For most Americans, 2020 isn't a year they'll soon forget. While many of us have been through a recession or three in our lifetimes, there's nothing that could have prepared us, or the world, for the coronavirus disease 2019 (COVID-19) pandemic. In a matter of months, the U.S. unemployment rate has rocketed from 50-year lows to nearly 90-year highs, with the short-term physical and financial toll on our country being nothing short of staggering.
It was this financial toll that ultimately coerced Congress to pass, and President Trump to sign, the $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act into law back on March 27.
The CARES Act has proved a necessary stop-gap for Americans' pocketbooks
At the time, throwing a record amount of relief money at an unprecedented problem seemed like the best thing to do. The CARES Act apportioned $100 billion to hospitals to aid in the fight against COVID-19, gave almost $350 billion in loans to small businesses, set aside around $500 billion to help distressed industries, and even used $260 billion to enhance the unemployment benefits program. But it's the $300 billion in direct payments that everyone will always associate with the CARES Act.
At maximum, single filers and couples filing jointly could receive $1,200 and $2,400, respectively, under the CARES Act. The stipulation was that their adjusted gross income be below $75,000, $112,500, and $150,000 if single, head-of-household, or married and filing jointly in their most recent tax filing. Additionally, parents and households could qualify for an extra $500 for each dependent aged 16 and under. Thus, a married couple with three young children could walk away with a $3,900 Economic Impact Payment under the CARES Act.
Unfortunately, the flaw with the CARES Act is that this money was thrown around without yet knowing the full scope of the coronavirus problem. We're now more than three months post-passage of the CARES Act, and the U.S. unemployment rate remains above 11%, with cases of the illness once again rising in most states.
This is a problem for one key reason: the CARES Act simply didn't do enough for most Americans. A Money/Morning Consult survey of 2,200 respondents in April showed that 74% had spent, or expected to spend, their stimulus money in four weeks or less. With the U.S. economy struggling to bounce back to where it was prior to COVID-19, it's heightened the call for an additional round of stimulus.
Did Mitch McConnell show his hand on the next round of stimulus?
The big question for the past couple of months is what another stimulus package might entail. Would it involve another direct payment to 160 million-plus Americans like the CARES Act? Would this new payout be larger than the previous stimulus? Could new forms of stimulus be implemented instead of a direct payment?
While there are countless stimulus deal questions and absolutely nothing is written in stone, Senate Majority Leader Mitch McConnell (R-Ky.) may have inadvertently spilled the beans on what a phase 4 deal might look (the CARES Act was phase 3) while speaking at a public event in his home state of Kentucky last week.
According to McConnell, who's been a vocal proponent of waiting on a second round of stimulus until it was apparent how effective the first round of stimulus was on the U.S. economy, the next stimulus package will take into account factors such as the rebound in the U.S. jobs market and the economy. It's worth noting that the U.S. unemployment rate has bounced off of its worst reading since the Great Depression.
While speaking, McConnell also emphasized that any stimulus bill coming out of the Republican-led Senate would emphasize four things: Liability reform, the need to have kids in schools, jobs growth, and healthcare.
But perhaps the most intriguing thing the Senate Majority Leader said this past week when questioned about the possibility of another round of stimulus including direct payments was the following:
I think people who have been hit the hardest are people who make about $40,000 a year or less. Many of them work in the hospitality industry... so that could well be a part of it.
On one hand, McConnell opening the door to another round of direct payments is a big step that happens to align with what President Trump recently advocated. Then again, the arbitrary usage of $40,000 in income in his statement may imply that the earned income cap for the next round of stimulus may not be as friendly as the CARES Act.
The biggest second stimulus issue that needs ironing out
At this point, there's certainly an incentive for lawmakers to get a phase 4 deal done soon. Aside from the fact that the CARES Act simply didn't do enough for most people, enhanced unemployment benefits -- i.e., the extra $600 a week -- are set to end on July 31, and it happens to be an election year. It would be a definite feather in the cap for both parties if they were able to go to bat for their constituents during an election year.
But there's a significant hurdle that Democrats and Republicans will need to overcome, which McConnell alluded to while speaking last week -- enhanced unemployment benefits.
As of June 20, there were approximately 19.3 million continued claims (people receiving unemployment benefits), which is up significantly from the 1.7 million continued claims at the end of February. Though this is down from a peak of 24.9 million ongoing claims, it suggests that unemployment levels will remain high for some time to come.
To most Democrats on Capitol Hill, this data demands an extension of enhanced unemployment benefits. However, this extra $600 a week is a disincentive to return to work in the eyes of Republicans. If a second stimulus bill is to pass muster in Washington, both parties will need to iron out their differences very quickly on enhanced unemployment benefits. Once this domino falls, it shouldn't be difficult to deliver a bipartisan bill that helps working Americans and seniors.
Look for a more concrete outline of a phase 4 proposal once the Senate reconvenes on July 20.