The main point of agreement between the two sides is on stimulus checks. However, the HEROES act includes $1,200/dependent for up to 3 dependents while the HEALS act proposes $500/dependent for all dependents. Should Phase 4 be passed in early August, these support checks should be rolled out fairly quickly with funds starting to arrive in late August with the largest check coming in early September. In terms of disagreements, the two key areas are unemployment benefits and state and local aid. The CARES act added a supplemental $600/week payment to unemployment insurance and extended coverage to self-employed and gig workers. For perspective, prior to CARES, the average weekly unemployment insurance payment was $373/week in Q1 2020. Democrats have proposed extending this program through January while Republicans have called for a two stage program. The first stage will see the supplemental payment decline to $200/week through September with the second stage imposing a formula-based approach where unemployment insurance goes to 70% of income. On the last part, state unemployment offices have indicated that it would be very challenging to put a formula-based system in place. While this is a potential issue, the more pressing concern is the temporary lapse in supplemental unemployment benefits as the CARES act has expired. This could see a decline in income of ~$18 billion/week that will weaken near term spending. Finally, there are state and local aid differences. The Democratic plan has ~$1 trillion in aid while the Republican program focuses on greater flexibility in the usage of funds already allocated under the CARES act. There are also differences in education funding with the Republican plan tying funding to schools meeting “minimum opening requirements.” Total state and local aid represents a key point as 32 states and DC have revised down their revenue projections for FY2021, illustrating the breadth of support needed. So far, 1.5 million jobs have been cut at the state and local level. Without additional support, further cuts will needed. Ultimately, a large part of the economy has been supported by stimulus. Data shows that retail spending has returned back to pre-COVID levels while employment has recovered only 1/3 of its losses. This differential is made up by stimulus so what comes next will greatly impact the path of the economy. |
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