Many Americans are waiting for coronavirus stimulus check number 2, and the June jobs report caused some to think there won’t be one. However, it sounds like a second round of IRS stimulus checks is still possible. In fact, we might even be able to say that it’s likely.
Mixed unemployment numbers
The Department of Labor showed that the U.S. economy added 4.8 million jobs last month, which is the largest increase ever recorded. Unemployment declined to 11.1%, although it remains quite high. However, the surveys were conducted in mid-June, which means they don't include the more recent closures as some states have had to halt or pause their reopening plans due to a new surge in coronavirus cases.
The Labor Department also reported that an additional 1.43 million Americans filed for unemployment benefits last week, which means layoffs continue to climb. The economy is clearly a long way from recovering from the pandemic, so lawmakers must act. Nearly 48 million Americans have been laid off from work due to COVID-19 and the lockdown. Such steep unemployment numbers haven't been seen since the Great Depression.
According to Fox Business, two Trump administration officials said coronavirus stimulus check number 2 is still on the table despite last month's increase in jobs. In fact, White House economic adviser Larry Kudlow and Treasury Secretary Steven Mnuchin both said a second round of IRS stimulus checks are likely.
Kudlow said direct payments will "probably" be part of the phase four coronavirus stimulus package, "as far as the president is concerned right now." President Donald Trump has also been saying he supports coronavirus stimulus check number 2.
In fact, he said earlier this week that he wants to see the second round of stimulus checks be larger than what the Democrats want. House Democrats passed the HEROES Act, which includes a second round of $1,200 payments per adult, plus $1,200 per dependent of any age.
The HEROES Act is unlikely to come up for a vote in the Senate because Republicans have labeled it liberal wish list and said it is too expensive. As a result, lawmakers will probably be starting from scratch on the phase four stimulus package.
Will Congress get its act together?
The Senate and House of Republicans both leave for a two-week recess today and won't be back until July 20. That means there will be no movement on the phase four stimulus package in Congress until then.
The Trump administration could continue working on it, but Congress is where bills must start before they go to the president's desk for a signature. If the Trump administration does keep working, it could speed up the process though because lawmakers would have a starting point when they come back to work on July 20.
Lawmakers are up against some tight timelines. The House goes on recess again in early August and won't be back until September. That means the House must pass the phase four stimulus package by July 31.
The Senate has an extra week to pass a bill because they start recess the week of Aug. 10. However, with the House leaving on July 31, it seems likely that the stimulus package must be passed by then if there will ever be one.
It is an election year, so Congress will feel the pressure to get their act together and get a stimulus bill passed. The key will be whether Republicans and Democrats can stop bickering long enough to reach a compromise in such a short timeframe.
The problem is that Democrats and Republicans have very different agendas. Republicans are focused on getting the economy back up and running, but Democrats want people to be dependent on the government for as long as possible.
The Democrats advocate provisions like an extension of the extra $600 in unemployment benefits, which resulted in most people getting paid more on unemployment than they did on the job. Republicans are concerned because the extra money incentivizes people to stay home from work, making it impossible for small businesses to get back up and running.
Republicans also want to stimulate the economy by suspending the payroll tax, which will put more money in the pockets of working Americans. However, Democrats oppose the idea because they prefer to reward people for not working.
One thing Democrats should keep in mind about the payroll tax is the fact that it benefits everyone who is working, including non-citizens who pay taxes. Democrats want to sent stimulus payments to illegal immigrants, but Republicans oppose the idea, saying that people should come to the U.S. legally if they want to get the benefits of being here.
Stimulating the economy
An opinion piece in The Wall Street Journal offered some evidence that demonstrates why the Republicans' plan will get the economy back up and running faster than the Democrats' plan. The Congressional Budget Office said the extension of the extra $600 in unemployment benefits would pay five out of every six workers more to remain unemployed than to return to work.
On the other hand, the payroll tax would provide an immediate 7.5% increase in take-home pay for workers earning up to $137,700 in income. The Committee to Unleash Prosperity said in a study this week that suspending the payroll tax through the end of the year would add about 2.7 million jobs. That's based on employment sensitivity to higher wages.
Suspending the payroll tax would disproportionately benefit low-income Americans because a larger percentage of their income is paid in payroll taxes. The lowest-income workers would see a pay increase of 7.2% to 10.7%, according to a study from the University of Pennsylvania Wharton School.
The opinion piece in the WSJ added that the Democrats' plan to extend the extra unemployment benefit would eliminate 10 million jobs and boost unemployment by six to eight points. A Heritage Foundation study estimated that it would eliminate 13.9 million jobs.
It also noted that both plans have been tried in recent history. The U.K. temporarily cut taxes by 2% from 2008 through the end of 2019. On the other hand, U.S. President Barack Obama signed the 2009 Recovery Act into law, which boosted cash benefits, health insurance and food stamps for the unemployed.
The economic recovery in the U.K. began earlier. The employment rate surpassed pre-crisis levels by the end of 2014. Meanwhile in the U.S. where benefits for not working were higher, unemployment remained high for years. Additionally, the recovery was one of the weakest in modern times. Obama did cut the payroll tax by 2% of income temporarily, but the higher tax rates caused by his other policies canceled out the positive impact of the tax cut.