Second Stimulus Package On the Way, But At What Cost?

The Coronavirus pandemic was going to “magically disappear” was what Donald Trump was hoping for. It didn’t. Instead it is re-surging and the American economy is under more pressure to reopen. As if that wasn’t enough, both Trump and the Republicans need a strong economy in November for them to succeed at the ballot boxes. But time is all but run out.

There are two economic stimulus packages making their way through Congress. The Democrats have proposed a $3 trillion package which passed the House on Democratic votes. But both the GOP at the Senate and Trump have said they have no interest in the House package.

Instead, the proposal making its way through the Senate calls for $1 trillion in federal aid. The Mitch McConnell package seems to be focused on getting schools to reopen, payroll tax breaks and possibly another round of $1,200 stimulus checks to Americans.

Because McConnell has yet to release the details of his package it is hard to understand what it contains.

However, the GOP and Trump need the economy to surge up before November. As such, the McConnell package will focus on getting businesses to open again. The key to doing so is to open the schools to both bring some semblance of normalcy back to society and to allow the parents to get back to work.

Additionally, the $600 a week federal unemployment subsidy has been blamed for keeping workers from returning to work because for many, the stimulus subsidy is more than their paycheck. To correct this disparity, the GOP is likely to cut the amount of the unemployment subsidy to force workers back to work, while giving some money to those whose jobs have disappeared.

The clearest example of getting Americans back to work is the debates over a payroll tax break. What form it will take remains to be seen. But the GOP and Trump need two things to get consumers to spend money thus making the American economy viable again before November.

Americans need paychecks but businesses are tapped out or uncertain of ramping up their workforces because of the loss of confidence in the economy. The GOP and Trump seem to believe that offering payroll incentives will get workers back on the payroll. But there seems to be a problem they seem to have overlooked. Businesses would welcome a payroll tax incentive but that will not translate into them immediately bringing their workforce up to pre-Covid-19 levels.

Finally, the GOP and Trump know that another round of stimulus payments made directly to Americans are needed to stimulate the economy by getting Americans to buy consumables. But it is likely that a new round of direct stimulus payments to Americans will have a lower threshold to qualify. They will likely be somewhere between $40,000 to $70,000 in 2019 income.

However, the one thing that is lost in the national debate about the economic crisis is the cost to future generations.

To print the money needed for the stimulus checks, the U.S. government needs to go into further debt. The U.S. debt stands at about $23 trillion.

According to the Washington Post (April 15, 2020), Congress has spent more than $6 trillion on the pandemic emergency. Half of that, about $3 trillion went towards stabilizing the economy. As a comparison, the 2008 bank bailout has cost U.S. taxpayers about $500 million, according to an MIT study in February 2019. (see footnote)

There will be another stimulus package because the pandemic has stalled the economy again and the November elections are around the corner. What form it will take is still to be decided.

However, the cost to American taxpayers well into the future is staggering.

Footnote: Lucas, Deborah, Annual Review of Financial Economics, “Measuring the Cost of Bailouts,” February, 2019

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