‘Targeted’ Relief Need Not Be Stingy When Stimulus Is Needed

After several months of gridlock, lawmakers offered two competing frameworks yesterday for giving the American people another round of much-needed economic relief from the covid pandemic. The first is a $908 billion compromise with support from 16 members of both parties in the U.S. House and Senate, while the second is a $553 billion partisan proposal from Senate Majority Mitch McConnell. McConnell has called his plan a “targeted relief package,” but this framing is deceptive: policymakers should not conflate penny-pinching with proper targeting. Amidst the worst economic crisis since the Great Depression, the appropriate response is guaranteed to be expensive even if it is well-targeted.

Our country is entering the most dangerous phase of the pandemic yet. As we head into the winter, the number of new covid cases in the United States is at the highest level it’s been since the pandemic began. Consumer spending growth is slowing right as we enter the holiday season, imposing a further drag on the economy. Although there had been strong job growth in the first few months of recovery, the number of people applying for unemployment benefits each week is starting to rise again after having never fallen below 700,000 since the pandemic began. Four months after most relief programs from the CARES Act expired, and less than one month before millions of people get kicked off of life-saving unemployment benefits, it’s urgent for the federal government to step in and provide fiscal support.

Republicans were somewhat justified in their concerns that the $3 trillion HEROES Act, which House Democrats introduced in May, was poorly-targeted. But the same cannot be said of yesterday’s compromise framework. For example, whereas the HEROES Act would have increased weekly unemployment benefits by $600/week, allowing many laid-off workers to receive more in benefits than they lost in wages, the compromise framework would only increase them by $300/week – a level many Republicans, including President Trump, have supported in the past. The HEROES Act would have given almost $1 trillion in aid to state and local governments, which is several times more than the budget shortfalls created by the pandemic. But the compromise framework offers $250 billion, a figure that is closer to their estimated needs for the current fiscal year and will help prevent the deep cuts to essential services. The coalition of leaders who put together this proposal, including Sens. Joe Manchin, Mark Warner, and Susan Collins, deserve praise for working to find a commonsense approach to break the fiscal impasse.

Contrast this framework to the “targeted relief package” offered by McConnell. His proposal offers no aid to plug the massive revenue loss inflicted on state and local governments by the pandemic recession. There is no increase in weekly unemployment benefits above pre-pandemic levels, and it would still allow people who started receiving benefits at the start of the pandemic to lose them at the end of the year. In place of these well-targeted policies, McConnell wants to waste billions of dollars on a tax deduction for business meals. Ostensibly this provision is supposed to encourage spending at struggling restaurants, but more likely than not it will simply subsidize those businesses that are financially prosperous enough to afford employee meals. Moreover, a similar incentive adopted by the United Kingdom earlier in the pandemic actually led to an increase in covid infections from indoor dining, making the policy not only ineffective stimulus but also counterproductive for public health and economic recovery.

If McConnell were truly concerned about having a targeted relief package, he would prioritize improving relief programs rather than trying to cut them. The Paycheck Protection Program that made forgivable loans to small businesses, for example, was found by the Congressional Budget Office to be one of the least-effective stimulus programs in the CARES Act because it gave aid to many businesses that weren’t likely to lay off workers. Both McConnell and the bipartisan framework propose to inject roughly $300 billion into PPP. Instead, he could pursue an expansion of the Employee Retention Tax Credit that serves a similar objective but prioritizes businesses that have experienced substantial revenue loss.

With interest rates at all-time lows and covid cases at all-time highs, now is not the time to pinch pennies. Lawmakers should be commended for making policies targeted towards those most in need whenever possible, but those efforts should not come at the expense of shortchanging the American people. In a time when millions of Americans are in desperate need, even the targeted policies to help them will be expensive.