The Washington PostDemocracy Dies in Darkness

Trump and Congress spar over next coronavirus economic package as CBO paints grim picture of what’s to come

Budget office says unemployment rate will stay high through next year as Democrats and Republicans clash over next priorities.

President Trump with Sen. Roy Blunt (R-Mo.) and Small Business Administration Administrator Jovita Carranza at the White House on Friday. (Jonathan Ernst/Reuters)
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House Democrats said Friday that they plan to strike quickly with their next big coronavirus relief package, but Senate Republicans are starkly divided over how to proceed. And President Trump has also sent mixed messages about his priorities, creating an uncertain path forward as the pandemic thrusts the nation into ever deeper economic pain.

The result is myriad ideas, little consensus and a frantic search for answers as warnings about the economic turmoil continue to mount.

While divisions emerged, the Congressional Budget Office on Friday painted a stark picture of economic trauma that will last through next year. It said the budget deficit will widen from $1 trillion to $3.7 trillion this year and the unemployment rate will jump from 3.5 percent in February to 16 percent at the end of September. It also projected that the economy would go through an extreme contraction between April and June.

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An emerging flash point is aid for hard-hit city and state budgets. Many Democrats support federal help, while many Republicans have competing views. Trump, meanwhile, has both spoken favorably about state aid and expressed reservations, leaving the White House’s position less clear.

The White House and lawmakers had already begun debating a new spending bill Friday, when Trump signed the latest rescue bill into law. That law directs nearly $500 billion to small businesses, hospitals and virus testing. House Democrats have begun writing a new multitrillion-dollar spending bill, but Senate Republicans are wrestling with internal divisions about whether to halt new spending or take steps such as boosting state aid and creating wage assistance.

It was the fourth piece of legislation approved in two months as policymakers scramble to arrest the virus’s medical and economic impact. Combined, the laws authorize nearly $3 trillion in new spending, an unprecedented amount of emergency aid.

Rep. Donna Shalala (D-Fla.), a member of the commission tasked with overseeing coronavirus aid, responded April 23 to a newly-passed coronavirus relief bill. (Video: The Washington Post)

The bipartisan urgency that forced consensus on the first four laws appears to have splintered.

Democrats, for example, have made clear that the four new laws aren’t nearly enough. House Speaker Nancy Pelosi (D-Calif.) said at a news conference Friday that House Democrats would move quickly to advance the next rescue bill, which she said would include a generous financial commitment to cities and states that could match what has already been done to help small businesses — close to $700 billion.

Combining that aid with other priorities Democrats have discussed, such as an additional extension of unemployment insurance and another round of stimulus checks to individual Americans, the price tag on the Democrats’ next bill could rival the $2 trillion for the Cares Act passed in late March.

“There will be a bill, and it will be expensive, and we look forward to doing it as soon as possible because jobs are at stake,” Pelosi said.

But there was scant evidence Senate Republicans would back Pelosi’s approach. Majority Leader Mitch McConnell (R-Ky.) has said that it’s time to stop spending money and assess what’s already been done and that any additional legislating should wait at least until lawmakers return to the Capitol. That’s scheduled to happen May 4, though it’s uncertain if that deadline can be met.

Washington is under a stay-at-home order through May 15, with Mayor Muriel E. Bowser (D) saying the virus is expected to peak in the District sometime in May.

Congressional Republicans have also increasingly begun to voice concerns about the rising budget deficit, something that irritates Democrats who counter that Republicans passed a $1.5 trillion tax cut in 2017 that has added to the deficit for several years.

The fact that states like Illinois and California have spent like drunken sailors should not penalize taxpayers in the other states who’ve lived within their means,” Sen. Ted Cruz (R-Tex.) said in an interview Friday with The Washington Post.

Of all the ideas being discussed, money for cities and states is now the biggest sticking point in the next round of spending. The Cares Act devoted $150 billion to localities to respond to the coronavirus, but governors have been asking for at least $500 billion more as their budgets get slammed.

They are also seeking flexibility to use the aid for general budgetary demands, not just their coronavirus response. Democrats tried but failed to get an additional $150 billion for cities and states into the legislation that Trump signed Friday.

