Republicans are digging in against a new, large economic stimulus following a better than expected jobs report, delaying a possible deal to extend unemployment benefits and aid to cash-strapped states.
On Monday, Mitch McConnell, the Republican senate majority leader, suggested the US economy was already on the mend, on the back of a report showing the US economy created 2.5m jobs in May — close to one-tenth of the 21m positions shed since the coronavirus pandemic began.
“The economic fallout from this pandemic may have bottomed out and begun to turn around weeks earlier than had been predicted,” Mr McConnell said. “Our citizens are getting their jobs back by the millions.”
Kevin Hassett, a senior adviser to President Donald Trump, said the chances of a new recovery package were “really close to 100 per cent”, but that its size and scope would depend on whether the US continued to see unemployment go down in June.
“We had a really good month of jobs numbers,” Mr Hassett told CNBC on Monday. “If we get another month like that in June, then I think it will absolutely affect the things that we pursue in July in the phase-four deal,” he said, referring to what would be Congress’s fourth phase of legislation in response to coronavirus.
Chuck Grassley, the Iowa Republican and chair of the Senate finance committee, had earlier signalled the jobs numbers should translate to narrower stimulus than previously contemplated.
“Congress should take a thoughtful approach and not rush to pass expensive legislation paid for with more debt before gaining a better understanding of the economic condition of the country,” he said on Friday, adding that he would work with colleagues to pass new stimulus only “if necessary” and it was “too early to say what it might encompass”.
Congress and the White House have so far passed a total of $3tn in stimulus to counter the effects of the pandemic and the economic lockdown designed to halt its spread. The depth of the downturn has spurred calls for additional fiscal measures as some of the existing aid starts to run out.
House Democrats passed another $3tn stimulus bill called the Heroes Act three weeks ago, but Republicans have dismissed it as a “liberal wish-list”.
Republicans are now not expected to begin negotiations on a new package until after the July 4 holiday, while lawmakers and congressional aides in the party said they believed it would only be passed at the end of July, right before a deadline to extend unemployment benefit payments that were approved in March.
Investment group Cowen said it expected the next aid package would now top out at $1tn, versus the $2tn they expected before the jobs report. Roughly $500bn would need to go to states and local governments, Cowen predicted, which are still laying off staff and are in dire budgetary straits.
Beacon Research said in an analyst note that the positive jobs figures would “embolden Republicans to drive a harder negotiation against Democrats on issues like state and local aid and enhanced unemployment benefits, likely leading to a lower top-line dollar figure for the final deal”.
Of particular concern to Democrats is the end of enhanced unemployment benefits, which are due to expire on July 31.
As part of their own stimulus bill, House Democrats passed a measure to continue the $600-a-week in supplemental benefits into next year. However, Republicans counter that the benefits are too high, and have been disincentivising Americans from returning to work.
Thanks to the supplemental cheque, some American workers have actually seen their take-home pay increase since filing for unemployment — an issue some Republican senators flagged before an earlier coronavirus relief package was passed and have long sought to remedy.
This week, Senator Rob Portman, a Republican from Ohio, is planning to propose legislation to provide a temporary $450 a week cheque to employees returning to work, which would last until the end of July. The cheque, which Republicans have compared to a signing bonus, is meant to encourage employees to return to their jobs before the enhanced benefits run out.
Mr Portman’s proposal is under discussion with the Senate’s Republican leadership, while the White House has also shown signs of backing the measure.
Democrats, meanwhile, have said that they would like to see an employee tax credit equal to 100 per cent of wages and benefits for workers earning under $90,000 a year.