(Bloomberg) -- President Donald Trump and Republicans in Congress are facing a last chance to keep the economic rout sparked by the resurgent coronavirus from deepening before the November election.
Amid a steady stream of bad economic news, Senate Majority Leader Mitch McConnell, Treasury Secretary Steven Mnuchin and other GOP leaders will begin on Monday hammering out the details of a roughly $1 trillion Republican plan for a new round of virus relief for individuals and businesses.
That will be the their opening bid as they begin negotiations with Democrats, who’ve already put out an expansive, $3.5 trillion proposal. Beside the dollars involved, the sides remain far apart on many of the particulars, including McConnell’s determination to include liability limits for businesses, schools and other organizations.
And there are more complications. The administration is already balking at $25 billion in new funding favored by Republican lawmakers in the bill to help states with testing and contact tracing, according a person familiar with the talks. Trump’s team also opposes a plan to allocate billions for the Centers for Disease Control and Prevention.
Trump is also insisting on a payroll tax holiday, an idea that’s gotten a cool reception from both parties. Trump, in a “Fox News Sunday” interview, suggested he might not sign legislation without the payroll tax cut.
All that will have to be reconciled in the three weeks before the Senate leaves Washington for a scheduled August break, and election campaigns move into high gear. At the same time, the $2.9 trillion flood of federal money that’s been supporting the economy through the pandemic is about to dry up, just as Covid-19 infections are breaking records and forcing some states to reverse reopening plans.
As the economy falters, so does a pillar of the re-election strategy for the president and his Republicans allies who’ve tied their political fortunes to his.
Although both parties have stakes in agreeing on a relief plan, the biggest political burden is on Trump. He’s repeatedly promised the economy would come “roaring back” in the third quarter, right before the election. It’s a prediction that’s looking less and less certain.
“In the next three weeks, we are really getting to the crux of the question: Where are we going from here?” said James Knightley, chief international economist at ING Financial Markets.
Trump and his allies are besieged on all sides.
The pandemic is worsening in states the president needs to win for re-election, including Arizona, Texas and Florida, where Republican governors are in charge. Trump is now 6 percentage points behind Democrat Joe Biden in Florida, tied in Arizona, and only 1 percentage point ahead in Texas, a state that no Democratic presidential candidate has won since 1976, according to a CBS poll taken July 7-10.
In a sign of trouble inside his re-election effort, Trump last week replaced his campaign manager, Brad Parscale.
Republicans in the House and Senate have also seen their fortunes dwindle. They trail Democrats in generic congressional ballot surveys, threatening their Senate majority and likely dashing any hopes of retaking the House.
The president’s standing with voters on the economy had been the one relative bright spot for him, amid deep dissatisfaction with his responses to the coronavirus and protests over police mistreatment of minorities. Some 48% of Americans now say they approve of Trump’s handling of the economy at a time when his overall job approval is only 42%, according to the Real Clear Politics average of surveys.
The temporary financial safety net put in place to weather the coronavirus pandemic is about to be pulled out from under tens of million of Americans, while unemployment remains at levels not seen since the Great Depression.
When the previous economic stimulus passed in late March, Trump and many of his advisers hoped the emergency would be over by summer. Many of the relief measures, including supplemental unemployment payments, were timed to expire in rapid succession, a process that begins in less than a week. Even if Washington agrees on another package, it may well offset less of the economic damage this time around.
The negotiations between the White House and Republican senators on one side, and with congressional Democrats led by House Speaker Nancy Pelosi on the other, may boil down to extending the biggest elements of the stimulus passed in March.
Enhanced unemployment benefits end July 25 in most states and on July 26 in New York. Republicans have indicated a willingness to extend that, but also to trim the top-up payments below the $600 a week currently in place, which several have said is a disincentive for people to return to work. Some Republicans have suggested $200 extra, while Democrats will be pressing for the full $600. Democrats are likely to resist GOP proposals to give businesses a tax credit that could be used as a signing bonus to encourage people to take jobs.
Federal protections against rental evictions also expire July 25; a freeze on mortgage foreclosures runs out on Aug. 31.
Trump has suggested he’d support another round of direct payments to individuals. The $1,200 stimulus payments sent out in April and May have long been spent by many of the families that most needed the help.
McConnell and some other Republicans have floated the idea of lowering the income threshold to get the money. The last bill provided a $1,200 payment for adults earning as much as $75,000. Democrats have proposed adding $1,200 per child and expanding eligibility requirements.
Congress gave a last minute extension to the Paycheck Protection Program for small businesses earlier this month. Both parties support continuing it while money is available -- there was more than $132 billion in remaining PPP funds as of July 10 -- with some modifications to make it easier to apply and to target the smallest businesses.
Needs haven’t abated. By the first week of August, 84% of small businesses that received forgivable government loans will have exhausted their funds, according to a survey by Goldman Sachs Group Inc. Only 16% are very confident they will be able to maintain their payroll without further government relief.
There’s also the question of additional payroll support for airlines, which stops on Sept. 30. United Airlines Holdings Inc. and American Airlines Group Inc. have warned that tens of thousands of their employees are at risk of losing their jobs.
Clash Over State, Local Aid
One of the bigger battles will be over aid to state and local governments. Those governments, which have already cut about 1.4 million workers, face massive budget shortfalls that will cost more jobs and slash public services in the coming months. Democrats want to provide about $1 trillion in assistance -- the same amount Republicans want to spend for the entire stimulus package.
The two parties also are at odds over McConnell’s proposal to shield businesses, schools and charities from lawsuits by employees or customers who contract Covid-19.
If Republicans include the payroll tax cut Trump wants, negotiations could drag into August. If the president follows through and rejects a bill without it, the entire deal could fall apart.
An agreement will turn on whether Democrats and Republicans view compromise as less politically painful than failure.
“We’re in a critical transition phase right now,” said Gregory Daco, chief U.S. economist at Oxford Economics. “Barring renewed fiscal stimulus, we’re risking a very slow rebound and potentially another fall back in economic activity.”
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