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Stimulus Package Proposal Delay Could Jeopardize Size Of Potential Second Stimulus Check

July 24, 2020

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The potential resurrection of a payroll tax cut could imperil the size or income cap of a second stimulus check in the coronavirus stimulus package. — The potential resurrection of a payroll tax cut could imperil the size or income cap of a second … [+] stimulus check in the coronavirus stimulus package.

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Senate Republicans were expected to unveil their stimulus package proposal today after a whirlwind week of intense behind-the-scenes negotiations among themselves and with key White House officials, including Treasury Secretary Steve Mnuchin and Trump Chief of Staff Mark Meadows. Mnuchin emerged optimistic from a meeting this morning with Meadows and Senate Majority Leader Mitch McConnell. “We just had a very productive discussion with the leader. We do have a fundamental agreement between the White House and the Republicans in the Senate,” he told reporters.

However, as the day wore on, it became evident that the GOP still had not reached consensus. “The [Trump] administration has requested additional time to review the fine details, but we will be laying down the proposal early next week,” McConnell said. “We have an agreement in principle on the shape of the package.” Republicans will spend Friday and the weekend trying to hammer down details with the White House.

Given the fluidity of discussions, much could change between now and Monday, which is one reason why no one should bank on specific provisions or their magnitude, even if an official had previously signaled that they would be included. This includes a potential second stimulus check. Here’s why.

Three Interdependent Variables:

Republicans have coalesced around a second stimulus check in recent days, a marked departure from their stand only two months ago. On Tuesday, McConnell officially endorsed another stimulus check. “We want another round of direct payments – direct payments to help American families keep driving our national comeback,” he noted.

However, the size and income eligibility of the second stimulus payment have been more ambiguous. Originally, McConnell had signaled that the income cap may be lower, presumably as a way to keep the cost of the bill lower. Republicans have been relatively quiet about whether the size of the check would be the same as the first round of payments under the CARES Act, where single filers received $1,200. Most have now voiced general support, but appear to have deliberately avoided specific mention of an amount.

The one exception was Mnuchin, who told reporters earlier today that Republicans were “talking about the same provision as last time, so our proposal is the exact same proposal as last time.” Many seized on Mnuchin’s comments today as “confirmation” that $1,200 is a fait accompli; just like several other comments by Mnuchin, the $1,200 amount may not come to fruition.

Is A Payroll Tax Cut Back On The Table?

In recent days, Trump and administration officials indicated that inclusion of a payroll tax cut was a red-line issue for the next bill, with Trump telling Chris Wallace during an interview that he “would consider not signing it if we don’t have a payroll tax cut.” Mnuchin again erred in his initial prediction, mistakenly saying as late as Monday that a payroll tax cut was “in the bill.” Fierce Republican opposition led to the White House agreeing to scrap the payroll tax cut from the draft version of the proposal. “Mnuchin and Meadows were met with so much blowback to the idea at the Senate GOP lunch Tuesday that Mnuchin didn’t try to persuade anyone to reconsider,” according to The Washington Post.

However, after Republicans delayed release of the proposal today, Stephen Moore spoke to Washington Post reporter, Jeff Stein, and insisted that the payroll tax cut was back on the table. “Stephen Moore just called to say: ‘We’re not giving up on the payroll tax cut. We’re going to pound the pavement to get this back in the bill,” Stein shared on Twitter. “We’re working w/ Republicans to go to [Trump] to say, ‘We cant support a bill w/o a payroll tax cut.’ It’s premature to say this is dead.”

While one should take Moore’s comments with the same grain of salt as Mnuchin’s, the potential resurrection of a payroll tax cut could imperil the size or income cap of a second stimulus check.

How Rigid Is The Republican’s $1 Trillion Cap?

Republican’s have been under immense pressure to keep the cost of the next stimulus package down. McConnell has anchored on a cost of $1 trillion. Some in the GOP have worried that staying at a $1 trillion price tag might mean having to “pick between the two priorities, both of which have vociferous supporters and detractors,” according to The Hill.

“I think it gets complicated to try and do both, for sure, because you’ve got a limited amount of head room that you’re trying to work with here,” said Senator John Thune (R-South Dakota). “I think in the end it’s probably going to come down to where the votes are and maybe picking and choosing.” That could prove worrisome with the White House taking a few days to look over the proposal and advisors like Moore whispering in Trump’s ear, especially given Trump’s predilection towards a payroll tax cut.

Something Has To Give

If Trump forces a payroll tax cut back up for discussion – and let’s be clear, this is a big if given strong Republican and Democratic opposition – then something has to give. Here are a few scenarios that could play out:

If the Republican priority is to keep bill at $1 trillion: An analysis by the Committee for a Responsible Federal Budget estimated that a three month payroll tax holiday would cost $300 billion. This would potentially occupy a substantial amount of the $1 trillion budget, leaving less room for other items like second stimulus checks. If Republicans want to keep the bill under that amount and are forced, perhaps by Trump, to include a payroll tax cut, they may need to reduce the size of a second stimulus check to offset the cost of the payroll tax cut. This could mean reducing the amount of the check from $1,200 or perhaps imposing a stricter income cap on eligibility.
If Republicans are content going above $1 trillion: In this case, the proposal may be able to accommodate both a payroll tax cut and a $1,200 stimulus check. However, the critical question will be: How high Republicans are willing to go? Given vociferous opposition to overspending by Tea Party members, there is still a chance that they may need to slightly reduce the cost of a second stimulus check. “I think conservatives are unhappy with all the money we’re spending up here on the virus. They would rather the economy open,” said Senator Rand Paul (R-Kentucky).
If Republicans want to use a loophole: McConnell is the master of procedural tactics and could use a budgetary loophole to accommodate both a payroll tax cut and a $1,200 second stimulus check. As reported a few days ago in The Washington Post, “the administration is considering structuring the payroll tax cut in the legislation as a deferral rather than an outright cut, which would keep down the technical cost of the overall bill.” This deferral would require Americans to pay back the tax cut savings at a later date. While this maneuver could be used to keep the official cost of the bill down, fiscal conservatives may cry foul, knowing that there is a high likelihood that Congress could decide to waive the repayment in the future, which would simply kick the debt can down the road.

The Upshot

A payroll tax cut may creep back into the conversation given the delay in unveiling the Republican stimulus proposal, which could jeopardize the size of a second stimulus check. “I think both the direct payments and the. . . elimination of payroll taxes would be a pretty big part of the package, either one would be. Both of them would be, my guess is, challenging to do and do much else under [a] trillion dollars,” said Senator Roy Blunt (R-Missouri).

Yes, Mnuchin indicated that the parameters of a second stimulus check would be the same as the last round, which implies a $1,200 payment; however, you shouldn’t take his word as gospel. After all, ironically, earlier this week he was the one who said a payroll tax cut would be in the proposal.