Fiscal Policy

What Will the Next COVID-Relief Bill Look Like?

The Capitol Building at sunrise in Washington, D.C., November 17, 2008 (Jim Young/Reuters)
With a $2 trillion gap between the parties’ respective proposals, the last-minute scramble to get something done is just beginning.

You can give House Democrats credit for one thing: When they realized that another COVID-19 relief bill would be necessary, they got right on it. Their HEROES Act — I won’t bore you with the full name — has been passed and sitting on the shelf for a couple of months now. Senate Republicans, by contrast, just unveiled their HEALS Act proposal this week, as the previous round of unemployment relief approached its end-of-July expiration date.

Thus, we’re in for another one of those confusing bursts of last-minute legislative chaos, in which major provisions change constantly as the House, the Senate, and the White House try to whip up something they can all agree on. More than likely, we’ll find out too late about a bunch of drafting errors and unintended loopholes, but that’s Washington for you.

A big-picture way of thinking about the debate is this: The Democratic bill would cost $3 trillion, while the Republican bill would apparently cost around $1 trillion. So let’s take a brief look at where those spending differences come from, with the help of some handy cheat sheets featuring detailed, if tentative, cost estimates from the Committee for a Responsible Federal Budget.

The gap mainly boils down to this: The House bill would give a lot more money to state and local governments, and also to sympathetic constituencies ranging from the unemployed to those with student debt.

Social distancing, both voluntary and government-mandated, has wrought utter havoc on the economy, which obviously hurts state and local budgets as well. And while the federal government can easily borrow money, state and local governments have far less borrowing capacity and are often subject to balanced-budget rules. Helping them out could prevent them from reducing services, laying off workers, or even going bankrupt — but depending on how it’s structured, relief could also bail states out of their own self-made problems or encourage them to lock down for longer than necessary.

The Democratic bill ponies up more than a trillion dollars to the states, routing the money through several different formulas. The Republican bill mostly avoids cash aid to the states, though it does give them more flexibility to use preexisting funds and tosses in $100 billion to help schools and colleges. That’s about half of the $2 trillion difference right there.

The other trillion is spread across numerous areas, but the overall pattern is that Democrats are a lot more generous toward various groups they’d like to help. For instance, Democrats would continue giving an extra $600 a week to the unemployed through the end of the year, which means that a lot of workers would get more money if they’re laid off than if they work, while Republicans would cut the weekly bonus to $200 through September and cap payments at 70 percent of previous wages thereafter. This is one of the most high-profile issues here, and it accounts for around $300 billion of the cost difference between the two plans.

Democrats would also boost poverty relief through food stamps ($35 billion) and various forms of housing assistance (about $200 billion). They’d spend $137 billion eliminating the cap on the state-and-local-tax deduction, about $150 billion boosting the child, earned-income, and child-care tax credits, $22 billion forgiving student loans for distressed borrowers, $50 billion on pension relief, and $200 billion providing “hazard pay” to essential workers. And they’d raise about $250 billion hiking certain business taxes.

I’m not much of a prognosticator, but here are a few wild guesses about how things might play out. For one thing, both bills include another round of stimulus payments and small-business help in some form, so that will happen. For another, there’s no way in the world Republicans will extend the $600 weekly unemployment boost through the end of the year, so that will get reduced, if perhaps not as much as the GOP would like. Republicans are also dead-set on including liability protections for businesses that reopen, so that should happen in some form as well. I’ll also go out on a limb and say Congress won’t choose this moment to step on the political third rail of Social Security, however timidly.

As for Democrats’ priorities, aid to state and local governments will be a major point of contention, and I’d be surprised if some decent chunk of it didn’t make the final agreement. Republicans will probably also be willing to compromise on some of the other lower-dollar provisions the Dems included in their own bill, because it’s really crucial to get something passed quickly.

The big question is where the price tag ends up. A bipartisan group of economists proposed a plan last month that they said would cost $900 billion to $2 trillion, and $2 trillion is also roughly the midpoint between the two parties’ original plans, so that seems like a ceiling. But I’m sure Republicans would much prefer to keep it below, say, $1.5 trillion instead, so we’ll have to see how the votes shake out.

It sure would have been nice if Congress hadn’t waited until the last minute to figure all this out, wouldn’t it have?

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