No Consensus on Stimulus as Congress Prepares to Recess; President Joe Biden?

Insights and Market Perspectives

Author: Greg Valliere

March 11, 2020

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A SENSE OF PANIC is engulfing Washington — not just in terms of health policy butas people ask whether they’re personally at risk of contracting the coronavirus. Working from home is an option for everyone, including members of Congress, who will leave town at the end of this week without agreeing on a fiscal response to the crisis.

DEMOCRATS ARE IN GENERAL AGREEMENT on several provisions, but Republicans are lukewarm toward a payroll tax cut. And there’s unease over the pricetag for a stimulus bill that could cost over $500 billion; the budget deficit could approach $2 trillion this year and next.

FIRST THINGS FIRST: The Trump Administration isn’t ready with a comprehensive fiscal plan; perhaps one will begin to come into focus after the president meets with top financial leaders today. To President Trump’s credit, he’s leaning toward the “money is no object” path.

BUT A MORE IMMEDIATE PROBLEM is psychological, as “clusters” erupt throughout the country. Trump, still shaking hands, lamely says the virus “will go away,” and that “a lot of good things are going to happen.” He has some solid people around him, but Trump himself so woefully inadequate to deal with this crisis that his re-election is now in doubt (see below).

THE PROSPECT OF A VIGOROUS STIMULUS PACKAGE seemed to encourage  financial markets yesterday that fiscal policy could ease a likely recession. Ironically, that conclusion is not widely held on Capitol Hill, where old rivalries and policy disagreements persist even in this crisis. There’s a long list of options — without details — circulating in Congress; here’s our handicapping:

Payroll Tax Cut: This is still in the “trial balloon” stage, with Republicans on Capitol Hill questioning its cost and effectiveness. And they worry that taking money from Social Security trust funds, which rely on in the payroll tax, could have unintended consequences. Some policy experts instead favor a one-time cash payment, perhaps $1,000 for adults and $500 for each child. 

Aid to victims: Help to people who have lost jobs is virtually certain; this may have more support than a payroll tax cut, which would affect only people who are working. The Federal Reserve could play a role, telling banks to overlook late payments from mortgage holders and businesses affected by the virus. 

Eligibility rules for food stamps and unemployment aid almost certainly will be eased, and a generous paid sick leave policy is also likely. These ideas were already popular, before the virus crisis, and Democrats will seek to make them permanent.

The IRS filing deadline: Filing will get pushed back from April 15; a delay is very likely, perhaps well into the summer. 

Aid to ailing industries: There’s an excellent chance that Congress will agree to loans, tax relief, or outright grants to the tourism industry, airlines, the staggering energy sector, and small businesses. Money is no object, but getting details ironed out could take a few weeks.

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PRESIDENT JOE BIDEN? Exit polls last night showed astonishing numbers — Joe Biden seemingly has unified the party in two weeks, with overwhelming majorities from virtually every demographic group. Even Bernie Sanders’ alleged support from young people wasn’t particularly impressive.

THE MAIN TAKE-AWAY is that Democratic voters want to beat Trump, period. And they have a chance, especially if Sanders throws in the towel. He will be urged to withdraw, perhaps even before this Sunday’s one-on-one debate, which could inflict damage on the former vice president, who’s an inarticulate and halting debater.

THE LIKELIHOOD OF A SURPRISINGLY UNIFIED PARTY has changed the November calculation — as has the coronavirus crisis and a potential recession; Trump does not inspire much confidence with his boasting about how great a job he’s done. 

LET’S SEE if Biden comes up with a clear five-point program to deal with the virus crisis, a hard-hitting policy, something the public can understand. Biden has major flaws, but there’s an opening for him to win the presidency; the support he won last night in the Rust Belt could be the key to a narrow Electoral College win.