Not Bad for the First Day — Stimulus Bill Taking Shape

Insights and Market Perspectives

Author: Greg Valliere

July 21, 2020

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IT WON’T BE EASY, but a three-step process for passing a massive stimulus bill began to take shape yesterday with all sides agreeing that the Covid-19 spike necessitates the passage of another relief package. It still looks like a $1 trillion price tag will be the floor, with a final cost of close to $1.5 trillion.

THE FIRST STEP WILL BE GETTING REPUBLICANS on the same page; the second step will come when they agree with the White House on key provisions; the third step will be the toughest — getting Democrats to agree to a bill that will cost about half of the $3 trillion package they passed weeks ago.

MOVING THE BALL: There will be plenty of sound bites that could move the markets this afternoon after Senate Republicans have lunch with Steve Mnuchin and White House Chief of Staff Mark Meadows, who will be crucial negotiators as a bill comes into focus. They will meet with Nancy Pelosi and Chuck Schumer later today.

THEN THE NEXT BIG DEVELOPMENT will be the release later this week of Mitch McConnell’s GOP bill, then the negotiations will heat up. Based on what we’re hearing, this is where the key issues stand:

Unemployment insurance: It’s unlikely that the $600 weekly benefits, scheduled to end in less than two weeks, will be retained. That amount could be cut in half, or repealed entirely — replaced by some type of signing bonus for people who return to work.

Payroll tax cut: President Trump yesterday softened his threat to veto a bill that
doesn’t include this provision, as lukewarm Republicans looked for a compromise —
perhaps enacting some type of payroll tax cut next year. The Wall Street Journal reports this morning that a deferred payroll tax cut is possible.

Aid to state and local governments: This is still non-negotiable for the Democrats, Schumer said yesterday. Republicans will have to give the Democrats something, perhaps $400 billion, plus the inclusion of a provision that would give states flexibility in spending money already appropriated to them.

Another check: There’s widespread agreement in both parties that some type of check — at least $1,000 for non-wealthy individuals — will be in the final bill.

Aid to business: Despite abuses and delays in the previously enacted provisions, this is very popular and will be extended — primarily for small companies, with much tighter controls.

A tax credit for protective equipment: Businesses will get aid to buy protective equipment for employees. This is virtually certain.

Liability insurance: A final bill almost certainly would have to contain a provision that would protect businesses from Covid-related lawsuits. Mitch McConnell will prevail on this.

Money for schools: This is virtually certain also; the price tag for K thru 12 and college aid will be close to $100 billion. Two thorny details — will schools get more aid if they don’t fully open, and what about aid to private and religious schools?

Money for Testing: Many Republicans were furious when they heard that $50 billion for testing and tracing is opposed by the White House, which says money already appropriated hasn’t been used up. This is about appearances; there will be more money for testing and for the Centers for Disease Control in the final bill.

BOTTOM LINE: Differences between the two parties on the specifics are so enormous that the entire process could break down by this coming weekend; both sides will carefully scrutinize the polls and may threaten to walk away from a deal. This will just be theater.

THE COST OF DOING NOTHING is simply too great — and Trump desperately needs a deal — so we’ll predict a 70-30 chance that a massive package will win enactment by early August. It’s not a 100 percent chance, however.