As negotiations over a Phase 4 stimulus bill hit roadblocks in Congress, the prospect of talks breaking down entirely is suddenly realistic. If they do, the consequences for the economy and U.S. businesses will be catastrophic.
Both the House and the Senate have their own ideas on how to shore up the U.S. economy, which continues to hemorrhage under the strain of the coronavirus pandemic. But meeting in the middle is looking more fraught than the usual legislative horsetrading. Lawmakers are sparring over seemingly minor details like the Senate's Heals Act provision that allows companies to fully deduct the cost of business meals through the year end, up from 50 percent under current law.
The Senate proposal, unveiled Monday, is even getting pushback from within the GOP. Some lawmakers are adamant that despite a seemingly modest price tag of $1 trillion--the House Phase 4 bill amounts to $3.5 trillion--the Senate proposal is too rich.
Congress faces growing pressure to approve new relief soon, as states stopped paying the extra $600 federal unemployment subsidy last week. The Cares Act offered that benefit through Friday, July 31, but states, which issue unemployment benefit checks on the weekend, have already ceased the payments. What's more, Congress is due to recess in early August, as cases of Covid-19 continue to rise nationwide.
To get a better sense of the ramifications, Inc. asked several economists to opine on what no deal looks like for the economy and U.S. businesses. Here's what they said:
"If we don't do anything, what does August, what does September and October look like? I have to think it looks really bad," says Dean Baker, a senior economist at the nonpartisan Center for Economic and Policy Research in Washington, D.C. For starters, he notes that whatever job gains the U.S. has made since April, when the unemployment rate hit a peak of 14.7 percent, would recede. "When you're starting at 11 percent unemployment," says Baker, "you obviously don't want [employment levels] going down further. I don't necessarily think it leads to negative growth, but I wouldn't rule that out."
Unemployment payments aren't simply replacing lost income. They also serve as economic stimulus. Heidi Shierholz, senior economist and director of policy at the Economic Policy Institute, a nonpartisan think tank in Washington, points out that the $600 in additional unemployment benefits that workers have been getting actually supports millions of jobs. "Killing the $600 payment entirely would cost the U.S. 5.1 million jobs," she says. People who are getting relief payments, Shierholz explains, spend it on basics like food and shelter. By contrast, people with higher incomes are now saving more.
The same goes for the $1,200 economic impact payments, which would go away if Congress fails to act. A recent study for the National Bureau of Economic Research about the spending habits of consumers during the Covid-19 pandemic shows that wealthier Americans who got the stimulus payments under the Cares Act tended to save while those who were less well off spent. Under the Cares Act, the payments went to Americans who earn less than $75,000 in adjusted gross income, regardless of need.
Shierholz further suggests that without additional stimulus, the U.S. will start seeing more typical recessionary job losses (read, white-collar jobs). The roughly 30 million people who have lost their jobs since the start of the pandemic, she says, mostly inhabited high-contact positions like those in the restaurant and hospitality businesses. A second round of layoffs, which would certainly kick in if Congress doesn't act, would trigger a drop in demand for goods and services. "The actions Congress has taken so far haven't been perfect, but they've done a really good job of keeping that second kind of layoff from happening," Shierholz says.
And if states and localities don't get help, state employees will surely see even more job cuts. That could affect education, essential services like health care, and public safety. The EPI estimates the losses could tick up to 5.3 million jobs in both the public and private sectors by the end of 2021. "There's a cascading effect," says Shierholz, whose back-of-the-napkin calculation puts the unemployment rate at around 17.6 percent if the unemployment subsidy disappears and states and localities don't get relief.
Indeed, "we're already in a tailspin," says Robert Litan, an economist and nonresident senior fellow at the Brookings Institution, a nonpartisan think tank in Washington. "If they don't have money for states and localities--both red and blue--you'll see massive layoffs of state employees. It's just going to deepen the downturn."
And in the absence of more small-business funding--that is, if by not acting, Congress lets the various small-business stimulus efforts created by the Cares Act phase out--you're in for a perfect storm, Litan says. "The virus is driving everything," he says. Without a vaccine, many people are just plain too scared to venture out, and no amount of personal protective equipment will convince them it's safe, he says, adding: "Small business can't survive that."