The quick passage of the CARES Act was truly impressive in how the two parties united to deal with a crisis. It was also impactful enough to change the economy's trajectory. This is evident from economic data like household income which was higher due to the enhanced unemployment benefits, and consumer spending which is equivalent to 2019 levels despite so much of the economy being shutdown.
In total, the CARES Act came out to $2.2 trillion. Some of its major pieces were $350 billion for small business loans, $100 billion for hospitals, $500 billion to distressed industries, and $300 billion in the direct stimulus. The price tag for the next stimulus bill is estimated to be between $1 trillion and $3 trillion.
The extensions of the CARES Act is becoming much more complicated. And, the stock market hasn't yet accepted this reality as it blissfully, continues higher. By all logic, Congress and the President should make a deal given that it's an election year, the economy is still recovering, interest rates are at record lows, and there's minimal opposition to deficit spending.
Complications
Yet, an agreement hasn't been reached. One major area of disagreement is that Democrats are insisting on money for state and local governments. The Democrats plan allocates $500 billion for state and local governments to help them deal with the revenue shortfall with money going to states based on population. Republicans are opposed to this idea.
The Republicans are insisting on liability protections for businesses, schools, and other entities that reopen. In essence, it would block lawsuits from heading to trial and make it harder to prove "gross negligence or willful misconduct". Advocates argue that this would protect businesses from frivolous lawsuits, while opponents say this would lead to businesses ignoring health concerns.
Democrats want to extend the enhanced unemployment benefits of $600 per week until the end of the year, while Republicans see it as an incentive for people not to start working. They are advocating either for payments to taper off or some sort of wage replacement model.
Another complication is that President Donald Trump has been forceful about a payroll tax cut. The problem is that neither the Republican plan nor the Democrat plan includes this proposal. It's also the main source of funding for Social Security. Most experts believe that the payroll tax would simply be deferred rather than cut which means it would have to be paid back at tax time in 2021.
Conclusion
Additionally, Congress and the President aren't feeling the same sense of urgency that they felt in March when the economy and stock market was in free-fall. The market at record highs and month to month improvement in economic data makes both sides feel that they have more leverage. It's a scenario we've encountered a few times in the last decade such as the fiscal cliff and the debt ceiling when the stock market kept going up despite Congress not able to make a deal. But Congress' urgency to make a deal was diminished by the strength in the stock market.
