” rather than trying to target particularly industries or companies.
Key gaps remain between what Democrats have proposed and what Trump put forth on Tuesday. Working through these differences and the specifics of a potential plan will be a major challenge for lawmakers as they continue to grapple with the outbreak. Multiple Democratic House lawmakers told Vox they want to see economic relief going directly to workers rather than benefiting big businesses and corporations.
“A lot of us are traditionally skeptical about stimulus, generally, but it depends on what it’s for, how much it’s going to cost, how we’re going to pay for it, and what it’s going to do,” Sen. Richard Shelby (R-AL), the head of the upper chamber’s appropriations committee, told reporters Tuesday morning.
Time to pass a stimulus package is running out
Congress is running against the clock; after the stock market appeared to recover from Monday’s dive — its worst day since the 2008 financial crisis — stocks fluctuated again as of Tuesday afternoon.
With coronavirus spreading to multiple US states, economists predicted a greater likelihood that the US could experience a recession in 2020. “I think it is very difficult to avoid a recession,” Moody’s economist Mark Zandi told CNBC on Monday. “The depth of the recession will depend on how the [Trump] administration reacts.”
As Vox’s Emily Stewart wrote, “An old adage among economists is that [economic] expansions don’t die of old age; something has to happen to cause them.” Economists worry the coronavirus could be the thing to curb the expansion of a previously booming economy.
Recalling a recent trip to the port of Los Angeles, Rep. Jimmy Gomez (D-CA) told Vox the coronavirus outbreak means shipments of goods from China to California are halting, causing bookings for dock space to unload container ships to go down substantially. That could have enormous effects on local workers there.
“A lot of the longshoremen that work there are not as impacted, but some of the people who are more on contract are — the drivers, the teamsters, and the truck drivers who get paid by haul are impacted,” Gomez said. “We’re going to start seeing a ripple effect throughout our supply chain and our economy.”
Layoffs in other sectors of the economy are already happening. Some airlines are planning layoffs, and the parent company of Austin’s South by Southwest festival announced it’s laying off one-third of its staff after the annual festival was canceled due to coronavirus concerns. That could be the tip of the iceberg, unless Congress intervenes in time.
Matt Yglesias contributed reporting to this piece.