The phase four coronavirus relief battle

E minus 85 - In the middle of May, just as the money authorized by the CARES Act was starting to be spent, House Democrats passed a massive (roundly $3 trillion) and seemingly superfluous phase four relief bill for the coronavirus. Senate Republicans were reportedly not disposed to go along with this proposal – or anything close to it – and SAFE advocated a focus on getting America back to work versus adding to the extraordinary amount of government assistance that had already been authorized. House Democrats offer a “mess of pottage,” Section D (Path forward), 5/18/20.

Don’t argue about the HEROES Act, ignore it, and focus on having the Senate draft whatever legislation Republicans feel is needed under the circumstances. Caveat: Let’s hope the GOP doesn’t propose its own multi-trillion dollar spending bill. *** Success cannot be guaranteed, but this is no time to ensure failure by giving up. America is not for sale!

Things look a bit different now. The coronavirus pandemic hasn’t subsided, the pace of reopening America is lagging (notably, many schools won’t be fully reopened in September), and polling indicates widespread sentiment that the president hasn’t shown that he can “manage” this crisis (never mind whether Joe Biden could do any better). Poll: Most Americans don’t trust Trump on coronavirus; Republicans don’t trust CDC or Fauci,,

Many pundits suggested that Republicans should make a deal on “phase four” economic relief lest they face the ire of voters in November, which implicitly assumed that the majority of Americans wouldn't get serious about fully reopening the economy unless they were personally experiencing economic hardship. In other words, a continuing stream of government largesse could distract attention from the problem – so maybe America was for sale after all.

Here’s an update on how the situation developed, the apparent outcome, and our assessment.

I. GOP counterproposal - Having passed a huge supplementary spending package in mid-May, House Democrats shrewdly stopped talking about it – probably reckoning that Republicans would have to respond eventually.

For anyone who cared to peruse their 1,852-page (double-spaced) bill, all the details were available. HR 6800 (HEROES Act),
text. Here are a few highlights:

•Another round of $1,200 per person relief payments, this time allowing $1,200 per child vs $500 and not limited to US citizens.

•$600/week federal supplement to unemployment benefits for unemployed workers (extend July 31 expiration date until December 31)

•$100 billion emergency housing assistance fund and federal moratorium on evictions for delinquent renters.

•Paycheck protection program (designed to enable small businesses to keep employees on the payroll until they reopened.) Extend expiration date from June 30 under the CARES Act (subsequently extended to August 8) until yearend.

•Some $1T in payments to state and local governments, the bulk of which would not be tied to specific measures for combatting the coronavirus pandemic

• Bailouts for insolvent multi-employer pension plan and the US Postal Service.

•Enhanced food stamp (aka SNAP) benefits.

•Standardized requirements for federal elections, e.g., early voting, mail-in voting, and same day voting.

After weeks of behind the scenes discussion among Senate Republicans, details of their $1 trillion package (collectively called the HEALS Act) began to emerge around July 22, with further details last week. Republicans release HEALS Act, Ryan Derousseau,,

Here are some of the main items. Note, by the way, that a consolidated statement of the GOP proposal was not introduced. Instead, “details rolled out in eight parts, with Senate committee leaders summarizing their separate portion[s] of the bill.”

•The president had previously pushed for a payroll tax cut, but the GOP proposed another round of economic relief checks instead (sticking to the $1,200 per adult citizen, $500 for dependent children pattern in the CARES Act).

One might question how such an approach would help in rebooting the economy vs. simply gratifying all potential voters (including many whose economic interests had not been seriously impaired). The president’s idea of a temporary payroll tax cut would at least have had the merit of increasing the rewards for seeking or maintaining gainful employment.

•Reduce the federal supplement for unemployment benefits to $200 per week initially and subsequently introduce a formula that would cut off federal support for laid-off worker receiving at least 70% of their normal pay in state unemployment benefits.

The GOP position on this issue was sound in principle, as the idea was to eliminate a disincentive for many unemployed workers to return to work. Assessing unemployment insurance, incentives and economic activity, Veronique de Rugy,,

•Some $100 billion in assistance for education designed to aid in getting students back into the schools, but no generalized support for state and local governments.

•Legislate legal protections for businesses whose employers came back to work to avoid a bonanza for trial lawyers. This feature is reportedly viewed as a “must have” by Sen. McConnell.

Although there were some sound ideas in the package, the GOP was far from united behind it and no one seemed very impressed. A Phase-Four Flop, Wall Street Journal, 7/23/20.

As Washington debates how many more trillions of dollars to borrow and spend, we are in a familiar political spot. Democrats want to spend as much as they can on everything, while Republicans have no idea what they want. Guess how this is likely to turn out?

The mainstream media seemed to believe Republicans should sweeten their offer. OK, the House-passed HEROES Act would cost $3 trillion, which was pretty pricey. But at the end of the day, wasn’t it obvious that more government spending would be needed so for goodness sakes get on with it. Split the difference on the dollars (winding up at $2 trillion) – respect the existing political balance (by accepting the Democratic position on most of the issues) – ignore anything the president might have to say. Draft reasonable stimulus plan, editorial (USA Today), News Journal,

Senate Majority Leader Mitch McConnell threw down the gauntlet on July 27, contrasting the GOP proposals with the “multi-trillion-dollar socialist manifesto” that the House had passed in May. McConnell outlines coronavirus relief package, Jim Hayek,, 7/28/20.

