Please ensure Javascript is enabled for purposes of website accessibility

There's a New Hurdle to a Second Stimulus Deal

By Sean Williams – Jul 25, 2020 at 5:51AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This could be tough for lawmakers to overcome.

No matter how many recessions a worker or retiree has lived through, there's nothing that could have prepared them for the financial toll from the coronavirus disease 2019 (COVID-19) pandemic. The U.S. unemployment rate (11.1%) remains at levels not consistently seen since the 1930s, and the rebound from state-level nonessential business shutdowns has gone far slower than expected.

It was this unprecedented disruption that coerced lawmakers and the president to pass and sign the Coronavirus Aid, Relief, and Economic Security (CARES) Act nearly four months ago, on March 27.

Uncle Sam's arm and hand emerging from a mailbox with a fanned pile of cash.

Image source: Getty Images.

The CARES Act was a godsend for businesses, but it did little for the average American

At $2.2 trillion, the CARES Act more than doubled the cost of the relief legislation passed during the financial crisis under the Obama administration. It gave $100 billion to hospitals, set aside around $350 billion for small business loans, apportioned $500 billion for distressed industries, and allocated $260 billion to enhance unemployment benefits for a four-month period (April 1, 2020 to July 31, 2020). This "enhancement" came in the form of an additional $600 a week for unemployed beneficiaries.

However, most folks will recall the CARES Act for putting money directly into their pockets. Some $300 billion was directed to be paid as Economic Impact Payments to workers and seniors citizens. At maximum, individuals could net $1,200, with couples filing jointly receiving $2,400. Additionally, a parent or household qualified to receive $500 for each dependent under the age of 17. To receive the maximum payment, a single, head-of-household, or married filer simply needed an adjusted gross income below $75,000, $112,500, and $150,000, respectively, in their most recent tax filing.

While the CARES Act was well-intentioned, and it's certainly been a help to businesses, it's not done nearly enough at the individual level. About three-quarters of Americans surveyed by Money/Morning Consult in April had spent or expected to spend the entirety of their stimulus money in four weeks or less. Given the slow pace of the economic recovery, additional stimulus appears necessary to avoid a serious hit to the financial sector.

A half-emptied hourglass on a table.

Image source: Getty Images.

There's a new hurdle to the next stimulus package

The good news, should you be in favor of additional stimulus coming out of Washington, is that lawmakers are indeed working on a second round of direct stimulus, as well as other funding initiatives possibly tied to small businesses and the healthcare sector (i.e., testing, tracing, and so on). The Democrats' passage of the HEROES Act in the House of Representatives in May and  recent commentary from President Trump, Senate Majority Leader Mitch McConnell (R-Ky.), and Treasury Secretary Steven Mnuchin, all agree on one thing: Direct payouts are a necessary step to get Americans back on their feet.

But just because there's a verbal agreement between ranking Democrats and Republicans that a second stimulus deal is needed doesn't mean one has been hashed out yet.

The expectation had been that some level of discussion was ongoing between both parties behind the scenes for weeks. With the Senate in recess between July 3 and July 17, it was believed that lawmakers would come back to work on July 20 with some meat already on the outline of a new stimulus proposal. However, that hasn't happened. Thus, lawmakers are dealing with a brand-new hurdle to the next stimulus plan: Time.

The U.S. Senate's legislative schedule only has lawmakers back on Capitol Hill between July 20 and August 7. For those of you keeping score at home, that's 15 business days. If elected officials in the Senate can't come to an agreement prior to August 7, the Senate will go on recess for a full month (August 10 through September 7, which is Labor Day). Though it's possible a special session could occur, and debates may continue into the second week of August, I'd deem it highly unlikely.

In other words, time is perhaps the biggest enemy of the next stimulus deal.

President Trump speaking with reporters at the White House.

President Trump speaking with reporters at the White House. Image source: Official White House Photo by Shealah Craighead.

What's the holdup on stimulus round two?

What might prevent lawmakers from reaching an agreement prior to the Senate going on a monthlong recess? How about three competing agendas trying to mesh into one bill.

Democrats laid out their intentions clearly with the HEROES Act. They want enhanced unemployment benefits, which are set to expire on July 31, 2020, extended through January 2021. They also want additional funding for hospitals and frontline workers, and wish to expand who'll qualify for a stimulus payment. Under the HEROES Act, undocumented workers with a taxpayer identification number would qualify to receive a payout and the definition of a dependent would include people of all ages.

As for Republicans, they'd like to minimize the amount spent on the next stimulus package in an effort to keep an already ballooning federal deficit in 2020 under control. The GOP wants the current enhanced unemployment benefits to expire and prefers to replace it with a dynamic bonus that wouldn't pay out more than 100% of what a person would make while working. It's just as possible that Republicans would favor a get-back-to-work bonus, rather than any enhancement to unemployment benefits. The GOP is also likely to oppose a large expansion of the eligibility or dependent pool in the next stimulus deal.

The third agenda comes from President Trump, who's been adamant that he won't sign another COVID-19 relief bill without a payroll tax holiday built in. A payroll tax holiday means workers would keep more of their money, with the 12.4% payroll tax, which is tied to Social Security, reduced or eliminated on the worker's side of the equation. A payroll tax cut proposal is highly contentious because it threatens to take away Social Security's primary source of funding.

Meshing these three agendas into a single bill isn't going to be easy, and lawmakers have just 14 calendar days left to do so. Otherwise, we probably won't see a deal happen until well into September. 

The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/05/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.