by Greg Valliere, AGF Management Ltd.
THERE’S A DESCRIPTION IN WASHINGTON for a bill that’s filled with goodies — a Christmas tree. There’s a rich tradition of taking a must-pass measure and loading it up with something for everyone, and that’s what appears to be happening now on the next (and possibly final) virus aid bill.
BOTH PARTIES ARE EQUALLY EAGER: Nancy Pelosi is talking about a $2,000 check for individuals, hikes in food stamps, expanded nutritional benefits and Medicaid spending, assistance for the Post Office, more money for coronavitus testing and tracing, and a huge increase in outlays for state and local governments.
PRESIDENT TRUMP WANTS a capital gains tax cut, a payroll tax reduction, tort reform, infrastructure spending, restoration of the deduction for business meals and entertainment — and an end to enhanced unemployment benefits, which Republicans say are so generous that they are a disincentive for people to return to work.
IF BOTH SIDES GOT WHAT THEY ARE SEEKING, the price tag could far exceed $2 trillion, which horrifies deficit hawks, who fear that red ink will exceed $4 trillion this year. Pelosi says she will have a “Rooseveltian” bill ready within days, but most Republicans want to go slow on the next bill, which seems likely to occur.
[IF THIS MORNING’S UNEMPLOYMENT FIGURES are as bad as many analysts expect, that could light a fire under Congress to act quickly on the next bill, but for now we think it could be late June before a final package comes into focus.]THE COMPROMISES: Not all of the Christmas tree provisions will prevail, they simply cost too much money. Here’s our best guess on some possible compromises:
State and local government aid: Several hundred billion dollars is the likely price tag, but not a penny for pension funds. Small cities and counties will be included this time.
Another check for most everyone: $2,000 checks are out of the question, but there could be smaller checks for people who are hard-hit.
More unemployment relief: Possible but less than in the previous bill; Republicans will fight hard against another big payout.
Small business aid: possibly one last tranche, maybe for a couple hundred billion dollars, with strict eligibility rules. No prep schools allowed.
A payroll tax cut: Trump prefers abolition, which is out of the question, but a small cut has a outside chance.
Business entertainment: Possibly a small tax exemption, not as large as Trump wants.
Tort reform: A deal is possible, but a blanket exemption from lawsuits is unlikely. Lots of money is at stake for lawyers on both sides of this issue, which is why a compromise is possible.
Aid for hospitals, first responders, more testing, etc.: Very likely, only issue is how much of a hike, not whether.
More money for food stamps, nutrition, etc.: Pelosi will get something, not as much as she wants.
Infrastructure spending: Mitch McConnell and most Republicans are cool to the idea, but something modest is possible, perhaps in a separate bill.
BOTTOM LINE: Everyone has made their first demands, next will come first offers. The key will be Trump, who wants one more shot of stimulus before the election. He will have to battle with reluctant Republicans, but a $1 trillion-plus bill still looks likely after several weeks of bickering and horse-trading.
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This post was first published at the AGF Perspectives Blog.
