Democrats Lose Leverage on Stimulus, as Smaller Bill Likely

(Bloomberg) -- Congressional Democrats face a loss of leverage in negotiations over a new U.S. stimulus package after a disappointing showing on Election Day that left Senator Mitch McConnell potentially with a renewed mandate as majority leader.

The results so far -- with Democrats facing a trimmed majority in the House and long odds for taking the Senate -- point to a smaller Covid-19 relief bill than the roughly $2 trillion that had been discussed by the Trump administration and Democratic leaders before the Nov. 3 election.

“Hopefully the partisan passions that prevented us from doing a rescue package have subsided,” McConnell, a Kentucky Republican who had advocated a much smaller package, said on Wednesday. “That’s job one when we get back.”

Stocks hit session highs after McConnell’s comments, with investors increasingly anxious about getting a near-term stimulus deal. The S&P 500 Index was up 3.4% as of 12:40 p.m.

Pressure has increased on lawmakers to move forward, with the U.S. economic recovery losing momentum amid a spike in coronavirus cases that could leave the nation’s health care system stressed. A private report Wednesday indicated that the recovery in company payrolls slowed in October.

Pelosi’s Stance

Democrats have said they will continue to push for a multi-trillion dollar stimulus bill in the post-election lame-duck session, no matter who wins the White House. House Speaker Nancy Pelosi said late last month she wants to complete a deal with President Donald Trump’s administration even if Joe Biden wins in order to give him a “clean slate” before Inauguration Day in January.

But that task is more difficult given the rough election night for Pelosi and Senate Democratic leader Chuck Schumer.

Republicans in the Senate have been the main obstacle to enactment of a $2 trillion or greater package, and the GOP looks increasingly likely to hold onto its majority there. That is sure to embolden spending hawks who have pushed for a smaller stimulus package of $500 billion or less, without direct stimulus checks or large-scale aid to state and local governments.

The GOP also will face pressure from conservative activists not to deliver Biden a major legislative victory -- especially one that would add to an already record budget deficit.

Republican Strategy

“My advice toward Senate Republicans is to take the approach to a Biden presidency that they did toward Clinton and Obama, which was don’t give them any votes for truly bad pieces of legislation,” said anti-tax activist Grover Norquist. “Why would you put your fingerprints on something that is just a massive bailout for corrupt mayors and incompetent governors?”

Pelosi, who had pushed the White House into backing a bigger stimulus package, faces reduced influence after Democrats lost some of their seats to the GOP, and appeared to fall notably short of the pick-up of five to 10 seats the party expected. With a narrower majority in the new Congress, it may be difficult for Pelosi to find the consensus to pass a relief bill.

If Pelosi continues to insist on a package greater than the $1.9 trillion offered by the White House, she will face pressure to compromise quickly from the remaining moderate Democrats who are vital to the party’s House majority.

Across the board, Democrats failed to meet the Election Day expectations raised by polls and independent analysts. The party took Senate seats from Republicans in Colorado and Arizona, but unless they win outstanding races in Maine and Georgia, they won’t have the majority in that chamber.

At least seven House Democratic incumbents were defeated, including Agriculture Committee Chairman Collin Peterson, who has represented his Minnesota district since 1991. Other Democratic losses came in Florida, New Mexico, Oklahoma and South Carolina. More are still vulnerable, including some who had pressed Pelosi to compromise on a stimulus bill, such as Virginia’s Abigail Spanberger and New York’s Max Rose.

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