What a year it’s been – and it’s not even July.
While you’re probably tired of hearing the 2019 coronavirus disease (COVID-19) pandemic described as “unprecedented” or “difficult,” that’s exactly what it sounded like to the typical working American. . In four months, the US unemployment rate has fallen from a low of 3.5% in 50 years to levels (13.3% in June) which has not been seen since the Great Depression, almost nine decades ago. Even after a record growth in retail sales in May, more than 20.5 million people were still receiving unemployment benefits as of June 18. For the context, only 1.7 million people were receiving unemployment benefits at the end of February.
It was an unprecedented and difficult time for many Americans, which is why Congress passed and President Trump signed the CARES (Coronavirus Aid, Relief, and Economic Security) law on March 27.
The CARES Act provided a much needed stimulus – but not enough
At $ 2.2 trillion, the CARES Law is the most expensive relief law ever passed on Capitol Hill. Realizing that shutting down non-essential businesses would wreak havoc on the economy, lawmakers felt the best idea was to throw away a lot money to the problem.
The $ 2.2 trillion CARES Act provided $ 100 billion to help hospitals fight the coronavirus, allocated $ 500 billion to struggling industries, and distributed nearly $ 350 billion through small business loans. It is also responsible for allocating $ 260 billion to expand the unemployment benefit program. This expansion offers an additional $ 600 per week to people receiving unemployment benefits, until July 31, 2020 (or until they find a job).
But what most people will remember about the CARES Act is the $ 300 billion earmarked for direct stimulus payments to American workers and seniors. According to Internal Revenue Service data from June 4, 159 million economic impact payments (as these stimulus checks are officially known) had been sent, for a total of $ 267 billion.
Although this money was indispensable to Americans, payments with economic impact just didn’t do enough for most people. An April Money / Morning Consult poll found that 74% of 2,200 respondents had spent, or plan to spend, their stimulus payment in four weeks or less. As the US economy is slowly rebounding, many workers and their families appear to be in serious need of additional stimulus.
The question, at this point, was whether or not another round of stimulus would come. But according to a recent interview with President Trump, a second stimulus package now seems to be a sure thing.
Trump: “We’re going to do another stimulus package”
In an interview last week with Joe St. George, national political writer for Scripps, Trump was asked directly about whether struggling Americans would receive a second stimulus check. Here’s what Trump had to say:
We had this [the U.S. economy] look better than anyone has ever seen before. We had the best jobs numbers, the best economy, the best economy we’ve ever had, and then we had the virus from China. Now we are rebuilding it again. We are going to do another stimulus package. It will be very good … it will be very generous.
VIDEO: President Trump commits to a 2nd stimulus. He says details will be announced in the coming weeks. The president wouldn’t tell me how many checks the Americans would get. pic.twitter.com/Abd5E8P3Au
– Joe St. George (@JoeStGeorge) June 22, 2020
It should be noted that Trump specifically used the term “stimulus package” in his response to St. George here, but a moment before that statement he asserted that Americans would receive “a second stimulus check” when they got there. pushed by St. George. However, the president did not give details, such as the dollar amount, saying only that he believes a second stimulus package will occur in the coming weeks and that it will be bipartisan in nature.
The fact that the White House changed its tone to be enthusiastic in a second round of stimulus really shouldn’t be a surprise. After all, we are in an election year, and neither party wants to be seen as the one that has not stood up for American workers in these difficult times. It is in the interests of both parties, as well as that of Trump, to ensure that Americans have a solid financial base before the November election.
In addition, the coming end of increased unemployment benefits (that is, the extra $ 600 per week) is the perfect catalyst for forcing a bipartisan deal. The extra $ 600 played a key role in keeping mortgage, auto and rental defaults from skyrocketing. Without some sort of secondary stimulus package, a balance sheet day could await the US financial sector.
What could the next round of stimulus look like?
With President Trump signaling that a second stimulus bill is preferred at this point, the real question then becomes, what could this look like?
One possibility is that it looks a lot like the CARES Act. In other words, this is a stimulus deal that puts money directly into the hands of working Americans and seniors who earn below a set threshold. For context, maximum payments for the CARES Act have been capped at $ 1,200 per person and $ 2,400 for couples filing jointly. To qualify for this maximum payment, single, married, and head of household filers needed Adjusted Gross Income (AGI) of less than $ 75,000, $ 150,000, and $ 112,500, respectively.
On May 15, the Democratic-led House of Representatives adopted the HEROES law of 1,815 pages, which in many ways takes after the CARES Act in the department of direct stimulation. The close to the party line vote of 217 to 189 that allowed this $ 3 trillion bill to pass in the House would again cap payments at $ 1,200 per person and $ 2,400 per person. couples, with the same AGI thresholds as those used in the CARES law. One big difference, however, is that dependents (limit of three) are worth $ 1,200 each for parents or a household, versus $ 500 with the CARES law, with no age limit attached to the definition of dependent.
The other possibility is that a second stimulus package is adopted, but that it does not contain a direct stimulus component. Senate Majority Leader Mitch McConnell (R-Ky.) Has criticized the increased federal deficit even more, and some of his colleagues share this concern. This could lead Republicans in the House or Senate to favor other types of stimulus.
For example, Kevin Brady (R-Texas), the top Republican on the House Ways and Means Committee, recently proposed the America’s Reopening Act of 2020 by supporting workers and businesses. Rather than handing out stimulus checks, Brady’s Bill would allow unemployed workers who return to work to collect two additional weeks of the additional payment of $ 600 / week. Basically, Brady’s proposal equates to a hiring bonus of $ 1,200.
President Trump also threw his hat into the ring, suggesting that a a payroll tax holiday would be preferable. Most American workers pay 12.4% to the Social Security program on earned income, with employers and employees sharing this responsibility 50-50 (6.2% each). Providing a tax holiday would be one way to allow workers to keep more of their income with every paycheque. The compromise being that the payroll tax is the main source of funding for Social Security, and the country’s most important social program is already on shaky ground.
The point is that while a second round of stimulus is likely, it will take some work from both sides to come to fruition, which is no easy task. That could mean an increase in the number of people eligible for a stimulus to appease Democrats and a concerted plan to get people back to work for Republicans. Either way, time is running out for the increase in unemployment benefits, which means a deal is likely within the next five weeks, in my opinion.