President Donald Trump and allies are holding off on more coronavirus-related stimulus as his team tracks the impact of some $5 trillion already poured into the economy — and banks on an economic rebound as shutdown measures are eased.
But they may find themselves under more pressure to act again, sooner than they expected, if efforts to reopen the economy don’t rapidly bear fruit.
Republicans and Democrats joined together in March to fast-track three stimulus measures totaling about $3 trillion as the economy collapsed from social-distancing practices Americans adopted to protect themselves from infection. The U.S. Federal Reserve played its part with two emergency rate cuts, and worked with Treasury to offer $2.3 trillion in loans.
Now, conventional partisan divisions are beginning to emerge as Washington’s policy makers grapple with whether the money was enough.
Democrats and a handful of Republicans are seeking a fourth round of stimulus, particularly to help states faced with massive budget deficits. House Speaker Nancy Pelosi, working with Senate Democrats, has been advocating a massive aid package to get the economy restarted. The House may vote on that legislation as soon as Friday.
Trump has expressed skepticism over helping states with large pension obligations, while pushing for a payroll tax cut that’s opposed by most Democrats and some Republicans.
“We’re transitioning to greatness, and the greatness is going to be in the fourth quarter — but it’s really going to be next year, and it’s going to be a year like we’ve never had before,” Trump said at a White House news conference on Monday.
His economic advisers Larry Kudlow and Kevin Hassett spoke with Republican senators Monday afternoon as both parties chart a path forward.
The measures the government has already taken are still working their way into the economy. Treasury Secretary Steven Mnuchin has so far used less than half of $454 billion Congress authorized as backstops for Fed lending programs. He’s said he’s waiting for four more lending programs the Fed has yet to launch before deciding which ones should be expanded.
For each dollar Mnuchin pledges to the central bank through the Treasury’s Exchange Stabilization Fund, the Fed can leverage $10 in lending to corporations, small and medium sized businesses, and state and local governments.
“What the president has said is, let’s step back for a few weeks, let’s be very considerate in what we do in the next round before we go consider spending another trillion,” Mnuchin said in an interview on CNBC on Monday. “But the president is determined we’ll do whatever we need to do.”
Republicans aren’t unified on the path forward. Some have begun to express unease with the exploding U.S. deficit and the ballooning role of the government.
The Republican Study Committee, a group of House conservatives, is lobbying for the next stimulus package to offset any new borrowing with longer-term savings.
But a Republican senator, Josh Hawley of Missouri, has called for a fourth stimulus that would provide 80% of payroll for all U.S. workers for the duration of the crisis. Another Senate Republican, Susan Collins of Maine, aligned herself with Democrats on the issue last week,calling for swift action to aid states.
The unemployment rate tripled in April to 14.7%, and Fed officials have also urged more government spending.
“If this is going to go on for a long period of time –- I think it’s going to go on in some phases for a year or two –- I think Congress is going to need to continue to give assistance to workers who’ve lost their jobs,” Federal Reserve Bank of Minneapolis President Neel Kashkari said Sunday.
Fed Chairman Jerome Powell, while not commenting directly on fiscal policy, weighed in earlier this month saying now is not the time to worry about the federal deficit. “This is the time to use the great fiscal power of the United States,” Powell said, “and get through this with as little damage to the longer-run productive capacity of the economy as possible.”
There’s pressure in conservative circles, however, to rein in or even stop the spending. White House Chief of Staff Mark Meadows, a former North Carolina congressman and co-founder of the House Freedom Caucus, and Russell Vought, the director of the Office of Management and Budgett, have expressed unease with spending levels, two people familiar with the situation say. Other conservative figures have publicly called for a halt.
“We have to stop this phase-four spending bill,” said Stephen Moore, a member of Trump’s wide-ranging task force on reopening the economy, and a longtime informal adviser to the president. He’s leading a “Save Our Country” conservative coalition aimed at heading off new spending.
“No more, not a dime more,” he said. “Our message to Trump is: Do what you did that actually rebuilt the economy back in 2017. Cut taxes, reduce regulation, provide a liability shield for businesses so they can hire their workers back, and let’s grow the private sector, not the government.”
Payroll Tax Cut
Moore’s coalition favors one Trump idea: suspending payroll taxes. Moore said the taxes, which help finance unemployment insurance, Social Security and Medicare, the health program for the elderly and disabled, should be eliminated through the end of the year.
“I’ve talked to him twice about this. He keeps saying, Steve, can you get Nancy Pelosi to go along with that?” Moore said. Trump has even floated the notion of a permanent cut, which would deliver another blow to government revenue.
Moore believes the cut would encourage hiring, but Democrats oppose the idea, saying it would do nothing for the more than 30 million Americans out of jobs.
The president has also proposed massive spending on infrastructure, taking advantage of low interest rates for government debt. Moore called that misguided. “We’ve already spent so much money,” he said.
But other conservatives think the White House won’t be able to hold off as the economic damage from the outbreak continues to mount. At the same time, congressional Democrats preparing new spending plans.
“I don’t think that’s going to be a constructive start,” Yuval Levin, director of social, cultural, and constitutional studies at the right-leaning American Enterprise Institute, said of the Democratic proposals. “But I also think the Republican view, that you can sit it out and wait and see how it goes, that’s not going to survive very long, either,” he said in an interview.
White House aides have not ruled out more relief altogether, and say they simply want to see how the existing stimulus changes the economic landscape.
“Many people would like to just pause for a moment and take a look at the economic impact of this massive assistance program, which is the greatest in United States history,” Kudlow told ABC on Sunday. “After all this assistance, let’s have a look at what the impact is in at least the next couple of weeks for the economy.”
Hassett described narrower measures under development at the White House — aid for children going hungry without school meals, or who lack internet access to study online. That would “be part of whatever happens in the phase-four deal to fill in the gaps,” he said Sunday on CBS News.
“And then the question really becomes, is phase four really going to be extending the bridge, because we’re not there yet, or is it going to be focused on growth and making sure that, now that we’re on the other side, that we have a healthy economy again?” Hassett said.
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