The White House kicked off negotiations over a fourth coronavirus stimulus package on Sunday by staking out a pair of hard-line, mutually contradictory positions.
On Sunday morning, the president’s top economic adviser, Larry Kudlow, told CNN that the administration favored “a pause period” before supplying any additional fiscal support to the economy. After all, the previous stimulus packages — and nascent “reopenings” — could prove sufficient for restoring growth without further government intervention.
Kudlow’s line was echoed by the Republican Senate leadership, with McConnell’s third-in-command, John Barrasso, telling reporters that it was “too early” to discuss a fourth stimulus bill.
But during a Fox News virtual town hall Sunday night, Donald Trump sang a different tune. Far from downplaying the need for further fiscal measures, the president said that a “very strong” payroll tax cut and “infrastructure” spending were both “so important to the success of our country.” Trump went on to say that a payroll tax cut was nonnegotiable from his perspective and that he would block any relief package that did not include it.
This is no minor deviation from the Senate GOP’s line. Nor is it an instance of Trump improvising a policy demand for the sake of filling dead air in an interview. The president has been prodding Congress — in public and private — to cut or suspend payroll taxes since the onset of the pandemic. Resistance to Trump’s proposal has been bipartisan. Payroll tax cuts are expensive, target relief at those least in need (the employed benefit more than the unemployed, the better paid benefit more than the lower paid), don’t directly address any pandemic-induced problem, and — perhaps most importantly, for the sake of currying Republican support — do little to enrich ultrawealthy rentiers. Thus, there is no significant constituency for them in Congress. Democrats want more-progressive forms of household aid, while Republicans aren’t eager to add to the deficit for the sake of a policy that is neither necessary for averting economic collapse nor for pleasing the Koch network. Infrastructure is a slightly different story (but only slightly). Democrats are reportedly interested in a limited infrastructure package focused on expanding access to broadband and clean drinking water. But they recognize that their GOP colleagues’ tolerance for deficit spending is limited. And securing federal aid for cash-strapped states, extending elevated unemployment benefits, and delivering more cash assistance to households all appear to be higher on Chuck Schumer’s wish list.
To be sure, there are some divisions within both parties’ caucuses. Senate Republicans who hail from especially hard-hit regions favor (relatively) generous aid to states. Louisiana’s Bill Cassidy has co-sponsored a bill that would appropriate $500 billion for replacing state-level revenue lost to the present crisis. Critically, unlike Mitch McConnell’s informal proposal on the same matter, Cassidy’s legislation would not place tight restrictions on what states could spend their relief funds on. Other Senate Republicans support more aid to households and businesses, with Missouri’s Josh Hawley backing a plan for Uncle Sam to cover 80 percent of the wage bill of every business in the U.S. On the Democratic side, progressives frustrated by their meager gains in previous negotiations have assembled a long list of aggressive demands, while leadership appears more focused on shoring up blue states’ collapsing budgets.
Nevertheless, at the 1,000-foot level, Trump, Republicans, and Democrats have three distinct positions: The president wants to go big on a few pet issues, McConnell wants to shield employers from lawsuits while making Democrats sweat to secure anything for ordinary people, and Democrats want a new New Deal.
A rough list of each side’s demands makes the three-way split clear. The White House is at least considering all of the following, per recent reports:
• A payroll tax cut.
• An infrastructure package.
• Expanding the business-expense deduction.
• A tax credit to incentivize domestic manufacturing.
• Another round of stimulus checks.
• Forcing “sanctuary cities” to cooperate with federal immigration agents.
Mitch McConnell, meanwhile, has signaled support for:
• Liability protections to immunize businesses against virus-related lawsuits from workers, stockholders, and consumers (the White House is also demanding this).
• Aid for states so long as it’s used exclusively on coronavirus-related expenses and is small enough to ensure that blue states will still be forced to cut social services and public workers’ pensions to survive.
For their part, high-ranking Democrats have expressed approval for all of the following:
• $1 trillion in aid to states and cities.
• $2,000 a month in cash assistance for most U.S. households.
• Making enhanced federal unemployment benefits a permanent safety-net program that kicks in whenever the unemployment rate rises above a certain threshold.
• Covering the salaries of furloughed or laid-off workers (up to $90,000).
• Funding for nationwide vote-by-mail.
• Student debt relief.
• Elevated food stamp benefits.
• A funding increase for Medicaid.
• Work authorizations for undocumented immigrants deemed “essential” to addressing the coronavirus outbreak.
• Hazard pay for essential workers.
And this is only a partial list.
If Democrats’ priority is to achieve the best possible near-term policy outcome for the American people (as opposed to the best political outcome for their prospects of winning in November), then they should make Trump an offer McConnell would refuse. In other words, they should offer to back the president’s payroll tax cut, infrastructure plan, and business tax deductions — if the White House will endorse $1 trillion for states, permanent enhanced unemployment benefits, $2,000 in monthly cash for households, and/or whatever big-ticket progressive demands the caucus wishes to prioritize.
To this point, the major stimulus compromises have consisted largely of Democrats making a long list of demands, and Treasury Secretary Steve Mnuchin whittling that list down to one he thinks Republicans can live with. This mode of negotiation has meant that Democrats haven’t had to swallow any especially bitter pills but also haven’t forced the GOP to swallow any, either. Given the scale of the economic crisis now engulfing the United States and the consensus among experts that deflation remains a bigger threat than inflation, Democrats should aim for a different kind of compromise this time around: They should be willing to give up a lot (in fiscal terms) in order to get a lot.
A payroll tax cut would be slightly regressive. But it would nevertheless put money into a lot of ordinary Americans’ hands, thereby serving to help prop up consumer demand and avert a worse recession. If Democrats can trade such a policy for enough federal aid to avert state-level budget cuts or layoffs, they should do so in a heartbeat. And the same goes for further business tax cuts and extended unemployment benefits or monthly cash assistance. Schumer and Pelosi should also be prepared to deliver the liability protections Trump and McConnell covet (at least in some form) for a high-enough price. Adopting this posture would allow Democrats to exploit divisions between Senate Republicans and the president — who is far less ideologically allergic to many of their goals than his archconservative allies — as well as fractures within McConnell’s own caucus.
The only major downside to the “give a lot to get a lot” strategy is that it may work too well; which is to say, the trades could add up to a fiscal response so robust it significantly erodes Joe Biden’s burgeoning, recession-induced advantage in general-election polls. And this isn’t a wholly self-interested concern. Given the immense policy costs of having an incompetent, climate-denying klepotcratic regime in control of the U.S. government, Democrats might reasonably wish to prioritize Trump’s defeat over some near-term substantive gains. But then, when you’re staring down a global depression, it’s probably better to err on the side of helping the economy too much.