Even though the budget deficit is projected to reach nearly $4 trillion this year, there will be another stimulus package. Balanced budgets and fiscal conservatism fly out the window in an election year.
Barron’s reports on what may be in the next package:
The U.S. fiscal and monetary response to the coronavirus crisis was extraordinary by historical standards, Ernie Tedeschi, managing director and policy economist for Evercore ISI, told Barron’s readers Tuesday. But the considerable measure was not without its gaps.
Historically, “I don’t think we’ve done anything close to the magnitude of the fiscal and monetary response,” said the economist, who previously served as a senior advisor and economist at the U.S. Treasury Department’s Office of Economic Policy. “As praiseworthy as both of those areas have been in general, I think that there are still some gaps in our response.”
Among the gaps: the coming expiration of certain programs established to help small businesses and the unemployed, as well as support for local government budgets.
“I think that the fiscal response has worked thus far,” Tedeschi said. “But a lot of those big programs are expiring this summer,” including the Paycheck Protection Program, which the Senate extended until August 8 Tuesday, and enhanced unemployment insurance provisions. If the emergency unemployment insurance provision, which Tedeschi calls “the single most generous and effective thing that the Cares Act did,” expires on July 31, “that would be a devastating headwind to the economy,” he said.
Local governments, meanwhile, “are facing big budget crunches this year and next that could also be a headwind to the economy if they actually happen,” Tedeschi said.
These gaps could be addressed in the next round of stimulus, said Tedeschi. The increasing anxiety about a second wave—or a first wave in certain areas of the country—creates more urgency for another fiscal package, he said.
Tedeschi says the next stimulus package will likely do something to “extend or modify” the emergency unemployment insurance—but he doesn’t expect a blanket extension. “Knowing Congress, they will probably just do a simple calendar-based phase out of that $600 over several months,” he says. “I think that’s the bipartisan compromise we’ll come to.”
“I think that there will probably be something in there on state and local aid,” he says, adding that his calculations estimate that state and local governments are “facing budget crunches of $500 billion” this year and next.
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