The House is expected to approve a $ 1.9 trillion Covid-19 stimulus package on Friday and send President Joe Biden’s aid plan to the Senate.
Both chambers intend to pass the bill and send it to Biden’s table before March 14, when the main programs that support millions of unemployed Americans expire. Pitfalls await in the Senate, where a single Democratic vote against the plan would sink it and a decision that prohibits lawmakers from including a $ 15 hourly minimum wage affected the process.
Democrats, closely controlling Congress, have chosen to pass legislation through budgetary reconciliation. The process allows them to pass the bill without Republican votes in the Senate, but it also restricts what lawmakers can include in it.
The plan contains:
- A $ 400 weekly unemployment insurance supplement and an extension to programs that expand unemployment benefits to millions of Americans through August 29.
- $ 1,400 in direct payments for most Americans and the same amount for dependents
- $ 20 billion for a national vaccination program from Covid-19 and $ 50 billion for testing
- $ 350 billion to aid state, local and tribal government
- Family payments of up to $ 3,600 per child over a year
- $ 170 billion for K-12 schools and higher education institutions to cover reopening and student aid costs
- An increase in the federal minimum wage to $ 15 an hour by 2025
While economists tend to agree that the additional stimulus would provide workers with a robust safety net as the economy recovers – not to mention accelerating GDP growth – they disagree about the need for a $ 1.9 account trillion.
The case for growth
Those in favor of spending argue that the US economy is still in a precarious situation, with millions of Americans still unemployed, thanks to layoffs in the pandemic era and the forced closure of the government.
While the most recent Department of Labor report on claims for unemployment benefits showed a decline in applicants for the first time for unemployment benefits, he also found that more than 19 million Americans were still enrolled in some form of assistance until 6 February.
Earlier this month, Treasury Secretary Janet Yellen told CNBC that Biden’s plan could bring the economy back to full employment before the end of 2021.
She highlighted the human tribute the virus caused last year in families that are still struggling to buy groceries and anticipate rent payments.
“We think it’s very important to have a big package [that] is about the pain this has caused – 15 million Americans behind on rent, 24 million adults and 12 million children who don’t have enough to eat, small businesses failing, “said Yellen on February 18.
The potential risks
Economists who criticize the plan tend to focus on the size of the legislation and the potential benefits of a bill better adapted to meet the needs of companies and workers in sectors that continue to suffer more due to Covid-19, such as airlines, food and hospitality services.
The most surprising criticism came from Biden’s Democratic colleague and former Treasury secretary Larry Summers, who in a February 4 article warned that the bill could trigger a recovery in inflation after a decade of mostly stagnant prices.
“Given the commitments the Fed has made, the rejection of government officials even the possibility of inflation and the difficulties in mobilizing Congressional support for tax increases or spending cuts, there is a risk that inflation expectations will increase dramatically” , he wrote in The Washington Publish.
Although inflation across the economy has not met the Federal Reserve’s 2% target in the vast majority of the past decade, investors are beginning to worry about the potential for a price jump.
Nathan Sheets, chief economist at PGIM Fixed Income, said that while he appreciates these concerns, he is not overly concerned.
“Although I see a real risk of rising inflation during the summer and falling, as the growing demand outweighs the recovery in supply, I expect this increase to be transitory,” he wrote in an email on Wednesday.
Sheets, who also served as undersecretary of the Treasury for international affairs under former President Barack Obama, added that the potential economic pros of further stimulus appear to outweigh the potential risks.
“The job market remains stuck in a deep hole,” he wrote. “Getting those 10 million jobs back will require sustained economic growth, especially considering that about half of the job losses correspond to people who have left the workforce.”
Many Republicans questioned the need to send more aid in addition to the money needed to speed up Covid-19’s vaccination effort and strengthen the health care system.
On Wednesday, the minority leader in the House, Kevin McCarthy, R-Calif., Characterized much of the spending as “waste or a progressive wish list.”
A group of the most centrist Republicans in the Senate previously offered Biden a $ 600 billion plan that included vaccine distribution funds, smaller direct payments to fewer people than Democrats sought and an unemployment supplement that expired earlier than his colleagues. desired. The president said he would rather approve the broad package with only Democratic votes than spend weeks negotiating a smaller project with the Republican Party.
Cliff and minimum wage benefits
Democrats were eyeing the March 14 deadline, when about 19 million Americans receiving unemployment insurance would lose $ 300 a week. Many unemployed individuals would lose insurance if two programs to expand eligibility and increase the number of benefit weeks expire the following month.
Congress let similar clauses expire last summer and did not renew them until December, contributing to millions of people falling into poverty and seeking food aid.
The pressure to pass the legislation ran into problems on Thursday night. Senate congresswoman Elizabeth MacDonough decided that lawmakers could not include a minimum wage of $ 15 an hour in the budget reconciliation proposal.
Democrats have included a clause in their bill to gradually raise the federal pay floor to $ 15 by 2025. The House did not withdraw it from the law after the legislator’s decision, as House Speaker Nancy Pelosi said the House Democrats “believe that raising the minimum wage is necessary.”
The United States last raised the minimum wage to $ 7.25 an hour in 2009.
Maintaining the salary increase in the bill means that the Senate is likely to pass legislation different from what the House does. The representatives would then have to meet again to pass a bill a second time, probably in March.
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