President Donald Trump speaks in the Oval Office on August 5, 2020.
Photo: andrew harnik/Agence France-Presse/Getty ImagesAs negotiations for another giant spending bill proceed in Washington, President Trump faces a choice. Does he do another deal giving Speaker Nancy Pelosi most of what she wants, perhaps splitting the GOP in the process? Or does he press his own economic agenda and, if the Speaker blocks it, take that to the voters in November?
On present trend Mr. Trump is headed for the first choice. Mrs. Pelosi’s House passed her $3 trillion spending bill in May, and the President is moving toward her step by step. Even if the final number ends up somewhere between $1.5 trillion and $2 trillion, the Speaker would get most of what she wants.
That includes more money for profligate Democratic-run states, more money for income-transfer payments, more payments to schools whether or not they reopen for classroom instruction, and perhaps even an extension of $600 weekly federal jobless payments that subsidize unemployment by paying workers more not to work than they earn on the job.
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Treasury Secretary Steven Mnuchin seems to have convinced Mr. Trump that this is necessary to get a grand deal and help the economy through Election Day. We’d say the opposite is closer to the truth. The jobless payments will keep unemployment higher than it would otherwise be, as University of Chicago economist Casey Mulligan has shown. If schools stay closed, fewer parents will be able to return to work.
Another $300 billion or more for the states would be counterproductive in encouraging more states to keep their economies locked down for longer. Gov. Andrew Cuomo wants $30 billion from the feds to fill his rising budget gap but is still keeping New York City largely under wraps. California Democrats vow to pass their own $600 a week jobless payment if the feds don’t extend theirs, then use Speaker Pelosi’s bailout cash to pay for it.
The original Cares Act and other payments were intended as substitutes for lost private incomes while government ordered the economy shut. But the economy is now growing again, with most economists predicting a 20% increase in third quarter GDP. Housing is strong, motor vehicle sales are rising, and manufacturing indexes are back in growth territory. No one knows why equity markets are as buoyant as they are, but one reason may be that they see a stronger recovery than does the political class. It wouldn’t be the first time.
The second quarter GDP collapse was dreadful as politicians closed the economy, but most states aren’t likely to make that mistake again. The service economy is still struggling, and it will continue to do so until people feel safer to shop and travel. But that will require a wider public perception that the virus threat is receding. Americans have socked away their previous government payments, with the savings rate in the second quarter rising to a record 25.7%. They’ll spend that money as the economy reopens.
As for the politics, Mr. Trump has to make a decision. If he does another Mnuchin-Pelosi mega-deal, it will pass the Congress. Mrs. Pelosi and Senate Democratic leader Chuck Schumer will see to that. But it will pass mainly with Democratic votes, as significant numbers of Republicans in the House and Senate defect. They will feel safe in doing so on this issue more than on others because much of the GOP rank-and-file will be on their side.
Control over spending and the size of government are still core GOP values even if they’ve been swamped in the pandemic panic. If Mr. Trump makes this deal with Mrs. Pelosi, he will divide his party on the eve of an election and on an issue that millions of conservatives suspect the President may not share their principles. That won’t help voter enthusiasm going into an election in which he is already trailing.
What’s the alternative? Mr. Trump can stop taking Mrs. Pelosi’s dictation and make the case for his own agenda to revive the economy in the fall and into 2021. As he noted himself this week, Mr. Trump doesn’t need Congress’s approval to defer the collection of payroll taxes for up to a year. This isn’t a great economic stimulus, but it would lift weekly American paychecks immediately without paying a $1 trillion negotiating fee to Democrats.
On jobless insurance, Mr. Trump and Republicans can keep offering an alternative of $200 a week plus the current state benefits; this is still generous. Extend the duration of enhanced benefits for those who can’t find a job, rather than increasing the disincentive not to work for those who can get a job.
These could become part of a larger Trump economic and reform agenda for a second term. The polls show the economy is the one issue on which a majority trusts Mr. Trump more than it does Joe Biden. But if he signs another Nancy Pelosi special, voters can be forgiven if they wonder what the economic policy difference is between Republicans and Democrats.
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