US President-elect Joe Biden. Picture: REUTERS/KEVIN LAMARQUE
US President-elect Joe Biden. Picture: REUTERS/KEVIN LAMARQUE

Washington — President-elect Joe Biden’s plan to pass a multitrillion dollar economic stimulus package early in his administration faces challenges in a closely divided US Senate, with a potential impeachment trial for Donald Trump that could add to delays.

Biden is set to release his proposals — the price tag for which has yet to be unveiled — on Thursday. The package will feature a range of support for state and local authorities long blocked by Republicans, a bump in direct payments to $2,000 and expanded unemployment benefits, with funding for vaccine distribution, school reopening, tax credits, rental relief and aid to small businesses.

Parts of last month’s $900bn aid bill start running out in mid-March, and may not prove enough to forestall an economic contraction this quarter as the coronavirus continues to surge and wreak record deaths. Failure to win congressional approval by then could wallop equities, which climbed to a record last week after Democrats won Senate control in the Georgia runoff elections, spurring expectations of a major new stimulus.

The stakes underscore the risk of proceeding with outgoing President Trump’s impeachment. The Senate isn’t coming back until January 19, and an impeachment trial by law pushes to the top of calendar. House Democrats are considering passing an impeachment article this week, then withholding it from the Senate indefinitely to allow the stimulus bill to jump ahead of impeachment in the legislative timetable.

Many elements of Biden’s plan are expected to be drawn from House Democrats’ $3.4-trillion Heroes Act, which passed in May and was blocked by the GOP-controlled Senate.

Tying these programmes to conditions on the ground also ensures Mitch McConnell and Senate Republicans can’t hold them hostage
Ron Wyden, Senate finance committee chair

Economic and political aides to Biden spent the last several days working on size and components. Aides are still weighing the desire to spend money to help as many Americans as possible, against the political feasibility of passing another bill through Congress — even a Democratic-controlled one.

Senator Chuck Schumer is set to be majority leader with the barest possible control of the chamber — a 50-50 split. Deficit-hawk Democrats from conservative states, such as West Virginia’s Joe Manchin and Montana’s Jon Tester, will have equal influence with leftist progressive Bernie Sanders.

Biden on Friday highlighted that the current historically low level of interest rates allows for taking action now to bolster both the short-term and long-term growth outlook. Ultimately, it would “reduce our national debt burden”, he said.

“If we don’t act now things are going to get much worse,” Biden said on Friday.

Republicans are unlikely to warm to the argument for more short-term deficit spending. Their congressional leaders have signalled they will likely resist another major package after the last two record-high $2-trillion and $900bn relief bills — leaving it to Democrats to pass a bill on their own or to try to pick off a few centrist GOP votes.

Biden and Schumer will also need to hold the Democratic caucus together. Manchin specified on Friday he wants direct payments “targeted to those who need it”. On Sunday, he said $2,000 checks aren’t a clear “no” for him, but indicated he’s sceptical. Among his concerns: many higher-income families who have not lost their jobs get the benefit.

Parts of Biden’s plan, including stimulus checks, unemployment relief and rental assistance, can be passed with just 50 votes using a special procedure for budgetary legislation. But other measures, such as state and local aid, may not qualify for so-called reconciliation, and would then require 60 votes; at least 10 Republicans would be needed to proceed.

Large surplus

The Biden team views boosting GDP as just one metric of success, according to an ally of the president-elect. The uneven nature of the economic recovery has meant parts of the labour market have been hit much harder than others. Friday’s employment report showed a 140,000 slump in payrolls in December — the worst monthly report since April — with restaurant jobs hit particularly hard.

Appetite for some parts of a giant new bill could yet be limited. With California reporting an unexpectedly large surplus in its state budget last week, the case for the half-a-trillion dollars in aid that Democrats were seeking for state and local authorities before the election may be tough to make to moderate members of the party. Some GOP members had backed $160bn, while others wanted none.

Key Democrats are already weighing in with their own proposals for the bill.

Senate finance committee chair Ron Wyden wants to link expanded unemployment benefits for gig workers and the long-term unemployed to automatic triggers that would extend the programmes based on national and state unemployment rates. The idea is to remove the need to negotiate repeated extensions after the initial bill is passed.

Wyden is also interested in boosting supplemental unemployment insurance payments to the $600 level that expired in mid-2020. The December bill included $300.

Tax credit

“Tying these programmes to conditions on the ground also ensures Mitch McConnell and Senate Republicans can’t hold them hostage,” said Wyden, referring to the GOP leader.

Biden’s plan is likely to include an expansion of the child tax credit and tax break for dependent care, according to a person familiar with the plan. It could also have an expansion of the earned income tax credit, the person said.

Biden’s campaign tax plan called for increasing the child tax credit to $3,000 from $2,000 for families with children 17 and younger for 2021 or for as long as the economic downturn persists. For children six and under, they would get an additional $600. Biden’s plan would make the child tax credit fully refundable, meaning that families get the money back in the form or a refund if they don’t owe very much in taxes. This would cost about $105.5bn in 2021, according to the right-leaning Tax Foundation.

Biden has also favoured expanding the child and dependent care credit, a boon for families who haven’t had access to their typical care arrangements during the pandemic. Biden’s campaign plan featured a tax credit of up to $4,000 for one dependent or $8,000 for multiple dependents. The current maximums are $3,000 for one dependent or twice that for multiple. The proposal would cost about $112.8bn over a decade, according to the left-leaning Urban-Brookings Tax Policy Center.

More restrained

Wall Street banks’ expectations for the next round of stimulus fall well short of Biden’s multitrillion dollar framework. JPMorgan Chase & Co is at the higher end, pencilling in $900bn, while Goldman Sachs Group stands at $750bn.

Others are even more restrained. UBS Group economists estimate any new Covid-19 relief package in the wake of Biden taking office at $500bn.

“We are firmly in the camp looking for half a loaf rather than a whole loaf” on the next fiscal package, said Seth Carpenter, UBS’s chief US economist, who worked at the treasury department in the Obama-Biden administration. Carpenter highlighted the ability of Manchin and other centrist Democrats to scale block more ambitious proposals.

Bloomberg

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