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How to Avoid Another Failure on Covid Relief

How to Avoid Another Failure on Covid Relief

Wednesday, 21 October, 2020 - 04:15

Despite some last-minute negotiations, Congress seems unlikely to pass a new round of Covid stimulus this year. The contrast between the speed with which Democrats and Republicans came together to pass the first relief package last March, and the embarrassing failure to pass a second, couldn’t be starker.


It didn’t have to be this way — and Congress doesn’t need to repeat this mistake. The steadily rising difficulty of passing a second round of stimulus was foreseeable, but it wasn’t inevitable. There are two major lessons to take away from this train wreck.


First, in combatting an economic crisis, simplicity is the most important virtue. No one has been a greater agent of chaos in these negotiations than President Donald Trump. Yet, when the virus first hit, he called for an immediate one-year suspension of the payroll tax. That would have been an ideal policy for Congress to pass even before negotiations began in earnest.


The details of the proposal were not complicated. It would have taken a few hours for Congress to write the legislation and a few weeks for the IRS to carry it out. If it had passed, it would still be providing an economic boost — roughly as much from now until the end of the year as a second round of checks.


Instead, politicians and policy experts from both sides of the aisle rejected a payroll tax cut. A common complaint was that it would provide untargeted relief well after the virus had been contained. Yet the US now finds itself in a scenario — a pandemic that is lasting longer than many people expected last spring — in which this kind of assistance would be most helpful.


The ease with which the payroll tax cut was disposed of points to a drawback of simplicity: While it is a virtue in terms of policy, it can be a political liability. The straightforwardness of a payroll tax cut meant there were partisan and ideological objections readymade from decades of political wrangling over Social Security.


That leads to a second lesson to take from the current impasse. Rather than simply blocking any stimulus legislation that contains elements they object to, Republicans and Democrats in Congress should strike a bargain: They will accept the inclusion of a provision they oppose to so long as the other side does the same.


For example, a major sticking point from the beginning of negotiations on a second round was the $1 trillion that Democrats wanted to send to state and local governments. Republicans (rightfully) saw this as an attempt to use the virus to fulfill a longstanding Democratic goal to bail out states with large unfunded liabilities, mostly public-union pension systems.


Instead of simply balking, Republicans should have offered to trade that for money to expand and make permanent the business tax cuts in the 2017 Tax Cut and Jobs Act. Yes, this type of logrolling can increase government waste and inefficiency — but not always. And it has crucial advantages over simply saying no.


Granted, both of these proposals — while made more relevant as a result of the economic shock from the pandemic — would be naked attempts to exploit the crisis. As such, the other side would be very unlikely to completely accept them. The simple act of pairing them, however, would have served to isolate the sticking point, allowing negotiations to continue on other issues.


Linking the state and local aid to some actual measure of budget deficit would have mitigated but not completely proscribed the Democrats’ plan. And while Republicans may have had to give up the idea of making the tax cuts permanent, they might have been able to get an agreement to extend them beyond their current expiration dates. If Congress had taken this approach to negotiations last spring, not only would the US economy still be receiving stimulus from the original payroll tax cut, but bipartisan negotiations could have begun as early as April.


To make a more general point: Negotiations have a better chance of success if both parties are willing to accept some of the other side’s priorities in order to get their own accepted. The most extreme parts of the other side’s plan tend be the ones they are the least attached to.


It may well be that the sticking points, not to mention the negotiators, will be different come January. And even if Congress were to adopt these two suggestions — more policy simplicity and greater political flexibility — there is no guarantee that it can pass a stimulus bill of sufficient scope to avoid a long, slow recovery. Given the current state of dysfunction, however, almost anything is worth a try.


Bloomberg


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