(Bloomberg Opinion) -- President Joe Biden has laid out an ambitious agenda to support the economy and fight Covid-19. But he is running into opposition from both Republicans and some moderate Democrats in the Senate. He faces a choice: craft a bipartisan compromise, or try to muscle a bill through the chamber on a party-line vote.
He should choose compromise. Biden can give the economy the support it needs without getting all $1.9 trillion worth of spending in the proposal he released earlier this month — and he can do it while building, not depleting, political capital. If more economic relief is needed in the future, he’ll need political support.
For now, Biden can dust off a potential deal that should have been struck last summer: Trading a temporary liability shield for businesses against frivolous, virus-related lawsuits for federal aid to state and local governments.
Biden’s plan would create a national vaccination program, scale up Covid-19 testing and attempt to reopen schools. It would provide checks of up to $1,400 to individuals, beef up the social safety net and expand the generosity of unemployment benefits. It would support child-care providers, provide rental assistance and increase the federal minimum wage to $15 per hour.
That’s too much.
There are two useful ways to determine how much government spending is actually needed: top-down and bottom-up. The top-down way is to start by figuring out the size of the economic hole that needs to be filled, and then for Congress to decide how to spend the needed funds.
In the third quarter of 2020, the gap between what the economy could have produced given its underlying resources and what it actually was producing was around $600 billion. In the fourth quarter, it was around half that amount. The hole will continue to shrink in 2021. In addition, Congress passed a $900 billion stimulus bill last month, which will provide a significant boost to the economy this year. So Biden’s proposed $1.9 trillion is significantly more than the economy will need.
The bottom-up approach would start with a different question, asking what specific programs and policies the economy needs. A strong argument can be made for fighting the virus and expanding the safety net by increasing the generosity of nutrition assistance and the tax credit for children. But doubling the federal minimum wage — making minimum-wage workers twice as expensive to employ — during a weak labor market would be counterproductive. Sending checks to households earning six-figure incomes who haven’t lost their jobs is unnecessary.
It’s no surprise, then, that Biden is running into resistance on Capitol Hill. And not just from Republicans. Senator Angus King, the Maine Independent who usually votes with the Democrats, is concerned that Biden’s plan is too expensive. Senator Joe Manchin, Democrat of West Virginia, has expressed skepticism about the direct checks to individuals.
One strategy Biden could follow would be to recognize that momentum is building against his plan and attempt to quickly ram it through using procedural measures that would require only 50 votes in the Senate. As a newly elected president, he would probably be able to pressure all 50 Senate Democrats to vote with him. Vice President Kamala Harris could then break a tie.
But this would be a political and economic mistake. It would mean that his commitment to bipartisan deal-making is only rhetorical, giving Senate Republicans an excuse to avoid future cooperation. And it would make it even more difficult for Biden to pass another economic relief package later in the year. My guess is that one won’t be needed, but if the virus mutates, the vaccines are less effective against new variants, or too few people chose to get vaccinated, one might be.
Fortunately, the White House is still pushing for a bipartisan package that could meet the Senate’s effective 60-vote threshold for most legislation. On Sunday, White House economic adviser Brian Deese met with a bipartisan group of 16 senators who correctly pushed him on the size of Biden’s proposal.
Some members of Congress are discussing smaller bills that could command 60 Senate votes. One suggestion is to focus only on vaccine distribution and building up testing capability, perhaps along with another round of direct checks targeted at low-income households.
That’s too cautious. If Biden really wants to help the economy while establishing a record as a bipartisan deal-maker, he should get Republicans and Democrats to agree on trading aid to state and local governments for the temporary liability shield.
Businesses need reasonable assurances that if they make a good-faith effort to protect their workers from the virus by trying to follow public health guidance, they won’t be victims of opportunistic lawsuits. Congress shouldn’t extend blanket immunity, and gross negligence should still be penalized. The limited shield should expire when the pandemic subsides. This would help the economy recover faster by boosting productivity, creativity and profitability.
State and local governments are major employers that can’t run budget deficits. So when tax revenue plunged last spring, they were forced to lay off workers — 1.4 million of their jobs have been lost relative to February 2020. If they don’t receive more aid from Congress, they will continue to be a drag on the labor market, holding back the national economy.
Congress has admirably supported households and businesses in the pandemic. The most glaring and damaging omission has been the absence of adequate aid to state and local governments.
Democrats don’t like the liability shield and Republicans don’t like grants to state and local governments. But this deal almost got done over the summer and fall. Biden should try to make it happen.
With this as the cornerstone, the president should include vaccination and testing programs, reopening schools and strengthening the safety net. But he should keep the package to a size that can win 60 Senate votes, and jettison items that would not support the economy, like checks to high-earning households and doubling the minimum wage.
This would go further than Republicans would like. And it would disappoint the political left. But that’s the price of bipartisanship. We’ll soon see if that price is too high for the new president.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Michael R. Strain is a Bloomberg Opinion columnist. He is director of economic policy studies and Arthur F. Burns Scholar in Political Economy at the American Enterprise Institute. He is the author of “The American Dream Is Not Dead: (But Populism Could Kill It).”
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