Did concerns over the US debt lead to a smaller stimulus package?

Did concerns over the US debt lead to a smaller stimulus package?
Source: Ken Cedeno, Reuters
The US$900 billion bipartisan bill is on the lower end of what has been more than half a year’s worth of proposals for further coronavirus stimulus and economic relief.

With agreement having been reached on the latest coronavirus relief bill on Capitol Hill, some lawmakers have begun to reignite old concerns over the United States national debt.

Both as a result of the economic response to the coronavirus pandemic and the policies undertaken throughout Donald Trump’s presidency, US national debt has soared to record highs in 2020.

The federal deficit for fiscal year 2020 (which ended in September) stands at some US$3.1 trillion, with the national debt at US$27.5 trillion overall.

Now, with only a few weeks remaining until President-elect Joe Biden’s inauguration in January 2021, some Republicans are publicly airing their concerns over the US national debt, with some arguing that this timing is no coincidence.

Regardless, analysts have warned for months that concerns about the debt should be sidelined while the economy recovers from the coronavirus pandemic.

But the bipartisan bill that passed on Monday, December 21, was vastly cut down from previous offerings, on both sides of the negotiating table.

Various figures have been floated in the past, but the US$900 billion bipartisan bill is on the lower end of what has been more than half a year’s worth of proposals for further coronavirus stimulus and economic relief.

Furthermore, it is likely that political concerns, not genuine concerns over US debt, was what ultimately got the bill across the finish line, raising questions as to why stimulus could not be agreed upon earlier, not just at the eleventh-hour.

Debt concerns

Successors to March’s unanimously-agreed CARES Act failed to secure bipartisan agreement, meaning it has been more than half a year since the last coronavirus stimulus measure was passed by Congress.

In October, House Democrats passed a US$2.2 trillion stimulus plan, itself much-reduced from earlier packages, but the plan failed to secure the agreement of Republicans who continued to hold out for a smaller, less expensive plan.

However, the latest proposed coronavirus relief package had no problem achieving bipartisan agreement.

Developed by a group of eight lawmakers from both parties and both the House of Representatives and the Senate, the latest bill provides US$900 billion in relief for American citizens and the US economy.

The package contains enhanced unemployment benefits at US$300 per week for 11 weeks, food assistance and student loan forbearance, as well as funding for small businesses, schools, vaccine deployment and more.

The package does not contain the US$1,200 stimulus checks that were paid directly to American citizens as a consequence of March’s CARES Act, but will likely contain one-time checks of around US$600 – half the original amount.

Commenting on the package, Democratic Senate Minority Whip Dick Durbin commented that “everybody has a strong appetite to pass this” and “go home.”

And with the deal having secured agreement, Republican Senate Majority Leader Mitch McConnell announced that “we can finally report what our nation has needed to hear for a very long time: more help is on the way.”

However, the bill still needs President Trump’s signature to take effect.

Political pressure

Some Republicans have become more vocal in their concerns of US debt, even as President Trump has overseen a record expansion in the US debt and deficit, not just as a result of coronavirus relief measures.

Republican Senator for Florida Rick Scott stated during an appearance on Fox Business that the US is “at $27 trillion worth of debt” and “somebody has got to pay for that.”

That these concerns are only arising now, weeks before President-elect Joe Biden, a Democrat, is set to take office, has led to claims that debt concerns, during an unprecedented economic crisis in the US, are nothing more than political posturing.

As Dartmouth political science Professor Brendan Nyhan commented, these public debt concerns aired by Republicans show “it’s Democratic president o’clock.”

But analysts and experts have long called on lawmakers to sideline their concerns for America’s growing national debt and instead focus on securing a large and robust stimulus package for the economy.

Outgoing Federal Reserve Chair Jerome Powell previously told the National Association for Business Economics that too little stimulus “would lead to a weak recovery,” which would only damage the financial standing of households and businesses, “harming the productive capacity of the economy and holding back wage growth.”

In contrast, “the risks of overdoing” stimulus “seem, for now, to be smaller,” Powell argued. This remains especially so as the Labor Department reported an uptick in filings for unemployment benefits in early December, a sign that the economic recovery is continuing to slow down without stimulus.

On the other hand, political concerns, especially among Republicans, regarding two upcoming Senate runoff elections in Georgia, upon which control of the Senate hinges, likely pushed Republican Senate Majority Leader Mitch McConnell to rush a stimulus deal through.

Even though the latest deal lacks the liability protection for businesses that McConnell previously held as necessary for any agreement to occur with Democrats, Republicans have fallen in line to pass the stimulus before Congress heads into recess over the Christmas period.

In a private call with Republican lawmakers, McConnell reportedly stated that Senators Kelly Loeffler and David Perdue were “getting hammered” for the failure to secure more coronavirus stimulus, which could jeopardize Republican control of the Senate.

Ultimately, the latest coronavirus stimulus package contributes significantly less to the US debt than past proposals and it is arguably needed more than ever, especially as signs show that the economic recovery in the US continues to slow.

But it is likely that debt concerns played little part in solidifying bipartisan agreement around a much-reduced stimulus package.

Instead, control of the Senate, Mitch McConnell’s priority above all else, has seemingly pushed Republicans into action, even as Republicans begin to sound the debt alarm before President-elect Biden’s inauguration.

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