Congress Can Pass This Covid Relief Plan Right Now

(Bloomberg Opinion) -- With the holiday break looming, Congress has yet to pass a final relief package for 2020. The final sticking points are Republican resistance to state and local aid and Democratic misgivings about a Covid liability shield for businesses. 

The answer to this deadlock is something I suggested nearly two months ago: Separate out the difficult-to-negotiate parts from the rest of the bill. This will allow critical funding for workers and businesses to go forward while assuring each side that it will still be leaving in place a vehicle to get the final two priorities passed when Congress reconvenes in the new year.

Fortunately, there is a proposal on the table to do just that. Congressional leaders should announce their support for this plan immediately and adopt it before other sticking points arise.

The history of this aid package is fraught. Negotiations began over the summer, but at the time Democrats were committed to a trillion-dollar giveaway to the states and Republicans were still reeling from having passed the largest relief bill ever in a matter of weeks. 

By the time the two sides were prepared to come down from their respective positions, the 2020 election was in full swing. This created three distinct groups with distinct interests. President Donald Trump wanted to pass the largest bill possible under the – probably correct – assumption that it would help him win what he thought was a winnable election.

Democrats led by House Speaker Nancy Pelosi had little desire to do Trump any favors. Falsely comforted by Joe Biden’s strong polling lead, they sought to use the president’s desperation to push through a package that, though smaller than the summer’s proposal, was still laden with longtime Democratic priorities. 

Republicans frightened by Trump’s poll numbers were busy running away from the president, and reluctant to pass a package even nearly a quarter the size of the one Democrats and the White House were converging on.

The result was no stimulus before Nov. 3. In the wake of the election, the old incentives fell away, and the parties have spent much of the time explaining away the backtrack from their earlier positions. Pelosi had to answer for why, after turning down a $1.8 trillion proposal from the White House, she was considering one half that size from the Senate.

Treasury Secretary Steven Mnuchin turned to accounting gimmicks to help GOP senators justify their willingness to double their spending offer now that it would not only do the president no good, but would inevitably be added to by an additional round of relief designed by the incoming Biden administration. 

The answer to both those questions is that the relief is badly needed, and the leaders of both parties know it. The U.S. is still in the opening stages of the most intense wave of the virus just as households are spending down the money they saved up from the CARES Act relief passed in March.

Politics, however, has backed them into a corner. The current deal was nearly derailed last week over calls for an additional round of $1,200 stimulus checks. It was a good proposal on its own merits but one that would – at that level – increase the bill’s cost above what GOP senators could rationalize away.

Now rancor from the left has made it increasingly difficult for Democrats to sign on to the Republicans’ demand for the liability shield. They could use that as a bargaining chip to buy support from Republicans on state and local funding.

Moral-hazard concerns underlie the opposition to both ideas. Workers’ rights activists fear that a liability shield will discourage businesses from adequately protecting their workers from Covid-19. Fiscal hawks worry that bailing out the states – when some of them have seen revenue gains in 2020 – will only encourage them to reduce what many already see as inadequate rainy day funds.

Those two concerns, while valid in theory, are inappropriate to the crisis the U.S. faces. Both businesses as well as state governments face an enormous amount of uncertainty over the next few months. Yet, once the nation is through this tough period, the vaccine offers the potential for a radical bounce back. If businesses and state governments make preemptive service cuts and businesses lose or forgo revenue because of the uncertainty about lawsuits, that economic rebound is threatened.

In an ideal world Congress would compromise and accept both now. Partisan politics, however, has foiled this relief package more than once. It would be foolish to let it happen again. 

Waiting any longer to announce an agreement only increases the chances that some new sticking point will arise. As such, congressional leaders should announce their bipartisan support for the smaller package immediately and leave the rest for 2021.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Karl W. Smith is a Bloomberg Opinion columnist. He was formerly vice president for federal policy at the Tax Foundation and assistant professor of economics at the University of North Carolina. He is also co-founder of the economics blog Modeled Behavior.

©2020 Bloomberg L.P.