Democratic and Republican leadership in the Senate have agreed to a substantial Phase 3 aid package, reported to cost $2 trillion. The bill is intended to help cushion the considerable economic toll the coronavirus pandemic is having on the country.

The bill is reported to include the following measures. As final details have not yet been released, the dollar amounts are those reported in the media or estimated by reputable researchers:

  • One-time checks to many Americans amounting to $1,200 per individual, $500 per child. The benefit starts getting phased out at individual incomes over $75,000 and goes to zero by $99,000 annual income (based on either 2018 or 2019 tax return data). This is estimated cost around $250 billion.
  • Broad expansion in unemployment benefits to nontraditional employees, including gig workers and freelancers. It also extends unemployment insurance by 13 weeks and includes a four-month enhancement of benefits of $600 per week for four months. This is estimated to cost $250 billion.
  • $350 billion in loans to small businesses. This would be part of a small business interruption loan program, to help temporarily cover payroll costs. Part of this measure is being described in the media as a payroll tax cut, but companies will have to pay it back at a later date.
  • The key sticking point was roughly $500 billion in corporate aid, much of which would go to backstopping Federal Reserve loans ($425 billion). The Treasury Secretary will have authority to directly lend some of those funds including $75 billion in industry-specific loans. The agreement will create a new inspector general and oversight board to oversee the aid. Companies will not be allowed to buy back their stock for a one year period after receiving assistance.
    • Reportedly there will be direct grants of $60 billion to airlines, which will not have to be paid back.
  • $130 bn for hospitals, and $150 bn to help state and local governments deal with extra costs related to the virus.
  • There appear to be various other funding increases for education ($43 billion), transit ($25 billion) and for the Disaster Relief Fund ($30 billion), but it is unclear if these amounts are included in the other totals cited.

It is expected to be voted on by the Senate later today. The House is not currently in session, so House leader Pelosi hopes the bill can be passed by unanimous consent (or a voice vote), so the House can quickly pass legislation without Representatives present to vote. If one member objects to that process the House will need to be recalled to vote. President Trump has indicated that he is pleased with the bill and will sign it.

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Congress has already passed two relief bills amounting to about $112 billion in total. Last week, the Senate has passed the “Families First Coronavirus Response Act”, colloquially called Phase 2, which included measures like free virus testing, expanded funding for food security programs and Medicaid, and paid leave for certain workers. Earlier in the outbreak, on March 5th, Congress passed a $8.3 billion bill (Phase 1) to unleash health and research related spending to fight the virus.

Key Implications

Thankfully, Republicans and Democrats finally agreed on a package to provide assistance to individuals and businesses affected the COVID-19 pandemic. The stimulus portion is really the $500 billion total to individuals, which includes direct checks and increased unemployment benefits. In the short-run, a lot of this money will be saved, but it is expected to boost consumer spending in subsequent quarters. Loan guarantees for business will help keep them afloat during the downturn, but do little to boost near-term demand, and as such won’t boost our near-term estimate of GDP growth. But it will help ensure that there are more businesses to spend money at once the pandemic subsides.

Those tallying up the total will note the amounts cited above do not add up to $2 trillion. We await further details to know the full amount and will include in a more detailed note to come. In any case, this is substantial support amounting to close to 10% of GDP. This should help ensure that the U.S. economy is able to bounce back more readily once the worst of the pandemic passes and social distance measures come to an end. As news that a deal was close circulated yesterday, equity markets rallied, suggesting this deal is sort of action investors have been waiting for.

This is unlikely to be the last measure Congress takes to help deal with the coronavirus crisis. Reports are that Phase 4 will deal with assistance to state and local budgets, which bear the brunt of the increased costs related directly to coping with the pandemic.

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