The House of Representatives is back in session today to pass a (one, two, three, four…) fifth coronavirus response bill. The latest version is the biggest one yet, totaling more than $3 trillion in new spending.
The HEROES Act is a product of the democratic leadership in the House and garnered mostly rebukes from Republicans. But even Republicans are hinting at the prospect of another round of negotiations and spending sometime in the near future.
Indeed, observers believe that this bill, which has been tagged by opponents as a “partisan wish list,” is an opening gambit in what will be an eventual negotiation with Republicans. The idea is to go big from the start and negotiate down from there.
And did Democrats ever go big – with an 1800 page $3 trillion package.
When introducing the bill, Speaker Pelosi argued that, “not acting is the most expensive course.”
Quite a statement to make upon the release of what would be the most expensive bill in American history.
Before we look at what is in the bill, some important context is necessary.
Congress has already passed $3.6 trillion in relief in the form of direct checks, beefed up unemployment insurance, business loans, hospital payments, tax breaks, and state and local government funds. In addition to that, the Federal Reserve has also made $5.5 trillion in commitments to help to prop up the economy that is ailing from the lockdowns.
Some economists believe that we will need more. Maybe. But so far, only $1.4 trillion of the $3.6 trillion in relief has actually been spent. So before Congress tacks another $3 trillion to the national debt, exacerbating the long-term financial impacts this crisis will have on young Americans, maybe, just maybe, we should see where we are once the first four tranches of relief are exhausted.
After all, the federal government just ran a $737 billion deficit…in April!! That one-month shortfall would be the highest annual deficit on record outside of the Great Recession years.
The national debt sprung forward like daylight savings and has cleared $25 trillion. It is expected to exceed the size of our entire economy by the end of this year, a milestone that was not supposed to happen for another decade.
A federal response to this unprecedented situation was undoubtedly necessary, regardless of our already unsustainable debt trajectory. However, that does not mean that deficits are completely irrelevant and that Congress can just spend endless money.
So let’s jump in to see what’s in the 1800 page, $3 trillion HEROES Act.
The headline of the HEROES Act is another round of $1200 pandemic checks to individuals making under $75,000 (or couples making under $150,000) with phase-outs. The HEROES Act also increases the payment for dependents from $500 to $1200 (capped at 3) while expanding the definition to cover a broader array of dependents.
When the idea of “checks for all” first surfaced, the thrust of the argument was that the government did not have time to be targeted, they just had to get money into the hands of the American people so they can meet their fixed costs (since then we found that the disbursement system wasn’t so speedy as advocates would have hoped). As I pointed out in a debate over the payments, even with our historically large unemployment rates, twice as many gainfully employed people got these checks than people that lost their jobs, needlessly squandering resources.
But now we are two months into the crisis and massive business lending programs with incentives to maintain payroll have been enacted along with unemployment insurance payments that pay benefits at a rate much higher than the wages of the jobs that the Americans lost. The argument that we need to get money disbursed broadly without regard for who was impacted or who is still collecting a paycheck has lost any luster it once had.
This is particularly true given that those most severely impacted, by losing their jobs, have access to the generous unemployment insurance payments that include a $600 per week plus up to whatever the normal benefits would have paid. This averages out to $900+ per week and will last through July, which will create problems for reopening businesses to compete with the benefits of not working. The proposed HEROES Act would exacerbate this problem by extending the unemployment boost through next March.
Another massive component of the HEROES Act is funding for state and local governments. The bill includes $500 billion for states and $375 billion for local communities. In December 2019, the Government Accountability Office (GAO) released a report that found state governments face an annual $741 billion funding gap over the next 50 years – primarily due to massive spending on Medicaid and pensions. These issues were well known long before the onset of the pandemic. This is an opportunistic gambit to use this crisis to fix a problem that should be dealt with by the states. The federal government has enough fiscal imbalances of its own to deal with without bailing out other governments.
Speaking of making a bad problem worse, the HEROES Act would also repeal the $10,000 cap on the State and Local Tax (SALT) deduction for two years – a move which predominantly benefits wealthy citizens of high tax states. Almost half of the benefits go to the top five percent and 80 percent of the benefits go to the top twenty percent of income earners. How this could possibly have anything to do with the coronavirus relief effort is beyond explanation. This is simply politics at its worst.
The HEROES Act also includes a grab-bag of other expenditures, such as a $25 billion bailout of the postal service whose financial woes have been known for a long time, $25 million for museums and art programs, $50 million for environmental justice grants, $3.6 billion for election preparedness, and $300 million for law enforcement hiring grants. These kinds of expenditures should be part of the normal budget and spending process, not pushed through in emergency bills that pile onto the debt.
This summary barely scratches the surface of what is contained in the HEROES Act. If you are interested, you can check out the 90-page summary of the bill here.
Even with all of these provisions and its massive price tag, Speaker Pelosi lamented that “we can’t do everything in this bill.” An encouraging sign that restraint was found at the $3 trillion dollar mark. Sigh…