Congressional Republicans and the Trump administration have spent the past few months putting off another round of coronavirus relief. Watching and waiting made some sense, given the fluidity of our condition, but it now leaves them with little time to reach a common position and then negotiate an acceptable outcome with the Democrats.
Senate Republicans have made a good start by ditching two bad ideas. One is President Trump’s demand for a big reduction in the payroll tax. Under the right circumstances, cutting that tax would be a very good idea. It does not, however, fit the needs of the moment very well. The millions who are out of work would not receive any direct benefit from it, while many people who don’t need help would. Federal revenue, meanwhile, would drop. Deficits will unfortunately have to rise over the short term, but they should do so only for good reasons.
The other abandoned idea is Senator Chuck Schumer’s demand for the return of an unlimited deduction for state and local taxes. Republicans capped it in the tax law they enacted in late 2017. They were right to cap it; if anything, it should be eliminated. The deduction makes it easier for state governments to increase their spending and taxes. Even if the Democrats had the better of the argument over the policy, however, it would not bear any relation to the country’s needs during the COVID pandemic. The people who would benefit from the expanded deduction — high earners in high-tax states — overlap very little with the people in dire straits.
Expanded unemployment benefits made sense at a time when our national anti-COVID strategy included temporary lockdowns. Those higher benefits were, among other things, a way to maximize the effectiveness of those lockdowns by enabling compliance. But the increase was much too large in many cases, with people getting more money for not working than they had gotten on the job. As a recovery gets underway, we want work to resume — which means those benefits should be tapered off.
There is still bipartisan support for $1,200 checks for most Americans. If the federal government is going to spend that money — and we are open to the idea that it should not — it would be better to use it to expand the earned-income tax credit, further encouraging work, and the child tax credit, recognizing the cost of parental investment.
Small businesses continue to need help. Because many businesses that are viable in the long run are going to continue to face depressed revenues for the next few months, the forgivable-loan program for them should be extended — especially since the red tape attached to those loans was lightened only recently. Businesses should also receive liability protection if they follow easily verified safety guidelines. The point is not that they should be immune to consequences for reckless action, but that they should be able to operate in a predictable legal landscape.
The toughest pill for Republicans to swallow will be aid to states and localities. A significant amount of such aid is, however, necessary. Revenues are down, state budgets have to be balanced, and an already-stricken economy would suffer from either state tax increases or layoffs. But aid can reasonably be coupled with conditions, including repayment obligations and better accounting standards for state pensions. Since Democrats are sure to want too much, the Senate Republicans’ omission of aid to governments from their bill is defensible as a negotiating position — but only as a negotiating position.
We would be happier about the course of action Washington is taking if it had taken our advice over the past several decades to keep its normal commitments affordable. If we are to avoid large tax increases, including on the middle class, we will still need to contain the growth of entitlements. No part of the capital seems interested in taking that responsibility seriously.
Rejecting the Trump and Schumer ideas should, however, be feasible even for today’s Congress. It should at the least be expected to respond to the crisis we continue to face rather than pursue whims and distractions.