GOP Faces Political Relations Debacle as Stimulus Bill Stalls

by Greg Valliere, AGF Management Ltd.

WHAT AN EMBARRASSMENT: Republicans had weeks to come up with a stimulus bill, yet talks broke down yesterday as three specific GOP factions emerged, all at odds with each other. A final deal with Democrats is many days away; even a “kick the can” stopgap bill now looks unlikely.

ONE GOP FACTION of deficit hawks opposes even a $1 trillion bill, which seems to be the floor. Another faction, led by Treasury Secretary Steven Mnuchin, wants a robust package, as the economy clearly shows signs of sputtering. Still another faction, headed by the Wall Street Journal editorial page, wants growth-oriented proposals, not more federal payments that they deride as “helicopter money.”

WHAT THESE FACTIONS DON’T GET is that the Republican Party faces a disastrous public relations debacle — and a deteriorating economy — with millions of Americans facing evictions and bankruptcy as a deal stalls and the election looms.

THE DEMOCRATS COULDN’T HAVE SCRIPTED THIS BETTER: They can blame Republicans as unemployment benefits lapse, and when they begin negotiations with the GOP, Nancy Pelosi will have the upper hand on issues such as aid to state and local governments. (Checks to individuals, aid to schools, liability protection and money for businesses still look like safe bets whenever a final deal is hammered out.)

THIS BREAKDOWN IS BAD NEWS FOR PRESIDENT TRUMP, who’s now far behind in Michigan and Pennsylvania in a new Fox poll (and is clearly trailing, incredibly, in Florida). He’ll need a scapegoat, fast, and Mnuchin’s role as chief White House negotiator could be in jeopardy.

TRUMP WON’T GET HIS PAYROLL TAX CUT, and — more importantly — a V-shaped recovery is out of the question as a Covid-19 surge ravages the Sunbelt. Another major stimulus from Washington is urgently needed, yet Mitch McConnell won’t even have a draft proposal for his GOP colleagues until early next week. McConnell’s halo has slipped; maybe he isn’t a wily deal-maker after all.

BOTTOM LINE: We’re still at 70-30 that there will be a final deal. The issue is when.
The summer recess is scheduled to start on Aug. 7, so that’s one option. Or Congress could stay in town past Aug. 7. But GOP obstructionists — led by Sens. Rand Paul, Mike Lee and Ted Cruz — could delay final passage until well into August, potentially still another self-inflicted wound for the Republicans.

BETWEEN NOW AND THEN, the Republicans will have to endure daily bashing from the eager media for incompetence and a lack of empathy. But a tone-deaf Wall Street Journal editorial this morning lists what should happen in a perfect world, naively ignoring the political consequences of this delay — which will further diminish the GOP’s chances in November.

PERHAPS THE INCREASINGLY VOLATILE MARKETS will render a verdict that the Republicans will have to respect, as the economy fizzles. If there’s no quick deal, a “blue wave” — sweeping Democrats to control of the White House, Senate and House — will look increasingly likely.

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This post was first published at the AGF Perspectives Blog.