President Biden’s $1.9 trillion COVID relief plan, now passed by the House and set to be considered this week in the Senate, has kicked-off a vigorous debate about whether to “go big” or stay focused on those most in need. They should do both; go big but stay focused on those most in need.
The bill now before the Senate does not fit this criteria. It includes provisions that are not well-targeted, extend beyond current needs or have little connection to the pandemic.
There is a strong need to go big against the COVID virus and to support hard-hit individuals and industries. An emergency COVID relief bill is not, however, the proper vehicle for trying to solve major structural budgetary or economic issues that pre-existed the pandemic. Such issues are better addressed through the regular budget process where possible options, costs and offsets can be more fully examined.
Over the past year, The Concord Coalition has emphasized that pandemic relief should be timely, targeted and temporary. It should be sufficient to bring the virus under control while supporting the economy until it is safe to resume normal activities. Deficit concerns should be suspended for the emergency, but only for purposes of treating the emergency. Going big on unrelated spending would simply add to the debt without hastening the end of the pandemic and could create new risks to the economy down the road.
As Senators turn their attention to the COVID relief bill, and possible amendments, here are some reasons to go big on certain needs while keeping the overall package focused.
Reasons To Go Big
1. The virus is still a threat
Unlike normal economic downturns, the current situation is driven by a health care crisis. Getting the economy back on track requires getting control of the virus. On that score, it is right to go big. Stay at home orders, closed businesses, cancelled events and postponed travel are all part of an effort to limit the scope of the healthcare damage by limiting routine commerce. Economic assistance, no matter how broad or how deep, will be an ineffective bottomless pit unless the spread of COVID-19 is brought under control. A continuing source of funding is needed to support vaccine research, acquisition, distribution and administration. Ample funding is also needed for therapeutics, testing, contact tracing and monitoring the spread of virus variants. Health care workers, schools personnel and other essential employees should be assured of an adequate supply of personal protective equipment (PPE). These are the weapons we need to fight the COVID war and there should be no holding back.
2. The employment situation is still bad
The employment situation remains bleak, particularly in industries most affected by the pandemic. While the overall unemployment rate has dropped from the astronomical high of last spring, it remains nearly twice what it was before the pandemic hit. Less than 60 percent of the jobs lost from last March and April have been regained and new weekly claims for unemployment benefits remain stubbornly above 700,000, far in excess of the roughly 200,000 weekly average before the pandemic hit.
While economists generally see a strong recovery later this year, macroeconomic forecasts are of little comfort to those who are still out of work, at risk of homelessness, or finding it hard to feed their families. Moreover, the growing number of long-term unemployed (more the 27 weeks) or who have become so discouraged that they have stopped looking for work, suggests that problems in the labor market may persist for some time. So it makes sense to go big for now on extending unemployment benefits and related support, such as rental and food assistance. There may come a time when enhanced unemployment benefits provide a disincentive for work, but given the recent sluggishness of job growth, that time has not arrived. One way to deal with that prospect, however, would be to tie benefits to the local job market.
It also makes sense to assist businesses that have been most affected by the pandemic, such as travel, hospitality and personal services, where bankruptcy threatens and jobs have been slow to return. Making sure that businesses can stay afloat and that individuals can pay their essential bills, such as rent, mortgages, healthcare, food and utilities, is necessary to prevent a much deeper economic problem.
3. There is great uncertainty over how long these conditions will persist
Vaccines are being approved and administered. The number of new COVID cases, hospitalizations and deaths are coming down. That is all good news. At the same time, health care experts warn that new variants of the virus may cause yet another spike in cases, particularly if mitigation efforts such as mask wearing and social distancing end too soon. Federal Reserve Board Chairman Jerome Powell told the Senate Banking Committee on February 23 that, “The path of the economy continues to depend significantly on the course of the virus and the measures undertaken to control its spread.” He cautioned that, “the economic recovery remains uneven and far from complete, and the path ahead is highly uncertain.”
Reasons To Stay Focused
1. This is an emergency bill, not the regular budget
COVID relief is only step-one in President Biden’s fiscal agenda. Within a few weeks, he is expected to present a full budget that will cover a wider range of issues such as climate change, infrastructure investment, immigration reform, health care coverage and tax policy. The regular budget is the proper place to consider policy changes that are intended to have a long-term effect. Emergency bills simply do not get the level of scrutiny and analysis necessary for major policy changes.
2. The economy is not in need of traditional stimulus
Projections by the Congressional Budget Office (CBO) and others indicate that even without additional support the economy is poised to make a strong comeback by this summer provided that mitigation efforts such as social distancing remain in place and vaccinations ramp-up.
Many industries not directly impacted by the pandemic have held up surprisingly well, as has personal income. Meanwhile, a surge in the personal savings rate since last spring sets up a potential consumer spending surge later this year as households begin to resume pre-pandemic activities closed to them during the pandemic.
3. There is a danger of overheating the economy
Since the pandemic began about one year ago, nearly $4 trillion has been pumped into the economy through a series of relief bills. While these measures have prevented an even bigger hit to the economy in the near term, their longer-term effects are unknown. We are in uncharted territory. Among the potential risks are inflationary pressures and rising interest rates on the greatly expanded federal debt.
Prominent economists, including Olivier Blanchard, who led the IMF during the 2008-2009 Great Recession, and Lawrence Summers, a senior economic official in both Clinton and Obama administrations, have raised concerns that the relief package is not well-targeted relative to the amount of money it spends and may accelerate inflation beyond what the Federal Reserve can control.
The current vaccination campaign is poised to unleash pent-up consumer demand, fueled by a 14 percent rise in real disposable income since last March. Absent any additional coronavirus relief, the nonpartisan CBO projects that the economy will return to pre-pandemic levels and reach real GDP growth of 4.6 percent this year. The economy needs whatever it takes to control the virus, but beyond that lawmakers should carefully consider whether the economy really needs the full infusion of non-targeted money in this bill.
Moreover, there are provisions in the bill that have the potential to exacerbate the underlying structural deficits that existed before the pandemic struck, digging our financial hole even deeper. Lawmakers are very eager to give away money during an emergency but can be very reluctant to reverse course when disaster passes. Important proposed expansions of the child tax credit, the child care tax credit, and the earned income tax credit in the relief bill are drafted to expire in a year, but soon there will be substantial pressure on Congress and the president to extend those provisions, or make them permanent, to avoid raising taxes on low and middle-income families - and unless there is a plan to offset the extension of these proposals with revenue raisers or spending cuts elsewhere, future deficits and debt will rise.
As the COVID relief bill heads to the Senate for consideration this week, lawmakers have an opportunity to make changes through the amendment process that would make the bill more fiscally responsible while still helping those in need. “Going big” while at the same time targeting policies towards the needy are not mutually exclusive events, and lawmakers should stop treating them as such.