Why hope for a second stimulus check isn’t dead yet

Updated on

It’s looking more and more like there won’t be a second coronavirus stimulus check. It isn’t an impossibility, but there are some things that will have to change before a second round of IRS stimulus checks will be on the way to the American people.

Get The Full Seth Klarman Series in PDF

Get the entire 10-part series on Seth Klarman in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

Q1 2020 hedge fund letters, conferences and more

Why a second round of stimulus checks is unlikely

Most Republicans are worried about how much the federal deficit and debt have increased since they started rolling out relief to deal with the coronavirus pandemic. As a result, many are not inclined to vote for a package that would send out a second round of IRS stimulus checks. Even some Democrats are starting to question whether another round of checks should include everyone.

On the other hand, President Donald Trump is warming up to the possibility, and most Democrats have been calling for a second stimulus check for weeks. The key question is whether the GOP will get on board with the idea of sending more checks.

The data suggests that more checks could be in order. The Federal Reserve expects the unemployment rate to surpass 30% amid the pandemic. The first $1,200 per adult didn't go very far, and numerous polls have suggested that Americans could need more money to get through the pandemic.

Why the HEROES Act is probably dead

Most people who have been following the developments around coronavirus stimulus packages have heard about the HEROES Act, which was passed by the House of Representatives. The bill would send a second stimulus check amounting to $1,200 per adult and $1,200 per dependent of any age to Americans.

However, the bill is likely dead in the Senate and may never even come up for a vote. Senate Republicans and President Trump went so far as to call the bill "dead on arrival" after the Democrat-led House passed it. Senate Majority Leader Mitch McConnell said more recently that if there is another stimulus package, it will be written in the Senate, which further suggests that the HEROES Act will never even come up for a vote.

McConnell has also said they want to pause before passing anymore coronavirus stimulus packages, which is another reason not to expect another round of direct payments.

Other reasons against a second IRS stimulus check

Adam Mitchel of the Heritage Foundation told CNBC that he believes Republicans realize that direct payments to Americans are "poorly targeted and not stimulative." He noted that a broad range of payments go to many who are still employed and don't need the money.

Further, they aren't always spent in such a way that "adds steam to the economy." He believes that the first round of payments came with "a willingness to try just about anything and at any cost.

"Now that the initial frenzy has past, those initial ideas are being refined and thought through more clearly," he added.

Senate Republicans have expressed more interest in attacking stimulus from other angles, like with a payroll tax cut to incentivize people to get back to work. Many are thinking about this tactic as a way to fight back against the extra $600 in weekly unemployment benefits, which caused many people to get paid more to stay home than they were getting paid on the job.

Senate Democrats are also thinking about ways to more closely target additional stimulus. Some suggested that a second round of coronavirus stimulus checks should only go to those who are unemployed.

Why a second stimulus check is still possible

CNBC notes that the possibility of a second round of IRS stimulus checks isn't completely dead. Sources told the media outlet last month that the White House would probably support another round of payments for the general public.

Further, President Trump said recently that he would be "healing people out" and "getting some money for them." Senate Republicans may be influenced by his statements, which could mean that they can be convinced to vote through a package containing a second round of coronavirus stimulus checks.

There's one other reason Republicans could be convinced to vote for more direct payments. It is an election year, so they may be thinking about sending out more money as a way to secure more votes. Trump believes a strong economy would be good for his reelection bid, University of Southern California Marshall School of Business Professor Larry Harris told CNBC.

It also appears that more Republicans support a second round of coronavirus stimulus checks than what is often reported. A poll conducted by CNBC and Change Research found that 53% of GOP respondents support more direct payments for Americans. Harris believes that view will be more closely reflected within Congress as the fallout from the COVID-19 pandemic continues.

The longer the crisis goes on, the more likely Congress will be to act on a second round of IRS stimulus checks.

Your second coronavirus stimulus check could be a loan

Published on

Many Americans have been wondering if there will be a second coronavirus stimulus check, although millions have yet to receive their first one. Now it sounds like lawmakers are considering an alternative approach. They could allow struggling Americans to borrow from their future Social Security benefits to take a second coronavirus stimulus check soon.

Know more about Russia than your friends:

Get our free ebook on how the Soviet Union became Putin's Russia.

Q1 2020 hedge fund letters, conferences and more

A loan for a second coronavirus stimulus check?

The Washington Post reported that senior White House officials are considering a plan offered by conservative scholars. The proposal would allow Americans to elect to receive a second coronavirus stimulus check of up to $5,000. In exchange for the payment, recipients' Social Security benefits would be delayed. Andrew Biggs of the American Enterprise Institute and Joshua Rauh of Stanford University's Hoover Institution floated the plan.

The so-called "Eagle Plan" is a 29-page memo that suggests federal retirement programs be overhauled so Americans could receive financial assistance during the pandemic. Biggs and Rauh explained their proposal to pay for a second round of coronavirus stimulus checks in a post for The Hill last month.

The plan suggests delaying Social Security benefits for three months at the most for Americans who accept a second coronavirus stimulus check. Those who decide not to receive a check would receive their benefits on time without any changes.

The White House reportedly rejected the plan. A spokesperson told the Post that President Trump has said he will protect Medicare and Social Security while he is in the White House.

Other talk about a second round of stimulus

Democrats have been suggesting providing a second round of coronavirus stimulus checks in various ways. Republicans have been concerned about spending even more money, further increasing the federal government's debt load. Some are looking for cuts in other areas before spending any more money on stimulus to deal with the pandemic.

That doesn't mean there won't be a second coronavirus stimulus check. Fox News reports that on Monday when Trump was asked about a Democratic plan to send more checks to Americans, he said they are "talking about that with a number of different people."

The president has repeatedly said he wants payroll tax cuts to be part of any additional stimulus package. The third phase of stimulus included a payroll tax cut for employers, but Trump wants to see employees included in that same tax cut in the fourth phase, especially as more and more Americans become able to return to work.

Phase 4 coming?

Trump has also said he wants Phase 4 of coronavirus stimulus to include infrastructure spending to help more Americans get back to work. He said last month that since interest rates are now at zero, now is the time to do the infrastructure bill they have been waiting on for "decades." He called for $2 trillion to be spent on infrastructure and adding jobs. On Friday, the president said he was in "no rush" to talk about the next phase of coronavirus stimulus.

The House hasn't yet revealed its Phase 4 of coronavirus stimulus, which is another multi-trillion-dollar bill. Democrats have been calling for more direct payments to individuals, expanded unemployment benefits, further assistance for small businesses and a big emphasis on aid for state and local governments.

However, Trump isn't interested in bailing out "poorly run" states that have major pension deficits and other budget problems that were going on before the coronavirus hit.