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The big divide over the next stimulus

As lawmakers turn their attention to another coronavirus stimulus package, Republicans and Democrats each say they’ve learned many lessons from the $2 trillion CARES Act. The problem is, they can’t agree on what those lessons were.

Why it matters: With just an 11-day window in late July to act, and without the market free-fall of March to motivate them, Congress may choke on a compromise package that many economists see as necessary to keep the economy upright.


Between the lines: Because the House and Senate have alternating recess schedules Congress will have to reach a deal on the Phase 4 package in the small window between July 20-31.

  • That's the time period between when they return from their respective recesses and when temporarily increased unemployment payments to more than 33 million Americans will expire.

What we're hearing: "Regardless of your politics, the enhanced unemployment benefits expire at the end of July and there’s still too many unemployed," Societe GeneraleU.S. chief economist Stephen Gallagher tells Axios.

  • "The government is just obligated to continue to offer more support."

The catch: One big battle between Democrats and Republicans is over the reason unemployment has remained so high.

  • GOP lawmakers argue that enhanced jobless benefits were too generous. "A lot of people have sort of rationally said, 'I prefer to keep getting the [unemployment] benefit for as long as I can because I'm making, 100 or 150 or 200% of what I made at work,'" a Republican aide familiar with the stimulus talks tells Axios.
  • "So we definitely see that as a significant bug and we don't want to repeat that mistake."
  • Democrats contend that the economy was so badly damaged that workers don't have jobs to go back to and without the increased $600 a week payout from unemployment insurance will face poverty and possibly homelessness.

The state of play: In May, House Democrats passed the $3 trillion HEROES Act, which focused its funding on state and local governments, including smaller counties and municipalities, as well as medical testing and housing assistance.

  • They also believe the Trump administration did a poor job of getting aid to the hospitals and medical providers that needed it the most, according to a senior Democratic aide.

On the other side: Republicans have focused their attention on liability protection for companies and small business aid, while calling for an alternative to enhanced unemployment like a tax cut or bonus incentive for laid-off employees who return to work.

What went wrong: The Paycheck Protection Program, which "spent vastly more money than the number of jobs it saved," according to a new report from the National Bureau of Economic Research, has more than $125 billion in funds left over.

  • Business owners complained that the restrictions were overly burdensome, and data show the funds largely did not go to states, industries and communities that most needed the money.
  • Additionally, more than 90% of the government's $500 billion loan program for larger companies remains untapped.
  • GOP aides said the mistake that sent $1.4 billion in stimulus funds to dead people appeared to be a bureaucratic mixup by the Internal Revenue Service rather than a policy problem that Congress needs to fix.

What's next: Republicans have been asserting for months that the government must evaluate both the effectiveness of the CARES Act and the economic impact of reopening passing another large stimulus bill. But some of those reevaluation plans took a backseat in June as lawmakers struggled to address the growing unrest across the country in response to the murder of George Floyd.

  • On Friday, Senate Majority Leader Mitch McConnell reiterated this position: "In July, we’ll take a snapshot of where the country stands, see how the jobs are coming back, see where we think we are."
  • McConnell also made clear that the HEROES Act is a nonstarter. Instead, he said any sort of stimulus package with a shot of passing would be drafted in his office, adding that those talks won't begin in earnest for another few weeks.

The problem with this plan, as one senior Senate Democratic aide put it, is "they’re missing the cliffs that are coming up" with the nationwide moratorium on evictions ending July 25 and state and local governments facing deadlines to produce balanced budgets.

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