Parliament is expected to pass a $ 1.9 trillion Covid-19 stimulus package later on Friday and send President Joe Biden's relief plan to the Senate.
Both chambers want to approve the bill and send it to Biden's desk before March 14, when important programs for millions of unemployed Americans expire. Pitfalls await him in the Senate where a single Democratic vote against the plan would stall him, and a decision banning lawmakers from including a minimum wage of $ 15 an hour threw a wrench into the process.
Democrats, who wielded tight control over Congress, chose to pass the legislation by budget vote. The process allows them to pass the bill without a Republican vote in the Senate, but it also limits what lawmakers can include in it.
The plan includes:
A weekly unemployment insurance supplement of $ 400 and an expansion of programs to expand unemployment benefits to an additional million Americans by August 29th. $ 1,400 in direct payments to most Americans and the same amount for loved ones, $ 20 billion for a national Covid-19 vaccination program and $ 50 billion for testing. $ 350 billion in state, local, and tribal government payments to families of up to 3,600 $ 170 billion per child over one year in K-12 schools and higher education institutions to cover reopening costs and student aid A federal minimum wage increase to $ 15 per hour per hour by 2025
While economists are more likely to believe that additional incentives would provide workers with a robust safety net when the economy recovers – not to mention accelerating GDP growth – they disagree on the need for a 1.9 bill Trillion dollars.
The case of growing up
Proponents of the spending argue that the U.S. economy is still in a precarious position and millions of Americans are still unemployed due to layoffs in the pandemic and forced government closures.
While the Department of Labor's most recent report on jobless claims showed a decline in first-time applicants for unemployment benefits, it also found that as of February 6, there were still more than 19 million Americans enrolled in some form or another.
Earlier this month, Treasury Secretary Janet Yellen told CNBC that Biden's plan could bring the economy back to full employment before the end of 2021.
She highlighted the number of people the virus has challenged over the past year for households that are still struggling to buy groceries and stay one step ahead of rental payments.
"We think it is very important to have a big package that addresses the pain it has caused – 15 million Americans behind on their rent, 24 million adults and 12 million children who don't have enough to eat, small businesses fail. " Yellen said on February 18.
The possible risks
Economists criticizing the plan tend to focus on the scope of the legislation and the potential benefits of a bill that is better tailored to the needs of businesses and workers in industries that continue to suffer most from Covid-19, such as airlines and food service and hospitality.
The most startling criticism came from Biden's fellow Democrat and ex-Treasury Secretary Larry Summers, who warned in a February 4 statement that the bill could trigger a rebound in inflation after a decade of largely flat prices.
"Given the commitments made by the Fed, government officials' rejection of even the possibility of inflation, and the difficulty in mobilizing Congressional support for tax hikes or spending cuts, there is a risk that inflation expectations will rise sharply," he wrote in The Washington Post .
Although macroeconomic inflation has missed the Federal Reserve's 2% target for the vast majority of the past decade, investors are becoming increasingly concerned about the potential for price hikes.
Nathan Sheets, chief economist at PGIM Fixed Income, said that while he appreciated these concerns, he was not overly concerned.
"While I see real risk of inflation rising and falling in the summer as rising demand outpaces supply rebound, I would expect that spike to be temporary," he wrote in an email on Wednesday.
Sheets, who also served as Under-Secretary of State for the Treasury for International Affairs under former President Barack Obama, added that the potential economic benefits of more incentives appear to outweigh the potential risks.
"The job market is stuck in a deep hole," he wrote. "Getting those 10 million jobs back will require sustained economic growth, especially given that around half of job losses are people who have left the workforce."
Many Republicans have questioned the need to send more aid than beyond the money to accelerate Covid-19 vaccination efforts and strengthen the health system.
On Wednesday, House Minority Chairman Kevin McCarthy, R-Calif., Described much of the spending as "a waste or wish list of progressives."
A group of the Senate's most centrist Republicans previously offered Biden a $ 600 billion plan that included a vaccine distribution fund, lower direct payments to fewer people than the Democrats, and an unemployment supplement that expired sooner than their peers wanted. The president said he would rather pass the sweeping package with only democratic votes than spend weeks negotiating a smaller bill with the GOP.
Advantages cliff and minimum wage
Democrats were keeping an eye on exceeding the March 14 deadline, when approximately 19 million Americans on unemployment benefits would lose a $ 300 weekly payment. Many unemployed people would lose their insurance if two programs that expand eligibility and increase the number of benefit weeks expire next month.
Congress let similar provisions expire last summer and did not renew them until December. This contributed to millions of people falling into poverty and seeking food aid.
The urge to pass the laws got into trouble Thursday night. Senate MP Elizabeth MacDonough ruled that lawmakers could not include a minimum wage of $ 15 an hour in the budget vote proposal.
The Democrats included a provision in their bill that would gradually raise the federal wage floor to $ 15 by 2025. Parliament did not remove them from legislation following the MP's decision, as House spokeswoman Nancy Pelosi said: "Democrats believe the minimum wage increase is necessary."
The US last raised the minimum wage to USD 7.25 an hour in 2009.
If the raise stays in the bill, the Senate will likely pass different laws than the House. The representatives would then have to meet to approve a law a second time, probably in March.
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