Can 3 & 1 Merge? | Divergent Priorities Derail US Fiscal Stimulus

(9 August 2020)  On the heals of the record drop in US GDP during the second quarter, it is evident that US economic recovery during the COVID pandemic will be slow going and determined in part by the future of new stimulus for households and businesses. Even though the US Government's first rounds of fiscal stimulus already expired in late July, democrats and republicans as of last week were no closer to a new stimulus agreement. Over the weekend, President Trump signed executive orders to reinstate some benefits, leaving US state governments with the challenge of financing unfunded benefits for millions of Americans.

With democrats and republicans also tying in unrelated benefits to the deal, the question becomes not only under which terms will they finally sign a deal, but will it be too late for millions of Americans, and what will be the economic cost? The US Government and Federal Reserve have already deployed a wide package of stimulus estimated at 27 percent of GDP (13.3% of fiscal stimulus and 13.9 percent of monetary stimulus - almost $6 trillion combined). Following are the high level values of proposals for the next stimulus package, with more details provided for each in the charts below:

• The democratic proposal would cost an estimated $3.4 trillion (16% of GDP) while the republican package is priced at $1 trillion (5% of GDP).
• The two parties disagree over a wide range of issues, including: the amount of extra weekly unemployment insurance payments; liability protections for corporations,  doctors, and schools; aid for cash-strapped states and municipalities; and, funds needed to reopen schools.
• Both parties are pointing to the state of the US labor market and uncertainties around COVID-19 pandemic dynamics to strengthen their negotiation positions.