Via Financial Times

Donald Trump’s top economic officials and Congress are gearing up for a new round of fiscal stimulus talks in response to the coronavirus pandemic, amid intense pressure from businesses and the public for a broader package of measures to blunt the hit to the US economy. 

As coronavirus cases have soared across the US, the Trump administration and Congress have already agreed $8.3bn in emergency funding to tackle the crisis. Last week they settled on a more extensive package of short-term economic measures, which is expected to be enacted in the coming days. 

But with economic activity grinding to a near halt in many communities, equity markets selling off and many sectors seeing a sudden drop in their revenues, the White House and lawmakers are being forced back to the negotiating table to discuss even more sweeping macroeconomic measures to damp the blow, potentially including new tax cuts and spending measures. 

“We need big, bold policy moves now to ensure businesses continue to function, meet payroll, and keep American workers employed,” Tom Donohue, chief executive of the US Chamber of Commerce, the largest US business lobby group, said on Monday. “Similar to major natural disasters of the past, the coronavirus will have a significant economic impact — and we must act accordingly.” 

Larry Kudlow, the director of the National Economic Council at the White House, said earlier this month that the administration would take a “micro approach” to stimulus. On Monday, he said the administration favoured an “enormous fiscal plan” worth $800bn, including reductions in payroll taxes. 

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Steven Mnuchin, the US Treasury secretary, on Sunday pointed in particular to the need to help stricken industries.

“We’re going back to the Senate this week on other things. Airlines, very focused on airlines, hotels, cruise ships, workers for these industries,” Mr Mnuchin said. “So, we’re going to get this bill done and we’re going to get more bills done on a bipartisan basis.”

Mr Mnuchin is expected to meet Republicans who control the US Senate on Tuesday to discuss the new stimulus. While the Trump administration has supported a reduction in payroll taxes, some Republicans support cash payments for Americans to weather the storm.

Mitt Romney, the Utah senator, on Monday backed a plan to send a cheque of $1,000 to each American, a solution which echoes stimulus plans adopted by George W Bush during the downturns in 2001 and 2008.

Such proposals may also garner some backing among Democrats, who control the House of Representatives and whose support is crucial to pass any legislation. Andrew Yang, the former Democratic presidential contender whose campaign was centred on the idea of giving every American a universal income of $1,000, said Congress should consider “putting money into people’s hands” to tackle the crisis.

Jason Furman, a Harvard professor who was the top White House economic adviser to President Barack Obama, has also argued that Congress should pass legislation to pay each American adult $1,000 and each child $500. 

However, the key players in the negotiations have yet to show their cards on the substance of the next stimulus package, or its size. “A number of things are under consideration, it’s a fluid situation,” one Treasury official said.

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A spokesperson for Richard Neal, the chairman of the Ways and Means committee in the House, said he “absolutely wants to take additional action to make sure Americans have money in their pockets and are financially able to get through this crisis”.

While the Trump administration and Democrats have been able to agree fairly quickly on the smaller coronavirus economic measures, some analysts are warning that bigger stimulus could be more thorny politically. 

“We may see protracted negotiations on the stimulus bill as the two sides disagree over what should be the priority,” Beacon Policy Advisers said in a note on Monday.

“It could be that the only way to get the legislation through so many competing groups could be to allow it to become a so-called ‘Christmas tree bill’ that everyone can hang their favoured ornament on, be it a payroll tax cut, an expanded earned income tax credit, or other more targeted stimulus measures favouring specific politically-connected industries,” they added. 

Economists say that speed and size are more important than precision. 

“This stuff has to be totally front loaded,” said Claudia Sahm of the Washington Center for Equitable Growth, a former research section chief at the Federal Reserve’s board of governors. “You have got to get money out now.”

Adam Posen of the Peterson Institute for International Economics, said that policymakers could not treat the current crisis like a normal recession. He proposed that the Treasury should heavily subsidise loans to businesses with fewer than 500 employees, and said that companies should get a wage subsidy for keeping workers on their staff.

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“It’s about bridging these businesses and their associated jobs through this,” he said.