U.S. House of Representatives Speaker Nancy Pelosi (D-CA) speaks to reporters during a press conference in Washington on January 7, 2021.
Erin Scott | Reuters
The House is expected to pass a $ 1.9 trillion Covid-19 stimulus package on Friday and send President Joe Biden’s relief plan to the Senate.
Both chambers want to approve the bill and send it to Biden’s desk before March 14th, when key programs supporting millions of unemployed Americans expire. Pitfalls await him in the Senate where a single Democratic vote against the plan would stall him and a decision banning lawmakers from including a $ 15 an hour minimum wage threw a wrench into the process.
Democrats, who wielded tight control over Congress, chose to pass the legislation by budget vote. The process allows them to pass the bill without a Republican vote in the Senate, but it also limits what lawmakers can include in it.
The plan includes:
- A weekly unemployment insurance supplement of $ 400 and an expansion of programs that extend unemployment benefits to an additional million Americans by August 29th
- $ 1,400 direct payments to most Americans and the same amount to dependents
- $ 20 billion for a national Covid-19 vaccination program and $ 50 billion for testing
- $ 350 billion for state, local, and tribal government
- Payments to families of up to $ 3,600 per child over one year
- $ 170 billion to K-12 schools and higher education institutions to cover reopening costs and student aid
- An increase in the federal minimum wage to $ 15 per hour by 2025
While economists are more likely to believe that additional incentives would provide workers with a robust safety net when the economy recovers – not to mention accelerating GDP growth – they disagree on the need for a 1.9 bill Trillion dollars.
The case of growing up
Proponents of the spending argue that the U.S. economy is still in a precarious position and millions of Americans are still unemployed due to layoffs in the pandemic and forced government closures.
While the Department of Labor’s most recent report on unemployment claims showed a decline in first-time applicants for unemployment benefits, it also found that as of February 6, more than 19 million Americans were still enrolled in some form.
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 number of people the virus has challenged over the past year for households that are still struggling to buy groceries and stay one step ahead of rent payments.
“We think it’s very important to have a big package [that] addresses the pain this caused – 15 million Americans are behind on their rent, 24 million adults and 12 million children who don’t have enough to eat, small businesses fail, “Yellen said on Feb. 18.
The possible risks
Economists criticizing the plan tend to focus on the scope of the legislation and the potential benefits of a bill that is better tailored to the needs of businesses and workers in industries that continue to suffer most from Covid-19, such as airlines and food service and hospitality.
The most startling criticism came from Biden’s fellow Democrat and ex-Treasury Secretary Larry Summers, who warned in a February 4 comment that the bill could spark a rebound in inflation after a decade of largely flat prices.
“Given the commitments made by the Fed, government officials’ rejection of even the possibility of inflation, and the difficulty in mobilizing Congressional support for tax hikes or spending cuts, there is a risk that inflation expectations will rise sharply,” he wrote in The Washington Post .
Although macroeconomic inflation has missed the Federal Reserve’s 2% target for the vast majority of the past decade, investors are becoming increasingly concerned about the potential for price hikes.
Nathan Sheets, chief economist at PGIM Fixed Income, said that while he appreciated these concerns, he was not too concerned.
“While I see real risk of inflation rising and falling in the summer as rising demand outpaces supply rebound, I would expect that spike to be temporary,” 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 benefits of more incentives appear to outweigh the potential risks.
“The job market is stuck in a deep hole,” he wrote. “Getting those 10 million jobs back will require sustained economic growth, especially given that around half of job losses are people who have left the workforce.”
Many Republicans have questioned the need to send more aid than is needed to accelerate the Covid-19 vaccination effort and strengthen the health system.
On Wednesday, House Minority Chairman Kevin McCarthy, R-Calif., Described much of the spending as “a waste or wish list of progressives.”
A group of the Senate’s most centrist Republicans previously offered Biden a $ 600 billion plan that included vaccine distribution funds, lower direct payments to fewer people than Democrats requested, and an unemployment benefit that expired sooner than their peers wanted. The president said he would rather pass the sweeping package with only democratic votes than spend weeks negotiating a smaller bill with the GOP.
Advantages cliff and minimum wage
Democrats were keeping an eye on exceeding the March 14 deadline, when approximately 19 million Americans on unemployment benefits would lose a $ 300 weekly payment. Many unemployed people would lose their insurance if two eligibility and benefit weeks programs expired in the next month.
Congress let similar provisions expire last summer and did not renew them until December. This contributed to millions of people falling into poverty and seeking food aid.
The urge to pass the laws got into trouble Thursday night. Senate MP Elizabeth MacDonough ruled that lawmakers could not include a minimum wage of $ 15 an hour in the budget vote proposal.
The Democrats included a provision in their bill that would gradually raise the federal wage floor to $ 15 by 2025. Parliament did not remove them from legislation following the MP’s decision, House spokeswoman Nancy Pelosi said House Democrats “believe the minimum wage increase is necessary.”
The US last raised the minimum wage in 2009 to USD 7.25 per hour.
If the raise stays in the bill, the Senate will likely pass different laws than the House. The representatives would then have to meet to approve a bill a second time, probably in March.
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