What a year it's been -- and it's not even July.
While you're probably tired of hearing the coronavirus disease 2019 (COVID-19) pandemic described as "unprecedented" or "challenging," this is exactly what it's been like for the typical working American. In four months, the U.S. unemployment rate soared from a 50-year low of 3.5% to levels (13.3% in June) that haven't been seen since the Great Depression, nearly nine decades ago. Even after record May retail sales growth, more than 20.5 million people are still receiving unemployment benefits, as of June 18. For context, only 1.7 million people were receiving unemployment benefits at the end of February.
It's been an unprecedented and challenging time for many Americans, which is why Congress passed, and President Trump signed, the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law on March 27.
The CARES Act provided much needed stimulus -- just not enough of it
At $2.2 trillion, the CARES Act is the priciest piece of relief legislation ever passed on Capitol Hill. With the understanding that shutting down nonessential businesses was going to wreak havoc on the economy, lawmakers felt that the best idea was to throw a lot of money at the problem.
The $2.2 trillion CARES Act supplied $100 billion to aid hospitals in fighting coronavirus, apportioned $500 billion for distressed industries, and handed out nearly $350 billion via small business loans. It's also responsible for allocating $260 billion to expand the unemployment benefits program. This expansion provides $600 a week extra to those receiving unemployment benefits, through July 31, 2020 (or until they get a job).
But what most folks will remember the CARES Act for is the $300 billion earmarked for direct stimulus payments to working Americans and senior citizens. According to data from the Internal Revenue Service on June 4, 159 million Economic Impact Payments (as these stimulus checks are officially known) had been sent out, totaling $267 billion.
Though this money was very much needed by Americans, Economic Impact Payments simply didn't do enough for most folks. A Money/Morning Consult poll from April found that 74% of the 2,200 respondents had spent, or expected to spend, their stimulus payout in four weeks or less. Considering that the U.S. economy is bouncing back slowly, a lot of workers and their families appear to be in serious need of additional stimulus.
The question, to this point, has been whether or not another round of stimulus would come. But according to a recent interview with President Trump, a second stimulus package now looks to be a sure thing.
Trump: "We will be doing another stimulus package"
In an interview this past week with Joe St. George, National Political Editor for Scripps, Trump was questioned directly about whether struggling Americans would receive a second stimulus check. Here's what Trump had to say:
We had this [the U.S. economy] going better than anybody's ever seen before. We had the best job numbers, the best economics, the best economy we've ever had, and then we had the virus come in from China. Now we're rebuilding it again. We will be doing another stimulus package. It'll be very good... it'll be very generous.
VIDEO: President Trump commits to 2nd stimulus. He says details would be announced in the coming weeks. The President would not tell me how much of a check Americans will receive. pic.twitter.com/Abd5E8P3Au— Joe St. George (@JoeStGeorge) June 22, 2020
It should be noted that Trump specifically used the term "stimulus package" in his response to St. George here, but a moment prior to this statement he affirmed that Americans would receive "a second stimulus check" when pushed by St. George. However, the president wouldn't elaborate on specifics, such as dollar amount, only saying that he believes a second stimulus package will happen in the coming weeks, and that it would be bipartisan in nature.
The fact that the White House has changed its tune to be gung-ho on a second round of stimulus really shouldn't come as a surprise. After all, we are in an election year, and neither party wants to be viewed as the one that didn't go to bat for the American worker during these challenging times. It's in both parties' best interests, as well as Trump's, to ensure that Americans have a solid financial foundation heading into the November elections.
What's more, the upcoming end to enhanced unemployment benefits (i.e., the extra $600 a week) is the perfect catalyst to coerce a bipartisan deal. This extra $600 has played a key role in keeping mortgage, auto, and rental defaults from skyrocketing. Without some sort of secondary stimulus package, a day of reckoning could await the U.S. financial sector.
What might the next round of stimulus look like?
With President Trump signaling that a second stimulus bill is preferred at this point, the real question then becomes, what might it look like?
One possibility is that it's very similar to the CARES Act. In other words, it's a stimulus deal that puts money directly into the hands of working Americans and seniors who are earning below a defined threshold. For context, maximum payouts for the CARES Act were capped at $1,200 per individual and $2,400 for couples filing jointly. To qualify for this max payout, single, married, and head-of-household filers needed an adjusted gross income (AGI) below $75,000, $150,000, and $112,500, respectively.
On May 15, the Democrat-led House of Representatives passed the 1,815-page HEROES Act, which in many ways takes after the CARES Act in the direct stimulus department. The nearly party-line vote of 217 to 189 that allowed this $3 trillion bill to pass the House would again cap payouts at $1,200 per individual and $2,400 for couples, with the same AGI thresholds used in the CARES Act. A big difference, however, is that dependents (limit three) are worth $1,200 each for parents or a household, up from $500 with the CARES Act, with no age limit attached to the definition of a dependent.
The other possibility is that a second stimulus package is passed, but it doesn't contain a direct stimulus component. Senate Majority Leader Mitch McConnell (R-Ky.) has been critical of ballooning the federal deficit even further, and some of his colleagues share this concern. This might lead Republicans in the House or Senate to favor other types of stimulus.
For example, Kevin Brady (R-Texas), the lead Republican on the House Ways and Means Committee, recently proposed the Reopening America by Supporting Workers and Businesses Act of 2020. Rather than handing out stimulus checks, Brady's bill would allow unemployed workers who go back to work to collect two additional weeks of the added $600/week payout. Essentially, Brady's proposal equates to a $1,200 hiring bonus.
President Trump has thrown his hat in the ring, too, by suggesting that a payroll tax holiday would be preferable. Most working Americans pay 12.4% into the Social Security program on earned income, with employers and employees splitting this liability 50-50 (6.2% each). Providing a payroll tax holiday would be a way of allowing workers to keep more of their income with each paycheck. The trade-off being that the payroll tax is the primary funding source for Social Security, and the nation's most important social program is already on shaky ground.
The point is that while a second round of stimulus is likely, it's going to take some work from both parties to come to fruition, which is no easy task. This might mean an expansion of who qualifies for stimulus to appease Democrats, and a concerted plan to get people back to work for Republicans. Either way, the clock is ticking on enhanced unemployment benefits, which means a deal is likely within the next five weeks, in my view.