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What's in the $900 Billion Relief Plan?
January 05, 2021
The second round of COVID-19 relief has been passed. Congress closed negotiations on the huge bill that would cost around $900 billion in December before 2020 ended. The price tag this round is about half of the $1.8 trillion CARES Act legislation (which was down from an expected $2.3 trillion at the time) but has still been cited as not being big enough. Here's what's in the bill (a further breakdown from Sullivan and Cromwell):
- $300 extra per week in unemployment insurance as well as an extension of Pandemic Unemployment Assistance and Pandemic Emergency Unemployment Compensation.
- $284 billion into Paycheck Protection Programs and $20 billion more in grants for companies in low-income areas and money for community-based and minority-owned lenders.
- $600 in direct payments to individuals who made up to $75,000 and couples who made up to $150,000 with payments down to nothing for individuals who make $99,000 or more and couples who make $198,000 or more.
- $25 billion into rental assistance funds and an extension of the federal eviction moratorium through Jan 31st.
- $8 billion into the distribution of the two FDA-approved COVID-19 vaccines.
- $20 billion to make the vaccine free.
- $20 billion for testing and contact tracing.
- $13 billion to boost Supplemental Nutrition Assistance Program benefits by 15% and other hunger-fighting programs.
- $15 billion in airline payroll assistance.
- $15 billion "in dedicated funding for live venues, independent movie theaters, and cultural institutions."
- $14 billion for transit systems.
- $10 billion for state highways.
- $54 billion for public K-12 schools.
- $23 billion into higher education.
- $10 billion into child care assistance.
- $7 billion to increase broadband access.
- A tax credit "to support employers offering paid sick leave"
- Additional language to repurpose $429 billion in unused funds.
The stimulus bill also contains language that limits the Fed's power to provide financial support by ending several emergency lending programs that were established under the CARES Act. The actions will likely limit the Fed to supplying liquidity through the Term Asset-Backed Securities Loan Facility and restrict more direct activities like corporate bond buying. This shouldn't be too disruptive since there will likely be plenty of fiscal stimulus to come.
The most contentious part of the bill was the amount of the direct payments to individuals passed at $600 with many proponents of a higher amount. President Trump was one of those proponents pushing for a $2,000 direct payment alongside Democratic politicians and the House of Representatives which passed a separate bill increasing payments to $2,000. However, the push for $2,000 stopped once again in the Senate. There is still the possibility of an additional $1,400 in direct payments in January, but a lot rides on how the Georgia Senate races end up affecting the balance of power in the US.
Regardless of the amount of direct to be paid, the stimulus is set to carry the economy through the last leg of the COVID-19 crisis lockdowns while supporting vaccine manufacturing and development. However, several analyses suggest the package won't be enough on its own. Major financial institutions like PNC, UBS, and Wells Fargo see the new relief bill as a temporary fix with future stimulus in 2021 likely. Wells Fargo in particular notes, "we doubt this package will be enough to fully offset the economic damage that has already been done and is still to come" as well as suggesting this new income bost will not "flow through to consumption quite quickly."
William Gale from the Brookings Institute spoke briefly on the stimulus bill describing it as "too little, too late." He mentions that extensions of unemployment insurance, the PPP, and direct payments are good things, but the bill falls short in not supporting state and local governments enough. The fear is that the services provided at that level of government could be endangered and also that state and local governments will have to raise taxes sooner than preferred to make up funding. In light of its pitfalls, Gale also suggests that there will be more stimulus to come.
Overall, it seems the newest round of stimulus was just another given of the COVID-19 pandemic. As cases continued to climb, everyone knew there would be new stimulus on the horizon to extend the solutions that had already been put in place. The $600 direct payments seem limp after an intitial payment of $1,200 at the beginning of the crisis and in the context of $2,000 suggested by Democrats and Trump. A report from Columbia University found that the Spring 2020 stimulus payments was only partially successful in raising consumption. The data showed that only individuals or households with low liquidity increased consumption (likely because they had been putting it off for some time). Individuals or households with liquidity did not tend to consume more. The response is likely to be similar for the $600 payments. In truth, there is not much in the $900 billion bill, just the necessities to keep the economy on life support until it finds it feet as the pandmeic comes to an end.