Weekly Economic Report
Another week of negotiating has generated little progress on the new stimulus bill – and raised the negative possibility that an extension of the lapsing unemployment benefits could be negotiated separately. Significant differences between the Republicans were worked out early in the week, with the payroll tax being pushed aside, and their focus moved to a less remunerative unemployment benefit and another round of $1,200 checks. Secretary Mnuchin indicated that a new stimulus should be ready by the end of next week. He suggested 70% income replacement as the Republican target for unemployment benefits to remove the morale hazard of not taking a job. No cutoff level was indicated for the new stimulus checks, which the IRS says could go out more quickly. Senator Lamar Alexander proposed new and separate legislation for soon to lapse deferrals on student loans – which are as important as unemployment subsidies for many of the younger people displaced by the COVID crisis. There were also proposals for back to work bonuses. All this needs to be negotiated with the Democrats, who haven’t moved at all from their earlier $3 trillion proposal. The Street continues to see a $1.5 trillion package. The possibility of separating unemployment benefits from a broader package seems unlikely, as it would alter respective leverage significantly. Moreover, delaying stimulus now could lead to a steadily slipping timeline, to the detriment of the economy.