“As we start thinking down the road in future iterations, my hope would be that it’s more fine tuning what we’ve already done rather than taking on big, aggressive new initiatives that are paid for by additional debt,” Senate Majority Whip John Thune (S.D.), the chamber’s No. 2 Republican, said in an interview. He warned that at some point, “we’re going to run out of capacity at the federal level.”
In rapid fashion, Congress approved nearly $3 trillion in fresh federal spending to combat the public health and economic damage from the coronavirus since its dangers came into sharper focus earlier this year. Yet a new analysis from the Congressional Budget Office this week depicted a painful economic outlook with soaring jobless rates and widening federal deficits — triggering a fierce debate in Congress about what should come in the next tranche of virus-related legislation.
But the coming battle over spending is not solely partisan. It is also stirring a debate among Republicans about how substantial the package should be and whether concerns about debt are misplaced at a time of economic crisis, when the government continues to be able to borrow at rock-bottom prices.
After years of pillorying the Obama administration over spending and blocking efforts to pump more money into the economy following the 2008 financial crisis, GOP leaders now find themselves struggling with how to balance the need to prop up the struggling economy ahead of the fall’s elections with concerns that too much spending could hurt them with their base of voters.
“Concerns about federal deficits and debts are being swamped by the scale of the crisis right now, but when our economy rebounds, they will return as a serious issue for voters,” said Michael Steel, who served as a top aide to then- House Speaker John A. Boehner (R-Ohio) and 2016 GOP presidential candidate Jeb Bush. “As we saw after 2008 and 2009, paroxysms of federal spending tend to spawn ferocious blowback.”
In a conference-wide phone call Thursday morning, GOP senators broadly agreed to hold off on any new virus spending until lawmakers return to Washington on May 4, according to people on the call and those briefed on the conversation, who spoke on the condition of anonymity to describe the private discussion. It’s unclear whether Congress will resume on that date — D.C. officials have said the number of coronavirus cases are projected to peak sometime in May, and the city is under a stay-at-home order through May 15.
“No more spending until we assess the money that’s already been spent — where the money is going, going to the right places, how much is the right amount,” Sen. John Barrasso (Wyo.), the No. 3 Republican, said in an interview. “The majority of the Republican conference views debt as debt.”
Yet economists from the right and left — as well as a not-insignificant number of GOP senators — are warning of the dangers of pulling back on federal spending too quickly, alarmed that doing so will create long-lasting problems for the economy and the American worker.
“I’ve been a deficit hawk economist for 20 years. As soon as the economy recovers, we are going to need significant deficit reforms,” said Brian Riedl, a senior fellow at the Manhattan Institute who has worked for Sen. Rob Portman (Ohio) and other prominent Republicans. “But again, you can’t begin to solve the debt crisis until they have solved the economic crisis, and that will take spending money in the short term.”
Similarly, top administration officials have largely emphasized the need to spend now and worry about deficits later. Trump has never been particularly concerned with the government’s increasing debt and has pushed for expensive proposals such as a massive infrastructure bill and slashing the payroll tax, which would drain money out of the Social Security fund.
In an interview with Fox News this week, Treasury Secretary Steven Mnuchin said the administration is “sensitive” to the economic effects of the mounting debt, but argued that low interest rates mean that the actual cost to taxpayers is low.
“We need to spend what it takes to win the war,” Mnuchin said.
To that end, Sen. Josh Hawley (Mo.), a rising star in the national party, is promoting an ambitious plan that would require the federal government to shoulder 80 percent of U.S. employees’ wages up to the national median wage. His proposal also calls for the government to offer bonuses for employers to rehire those who have been recently laid off.
In an interview, Hawley warned of potentially severe economic costs of failing to spend now to ensure Americans keep their jobs — even as his vision runs counter to the tinker-around-the-edges perspective of his leadership.
“If we find ourselves in a long-term depression, you know, you talk about out-of-control spending, that will happen,” Hawley said. “So my point is right now, we have an acute crisis. Let’s address that crisis as quickly as we can and try to get out of it as quickly as we can and to me that’s all about jobs.”
Another rising flash point within the GOP is how much to dole out in federal aid to ailing states and local governments.
McConnell has suggested that states use the bankruptcy route in dealing with their strained budgets. A handful of Republican senators and Trump, in part, have backed his view that some states had mismanaged budgets long before the pandemic and should not be bailed out by the federal government.
But McConnell’s remarks prompted an angry backlash from both Republican and Democratic governors seeking a substantial infusion of federal aid who dismissed the argument that they had mismanaged their state’s finances.
GOP officials said McConnell is simply advocating for more scrutiny of state and local aid, particularly after, in their view, Senate Minority Leader Charles E. Schumer (D-N.Y.) in previous spending talks pushed for money that lacked restrictions on how it could be spent.
But the minimum price tag that governors, Democrats and some Republicans are seeking — $500 billion — is running into resistance from GOP leaders.
“Will not happen,” Barrasso said of that figure. “You just said $500 billion? No. No.”
Some Republicans are supportive of this type of funding and Trump has said that he is open to aid for states and local governments.
Sen. Bill Cassidy (R-La.) has been advocating for a $500 billion proposal, written with Sen. Robert Menendez (D-N.J.), that would pour federal aid into state and local governments to help them maintain essential services and to bolster their public health capacities. That figure is in line with the request from the National Governors Association. House Democrats are aiming higher, closer to $700 billion.
A Cassidy spokesman said McConnell’s statement signaling he prefers states file for bankruptcy instead did not change the senator from Louisiana’s view that state and local governments need this money.
Portman, who served as White House budget director during the George W. Bush administration, has similarly pushed for additional funding so municipalities can pay public-safety workers, firefighters and emergency personnel.
Other GOP senators have also pushed back at McConnell’s suggestion that states and local governments take the option of filing for bankruptcy.
“My initial thought honestly was, I didn’t agree with that approach,” said Sen. Shelley Moore Capito (R-W.Va.), who has been speaking regularly with her governor. She warned of the “devastating impact” if states and local governments were forced into mass layoffs.
As the debate over the next phase of virus spending unfolds, Trump has continued to talk to advisers about a large payroll tax cut for workers. Senate Republicans haven’t grown any warmer to the concept, considering it benefits only those workers still on a payroll at a time when record numbers of Americans are applying for unemployment benefits.
As for infrastructure, Senate Republicans are largely working off a framework that includes a highway bill that unanimously cleared the Environment and Public Works Committee last year. Barrasso and Capito said the plan was to merge that legislation with a water infrastructure bill once senators return to Washington for a broader stimulus effort.
Barrasso said he had spoken to Trump about that strategy and that he’s been “very encouraging.” And Capito said that stimulus measures are necessary as economic conditions continue to crater.
“If you’ve ever seen a building fall down, when they’ve imploded, it begins to come up and then all of a sudden, it just drifts down really quickly,” Capito said. “I don’t know where we are in that phase, but I still think we have parts of the building that are still going to be falling, and so because of that, I don’t think it’s the time to pull back.”
Erica Werner contributed to this report.