The House is expected to pass a $1.9 trillion Covid-19 stimulus package later Friday and send President Joe Biden's relief plan to the Senate.
Both chambers aim to approve the bill and send it to Biden's desk before March 14, when key programs buoying millions of jobless Americans expire. Pitfalls await in the Senate, where a single Democratic vote against the plan would sink it and a decision barring lawmakers from including a $15 per hour minimum wage threw a wrench in the process.
Democrats, wielding narrow control of Congress, opted to pass the legislation through budget reconciliation. The process enables them to approve the bill without Republican votes in the Senate but also restricts what lawmakers can include in it.
The plan contains:
- A $400 per week unemployment insurance supplement and an extension of programs expanding jobless benefits to millions more Americans through Aug. 29
- $1,400 direct payments to most Americans and the same sum for dependents
- $20 billion for a national Covid-19 vaccination program and $50 billion for testing
- $350 billion for state, local and tribal government relief
- Payments to families of up to $3,600 per child over a 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 an hour by 2025
While economists tend to agree that additional stimulus would provide workers with a robust safety net as the economy recovers — not to mention accelerate GDP growth — they disagree over the necessity of a bill as large as $1.9 trillion.
The case for going big
Those in favor of the spending argue the U.S. economy is still in a precarious place with millions of Americans still out of work thanks to pandemic-era layoffs and forced government closures.
While the Labor Department's most recent report on jobless claims showed a decline in first-time applicants for unemployment benefits, it also found that more than 19 million Americans were still enrolled in some form of assistance as of Feb. 6.
Earlier this month, Treasury Secretary Janet Yellen told CNBC that Biden's plan could push the economy back to full employment before the end of 2021.
She underscored the human toll the virus has taken over the past year on households that are still struggling to buy groceries and stay ahead of rent payments.
"We think it's very important to have a big package [that] addresses the pain this has caused – 15 million Americans behind on their rent, 24 million adults and 12 million children who don't have enough to eat, small businesses failing," Yellen said on Feb. 18.
The potential risks
Economists critical of the plan tend to focus on the size of the legislation and the potential benefits of a bill better tailored to meet the needs of businesses and workers in industries that continue to suffer the most due to Covid-19, like airlines, food service and hospitality.
The most head-turning critique came from Biden's fellow Democrat and former Treasury Secretary Larry Summers, who in a Feb. 4 op-ed warned that the bill could spark a rebound in inflation after a decade of mostly stagnant prices.
"Given the commitments the Fed has made, administration officials' dismissal of even the possibility of inflation, and the difficulties in mobilizing congressional support for tax increases or spending cuts, there is the risk of inflation expectations rising sharply," he wrote in The Washington Post.
Though economywide inflation has missed the Federal Reserve's 2% target for the vast majority of the last decade, investors are starting to grow uneasy about the potential for a jump in prices.
Nathan Sheets, chief economist at PGIM Fixed Income, said that while he appreciates those worries, he is not all too concerned.
"While I see a real risk of rising inflation through the summer and fall as surging demand outstrips the recovery in supply, I'd expect that this rise will be transitory," he wrote in an email Wednesday.
Sheets, who also served as undersecretary of the Treasury for international affairs under former President Barack Obama, added that the potential economic pros of more stimulus seem to outweigh the potential risks.
"The labor market remains mired in a deep hole," he wrote. "Getting those 10 million jobs back will require sustained economic growth, especially given that roughly half of the job loss corresponds to folks who have left the labor force."
Many Republicans have questioned the need to send more help beyond the money needed to speed up the Covid-19 vaccination effort and bolster the health-care system.
On Wednesday, House Minority Leader Kevin McCarthy, R-Calif., characterized much of the spending as "waste or a wish list from progressives."
A group of the most centrist Senate Republicans previously offered Biden a $600 billion plan that included vaccine distribution funds, smaller direct payments to fewer people than Democrats sought and an unemployment supplement that expired sooner than their counterparts wanted. The president said he would rather pass the sprawling package with only Democratic votes than spend weeks negotiating a smaller bill with the GOP.
Benefits cliff and minimum wage
Democrats had an eye on beating the March 14 deadline, when about 19 million Americans receiving unemployment benefits would lose a $300 per week payment. Many jobless individuals would lose insurance if two programs expanding eligibility and increasing the number of benefit weeks lapse next month.
Congress let similar provisions expire last summer and did not renew them until December, contributing to millions of people falling into poverty and seeking out food aid.
The push to pass the legislation ran into trouble Thursday night. Senate parliamentarian Elizabeth MacDonough ruled lawmakers could not include a $15 per hour minimum wage in the budget reconciliation proposal.
Democrats included a provision in their bill to gradually raise the federal pay floor to $15 by 2025. The House did not strike it from the legislation after the parliamentarian's ruling, as Speaker Nancy Pelosi, said House Democrats "believe that the minimum wage hike is necessary."
The U.S. last raised the minimum wage to $7.25 an hour in 2009.
Keeping the pay raise in the bill means the Senate will likely pass different legislation than the House does. Representatives would then have to reconvene to approve a bill a second time, likely in March.
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