We have produced a tailored and targeted draft that will cut right to the heart of three distinct crises facing our country — getting kids back in school, getting workers back to work, and winning the healthcare fight against the virus.

Democratic leaders fired back that the HEALS Act was manifestly unacceptable, and the battle was on. Pelosi, Schumer slam GOP proposal [in a written statement], Gabriella Munoz, Washington Times,

The Senate GOP proposal is a sad statement of their values, selling out struggling families at the kitchen table in order to enrich the corporate interests at the boardroom table. Catastrophe is looming, and until Senate Republicans get serious, they must answer to every hungry child, every family that cannot make rent, every worker being denied their [Unemployment Insurance] for their delays.

II. Negotiations – Given that the issue was to decided between dueling legislative proposals, one might think members of Congress from both parties should have engaged in the discussion. That’s not how things had worked for the CARES Act, however, nor is it how things would work this time.

Instead, Treasury Secretary Steven Mnuchin & White House Chief of Staff Mark Meadows were appointed to negotiate with House Speaker Nancy Pelosi & Senate Minority Leader Chuck Schumer. This did not augur well for a conservative outcome as Secretary Mnuchin is neither a fiscal hawk nor a scrappy negotiator. The Mnuchin follies, Kimberly Strassel, WSJ, 7/23/20.

Speaker Pelosi’s House unveils sweeping virus legislation with vast dollar figures and progressive policy demands. Republicans argue among themselves. Treasury Secretary Mnuchin crashes in to “negotiate” the GOP back to their own 5-yard line. Senate Majority Leader McConnell reminds his caucus it is an election year and provides Mrs. Pelosi her touchdown. America goes another trillion dollars, or two, into debt.

The negotiators began meeting on a daily basis, including over the August 1-2 weekend. Details of the discussions were not being revealed publicly, but it didn’t sound like the Democrats were offering many concessions.

Notably, the Republicans pushed to resolve the unemployment benefits issue before the July 31 expiration date. The initial GOP offer of a $200 per week benefit was reportedly sweetened to $400 per week, but Democrats stuck with their $600 per week demand. Pelosi and Schumer wouldn’t even agree to a short-term extension, so the program lapsed on July 31. Democrats report “progress but a ways to go” on coronavirus aid deal with White House, Susan Ferrechio, Washington Examiner,

House Speaker Nancy Pelosi told reporters before the meeting that she won’t back any short-term deal to extend the benefits, and Democrats have already rejected such an offer from the White House as well as a Senate measure to extend them for an additional week.

Towards the end of last week, the planned August recess for the Senate was postponed. There were also ample warnings from the Trump administration negotiators that they wouldn’t be disposed to continue the talks much longer.
Beyond the magnitude of the respective spending proposals, it wasn’t clear exactly what was at stake. “Still very far apart,” Susan Ferrechio, Washington Examiner,

The two sides are trillions of dollars apart on a deal. Democrats are seeking a broad $3.4 trillion aid package, while Republicans are aiming for a package worth roughly $1 trillion. Democrats have been negotiating with Trump officials for nearly two weeks, without much advancement toward a compromise.

At the end, Democrats supposedly offered to meet Republicans in the middle, i.e., they would reduce their demands by $1 trillion if the GOP doubled their offer. This proposal was misleading, however, as it was based on adjusting the time frame for the deal versus giving ground on specific spending requests, especially the nearly $1 trillion in no strings aid for state and local governments. No deal with Democrats, Susan Ferrechio, Washington Examiner, 8/7/20.

. . . Pelosi [had] told reporters that Democrats offered to reduce their proposal by $1 trillion by shortening the time frame, but Meadows said Democrats were unwilling to remove any spending items from their proposal. “They can’t come up with any significant cuts in their bill,” Meadows said.

At this point, it seemed that the Trump administration would pull out of the talks and attempt to address what it deemed as the top priority issues by executive action. This strategy was confirmed at a prime time press conference on August 7 from the president’s golf club in Bedminster, New Jersey. Press conference transcript, 8/7/20.

"If Democrats continue to hold this critical relief hostage, I will act, under my authority as President, to get Americans the relief they need.” Deferring the collection of payroll tax for a period of months – supplement unemployment benefits through the end of the year – defer student loan payments and forgive interest until further notice – extend the eviction moratorium for delinquent renters.

III. Plan B – The idea of resorting to executive action harmonized with the president’s penchant for dramatic gestures, and it also afforded him an opportunity to revisit the earlier decision to propose economic relief checks for all citizens versus offering a payroll tax cut. There were sure to be plenty of headaches involved, including court challenges., but perhaps the Democrats would conclude they had overplayed their hand, lower their sights, and come back to the bargaining table.