McConnell has voiced opposition to bailing out state budgets, suggesting in a radio interview this week that they should have the option of filing for bankruptcy, a comment that drew blowback from governors. But his view is supported by many fellow Senate Republicans who oppose federal help for states they say managed their budgets poorly long before the coronavirus hit.

Trump has sounded increasingly sympathetic to that point of view, even though he said on Twitter this week that the next legislative initiative should include “fiscal relief to State/Local Governments for lost revenues from COVID 19,” the disease caused by the coronavirus.

Several governors urged Trump to help states with their finances during a recent phone call, and they played to his concerns about the state of economy heading into the election.

“What really concerns us, Mr. President, is that this will make it much harder for us to have a strong economic recovery, which I know is a top priority for you,” said Maryland Gov. Larry Hogan (R), president of the National Governors Association, according to a recording of the call reviewed by The Washington Post.

Trump said, “Some of the states, as you know very well, had a lot of problems before we got hit by the invisible enemy.

“And certainly now, they definitely have very exaggerated problems.”

But Trump also reiterated his commitment to working on the issue in the next recovery bill, which is being referred to as “Phase 4″ even though it is the fifth coronavirus bill.

“We’re going to work on that very much. We are looking to do that in Phase 4,” Trump said. “I think I can speak for the Republicans in Congress when I can say they want to get it done, they want to do something.”

Aides have shown Trump financial projections demonstrating how some of the states were already struggling and have argued Trump should not reward Democrat-heavy states with large checks in an election year.

Among those skeptical of the state money is Mark Meadows, the chief of staff.

But Pelosi drew a red line on the issue Friday, telling reporters, “There will not be a bill without state and local” aid.

Top administration officials have largely emphasized the need to spend now, rather than hold off because of deficit concerns. Trump himself has never been particularly concerned with the deficit and has pushed for expensive proposals such as a massive infrastructure bill and a suspension of the payroll tax, which could force the government to redirect money to the Social Security trust funds.

In an interview with Fox News this week, Treasury Secretary Steven Mnuchin said the administration is “sensitive” to the economic impacts of the mounting debt but stressed that low interest rates meant the actual cost to taxpayers was low.

“I think we’re all sensitive to that this is a war and we need to win this war,” Mnuchin said. “And we need to spend what it takes to win the war.”

And despite the concerns voiced by McConnell and others in the Senate GOP leadership, Senate Republicans are not all advocating for a pause in spending.

Sen. Josh Hawley (R-Mo.) has been aggressively promoting a proposal aimed at limiting job losses with provisions such as a hiring bonus and a payroll tax rebate covering 80 percent of an employee’s wages up to the national median wage.

“I think it’s less a question of if we’re going to spend the money but how,” Hawley said. He acknowledged his views were not shared by all fellow Republicans but said that as unemployment levels continue to rise, the need for action would become clear, deficit or no.

For his part, Trump has continued to talk to advisers about a large payroll tax cut for American workers, an idea he initially embraced in March but later discarded in favor of direct stimulus payments to families. The president this week spent time talking with Art Laffer, a supply-side conservative viewed skeptically by most mainstream economists, about how to structure a payroll tax cut or tax holiday in the next stimulus package.

The White House is also preparing to ask Congress to extend numerous tax breaks set to expire in 2022 under the tax law, particularly an expensing provision that allows businesses to offset the value of new investments from their taxes, according to a senior administration official, speaking on the condition of anonymity to discuss internal planning measures. The Cares Act passed by Congress in March already had hundreds of billions in tax cuts, including revisions to the 2017 tax law.

“It’s very important that, as we move toward the economic recovery stage, we keep in mind the importance of business incentives,” Larry Kudlow, the White House’s top economic adviser, said in an interview.

Two senior administration officials also said the White House is also likely to ask Congress to approve a “liability shield” that would prevent businesses from being sued if a customer or employee gets covid-19. That measure, demanded by businesses nervous about opening themselves up to lawsuits if their customers get sick, is likely to be fiercely opposed by Democrats who maintain it allows large corporations to escape their legal obligations.