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New US stimulus package approaches completion

  • Financial Analyst
  • Blog post submitted on 27th July 2020

The latest coming out of the US are reports that Republicans are set to unveil their proposals for a fresh round of stimulus today. The new stimulus package was largely expected, as the US is still some way off from fully re-opening its economy following a resurrection of virus cases across several states, with Florida now leading New York, second only to California.

The benefits passed in March are set to expire by the end of the month, risking an abrupt end to measures that have propped up the US economy during the coronavirus pandemic. The new stimulus package is reported to include $1,200 per person in direct cash payments, an extended moratorium on evictions and reduced federal unemployment benefits.

Steven Mnuchin, the US treasury secretary, remained adamant that the government was “prepared to act quickly” and raised the possibility of passing a new round of stimulus piece by piece, rather than in one single bill, an approach previously rejected by Democrats. He ruled out extending additional federal unemployment benefits at the $600 a week level instituted in March.

The payments have boosted US personal income even as millions of Americans have lost their jobs, however these are reportedly coming to an end, with the Republicans proposing capping benefits at 70 per cent of prior wages.

The federal government would be committed to step in to ensure that state authorities could quickly process new federal unemployment payments, especially due to the more onerous task of calculating benefits based on a percentage of previous salaries rather than the current fixed dollar amount. Indeed Democratic leaders are calling for the more simplified fixed dollar amount, at possibly reduced levels.

Previously, when the March stimulus was launched, there were several reports of delays and processing issues with issuing payments, therefore the efficient execution of the new stimulus package remains high on the agenda.

Furthermore, officials were reported to that the government is considering to provide unemployment insurance, possibly a retention credit, to keep people from being displaced or brought back into the workplace, an issue being faced particularly with schools.

Another facet of the package includes liability protection for companies from creditors, which is set to be immediately enacted, and possibly adding more features to the rest of the bill in the weeks to come.

Efforts to introduce a payroll tax cut were also proposed by the Trump administration, however this was met with resistance from Republican senators and will now not be proposed. The tug of war between the Republican controlled Senate, and Democratic House of Representatives to pass the bill will be key, especially given the friction experienced in May, whereby the House passed its own $3 trillion recovery package in May, but Republican leaders declared it dead on arrival in the Senate.

Economists are fearing the withdrawal or reduction of stimulus risks a huge self-inflicted wound for the US, depressing consumption and potentially creating a housing crisis. The deadline to extend jobless benefits has also coincided with the end of a federal moratorium on evictions, leaving families at the whim of a patchwork of state and local laws and courts to protect them from being forced out of their homes, adding to an already anxious environment.

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