WASHNGTON — When Congress gets back from its extended Fourth of July break, it will be careening towards an economic cliff — and Republicans don’t seem eager to hit the brakes.
Senate Republicans have refused to work seriously on the next round of legislation to deal with the ongoing economic fallout from the coronavirus pandemic, insisting on waiting until they return on July 20 before negotiating the next COVID spending package.
That leaves Congress just days to negotiate another potentially massive spending package before some major programs run out. That includes the $600 per week in additional unemployment insurance that has helped keep millions of unemployed people out of poverty during the pandemic. It also leaves in limbo bailouts to state and local governments who have had gaping holes ripped in their budgets by the ongoing recession.
Many Republicans oppose the package in its current form because it pays out more money to some people than they were making in their jobs.
But some have signaled they’re onboard with a few aspects of Democrats’ HEROES Act, a massive $3 trillion proposal for the next round of coronavirus response that the House passed weeks ago. Republicans agree the federal government should boost funds for medical research, are open to some form of support for struggling state and local governments, and some have floated more direct payments to Americans to weather the economic crisis. But they also want liability protection to make it harder for people to sue businesses and individuals if they contract coronavirus.
“We have a lot of important features that all come to an end in July,” Treasury Secretary Steven Mnuchin, the White House’s point man on coronavirus negotiations, said during House testimony last Tuesday.
Lawmakers in both parties are operating on the assumption that they’ll pass something — it’d be a political and economic disaster for all involved if they don’t. Senate Majority Leader Mitch McConnell (R-Ky.) said last week that he planned to wrap up the legislation before Congress heads out again on its annual August recess. But what Republicans are willing to actually pass remains a mystery.
Will Republicans end the $600-a-week unemployment benefit?
Senate Republicans have made it clear they have no plans to back a full renewal of the $600 per month across-the-board boost in unemployment, arguing that it’s slowing economic recovery by disincentivizing people from returning to work.
“Unemployment is extremely important and we need to make sure for those who are not able to recover their jobs, unemployment is adequate. That is a different issue from whether we ought to be able to pay people a bonus not to go back to work,” McConnell said Tuesday. “So I think that was a mistake. And we’re hearing it all over the country, that it has made it harder actually to get people back to work. But to have the base protections of unemployment insurance is extremely important and should be continued.”
McConnell didn’t make clear whether he backed some alternate or smaller federal boost to unemployment, or just wanted state unemployment insurance programs to handle it themselves. It remains unclear at this point what if any unemployment benefit expansion Republicans would be willing to accept — or whether the GOP conference can get on the same page on an actual plan to solve the issue rather than just junk the program.
The real-world consequences of Republicans refusing to continue the expanded unemployment could be severe. While the unemployment rate dropped to 11.1% as of mid-June, down from a high of 14.7% in mid-April, it’s still sky-high by normal standards, and could tick higher as states are forced to lock down their economies to respond to spiking coronavirus cases.
Fully 30 million people have been receiving at least some unemployment insurance since the crisis began, and a Columbia University study found the original pandemic unemployment assistance funds passed by Congress as part of the CARES Act in late March helped keep around 13 million people out of poverty as of April.
Zach Parolin, the study’s lead author, estimated that if those funds aren’t extended, depending on the exact economic conditions between 15 and 30 million more Americans will fall into poverty by the end of the year.
“If Congress does not extend these benefits, it’s safe to say that poverty rates will increase in the second half of the year.”
“If Congress does not extend these benefits, it’s safe to say that poverty rates will increase in the second half of the year, that individuals who lose their jobs in the second half of the year will struggle to pay the rent and put food on the table, and there’s a high possibility that entire families would go months with little to no support from the federal government,” he warned.
A study from the nonpartisan Congressional Budget Office found that five out of six people who receive the money stand to make more on unemployment, a major sticking point for Republicans who think the money is dissuading people from returning to work. But the GOP has yet to coalesce around an alternate plan — and it’s unclear they’ll be willing and able to do so in the rushed return in late July before the program expires at the end of the month.
States need cash badly
Funding for state and local governments is another crucial piece of the next package. Most government budgets began on July 1 and will need to be adjusted dramatically as states and cities deal with gaping holes in their estimated funding, and without a major assist from the federal government, that means massive looming layoffs in a sector of the economy that’s already started to feel the damage from budget gaps.
Roughly 1.5 million state and local employees have already been furloughed or laid off, according to the Bureau of Labor Statistics, double the number during the entirety of the Great Recession of 2008-2010. That number will spike dramatically if states and cities are forced to close the gaps in their budget created by coronavirus-created revenue shortfalls by firing people and cutting services. Unlike the federal government, they have to balance their budgets.
“Employees of state and local government, many of them, especially in health care sections risking their lives to save other people's lives. And now they may lose their jobs,” House Speaker Nancy Pelosi (D-Calif.) said on Friday. “In the HEROES Act are the resources to keep state and local government running so you don't have to fire people so that they can continue services.”
A study from the Center on Budget and Policy Priorities, a progressive think tank, found that most state and local governments will see revenue drops of 10% to 20% from the previous year due to the ongoing recession — an estimated $600 billion total shortfall over previous estimates over the next two and a half years. Most state and local government officials will revisit in the late summer and fall what they’ll have to do to fix these budget shortfalls. Without federal support, they’ll have to choose between draconian cuts and tax increases.
“Congress really needs to act quickly before states and local governments build in spending cuts that are going to lengthen the recession,” warned Elizabeth McNichol, the study’s lead author.
House Democrats’ bill had about $900 billion in state and local funds. But Republicans have raged against giving states that much would let Democrats in states that had budget crises even before the recession hit off the hook.
McConnell and other Republicans originally signaled they wouldn’t give any help to state and local governments. They’ve walked that back some but have continued to express a stingy attitude towards states. In late May, McConnell said there would be a “plug” of funding for state and local governments, but that he wouldn’t allow funding that would help states fix their “preexisting” budget problems.
How much Congress coughs up will matter a lot. In the last recession, the federal government covered about a quarter of state and local governments’ budget shortfalls, forcing governments to slash employment and funding for both K-12 and higher education. Some states still haven’t fully bounced back to pre-recession levels of education spending, and K-12 class sizes have grown and public university costs have risen by 20% to 30% in many states as a result.
Plenty of other issues remain unresolved as well. The Post Office desperately needs funding to keep operating. Current federal moratoriums on evictions are set to expire, which could cause a massive homelessness crisis. Democrats want expanded food stamp assistance to help keep people from going hungry. The House bill also included $4 billion to states to help them expand mail voting and other voting options so they can run smooth elections in November — a potential looming disaster that has already been foreshadowed by chaotic primaries in states like Wisconsin and Georgia.
But the expanded unemployment insurance and funds for state and local governments are the most crucial elements of the bill. And both remain in limbo as Congress takes its annual July holiday break.
Cover: Senate Majority Leader Mitch McConnell R-KY speaks to the media after a Republican policy luncheon at the US Capitol in Washington, DC on June 9, 2020. (Photo: MANDEL NGAN/AFP via Getty Images)