If such was the outcome, or if the courts backed him, the president would be perceived as the winner – reaping a boost for his reelection campaign. And if the gambit failed, there arguably wasn’t much downside potential. Trump sets trap for Pelosi and Schumer, Mike Ford,, 8/7/20.

No matter what happens, the president comes out a winner. If the Democrats do nothing, [he] is seen as taking care of folks while negotiating in good faith. If the Democrats lose a suit, that same result obtains. If they win the suit, then [he] isn’t the one seen going to court to take money out of peoples’ pockets.

At a Saturday afternoon press conference, again from his golf club, the president took some more shots at his Democratic opponents, signed the orders that had been promised, and responded to a few questions from reporters. Sample questions: what do you say to laid-off workers whose unemployment benefits will be cut by $200/week, when exactly will people start getting this and other benefits, what if there are legal challenges, and wouldn’t it have been better to negotiate a comprehensive deal with the Democrats?

When one of the reporters refused to accept the fact that the president felt he had answered her question and was not going to allow her to accuse him of exaggerating his responsibility for veterans choice legislation, he said “thank you very much, everyone” and left the room. Press conference transcript, 8/8/20.

Here are links to the four orders, which clarified various details and the asserted bases for legal authority.

•Presidential memorandum: student loans, 8/8/20 - The original moratorium on student loan interest and payments had been established by administrative authority for 60 days under applicable statutes. The CARES Act confirmed the moratorium and made it effective until September 30. The president was now directing the Secretary of Education to further extend the moratorium until December 31.

•Executive order: homeowner’s and renters assistance,
8/8/20 - “It is the policy of the United States to minimize, to the greatest extent possible, residential evictions and foreclosures during the ongoing COVID-19 national emergency.” The previous CARES Act provisions in this area have expired, and “unlike the Congress, I cannot stand idly by.” Accordingly, the administration will take all lawful measures to minimize residential evictions and foreclosures including temporary bans on evictions and identification of previously appropriated funds that can be accessed to provide temporary assistance to renters and homeowners.

•Presidential memorandum, payroll tax obligations,
8/8/20 - The COVID-19 pandemic having been declared a national emergency, which remained in effect, it was appropriate to find additional ways to mitigate it. Accordingly, the Treasury Secretary is directed to begin deferring collection of Social Security taxes (employee portion) from the pay of employees whose pay is less than $4,000 per bi-weekly pay period or the equivalent for other pay periods. (Query: Would there be any FICA tax deferral for the self-employed?) The deferral of tax collections will be in effect for the period September 1 through December 31. All of the deferred tax would potentially be payable later, but the Treasury Secretary “shall explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred pursuant to the implementation of this memorandum.”

•Presidential memorandum, federal supplement to unemployment benefits, 8/8/20 - The COVID-19 pandemic continues, but many of the relief programs created by Congress “have expired or will shortly expire.” Notably, “Democratic members of Congress “have twice blocked temporary extensions of supplemental unemployment benefits.” The CARES Act included $150 billion appropriated directly to State, territorial, tribal, and some local governments through the Coronavirus Relief Fund (CRF); at last report, over $80 billion of this amount remains unspent. Also, the Department of Homeland Security’s Disaster Relief Fund (DRF) has a balance of over $70 billion. “I am hereby directing the Federal Emergency Management Agency (FEMA) to assist in providing benefits from the DRF, and am calling upon the States to use their CRF allocations, to bring continued financial relief to Americans who are suffering from unemployment due to the COVID-19 outbreak.” The intent would be to pay a $400 per week supplement to otherwise applicable unemployment benefits for unemployed workers, of which the federal share would be $300 and the state share (at the option of each state) would be $100, starting with the week of unemployment ending August 1. The federal share of these amounts would come out of the DRF account, subject to not reducing the balance in said account below $25 billion, and in any case the program would terminate if Congress activated a new program in this area or for weeks of unemployment ending after Dec. 6.

IV. Assessment – We aren’t big fans of pushing the limits on executive action, whether it’s being done by a Democratic president or his Republican successor. And there’s no denying that this is exactly what President Trump did in this instance. We are particularly skeptical about the benefits of temporarily reducing payroll taxes, in a way that’s certain to create confusion and resentment (what do you mean I’m supposed to pay this back?).

On the other hand, passing the HEROES Act – on top of all the other efforts of our government leaders and the Federal Reserve to load up the economy with “stimulus” – was equivalent to storing huge amounts of ammonium nitrate in a warehouse in Beirut and hoping it would never detonate. Fie on House Speaker Nancy Pelosi and Sen. Chuck Schumer, not to mention all their loyal supporters! Also, we haven’t noticed the Democratic presidential candidate expressing concern about the situation. To to the contrary, Joe Biden has advocated a massive increase in federal spending for just about everything imaginable and said nothing whatsoever about balancing the budget.

If the current combination of super low interest rates and massive government deficits continues, expect a massive and agonizing financial crisis. Too bad for our children, grandchildren, and all the other people that we care about. See, e.g., Massive inflation may be coming, because the US government has cornered itself into a fiscal end game, Antony Davies & James Harrigan,,

Let’s hope Americans were paying attention last week, and that they will remember what happened in November.

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