US Fiscal: A Full Round Trip

Published on October 9, 2020

The Phase IV Covid fiscal relief package looked all but dead and buried earlier this week when President Trump, barely out of the Walter Reed Medical Center, yanked Treasury Secretary Steven Mnuchin from further negotiations with House Speaker Nancy Pelosi.

But this afternoon the President instructed Mnuchin to go back to the table with Pelosi to have another go at a deal, sweetening the Administration’s art of the deal with a top line offer that is said to be increased to $1.8 trillion.

** That is a full round trip to essentially where we expected the two sides to converge last Monday, when we put the odds of a bill passing, albeit not until in the lame duck session of Congress, as high as 60-70% (see SGH 10/5/20, “US Fiscal: A Deal in the Crosshairs”). With the political stakes now even higher, and crucial time lost in the delays, we would cut those odds down, but that there are any odds of a near $2 trillion fiscal relief package passed by this Congress at all at this point is probably a plus. And perhaps most importantly, Democrats would now need to feel a political imperative to move sooner rather than wait and bank on the polling that continues to move in their favor to pass their own hoped for $3 trillion-plus mega-deal in January.

** In order to pass into law this year what is an absolutely massive amount of federal spending two major hurdles will need to be cleared. The first would be agreement before the end of this weekend on the headline total and the key component parts; the other, probably by next weekend, will be whether Senate Majority Leader Mitch McConnell can neutralize any potential threat of filibuster to allow for a quick Senate floor vote.

Over or Under $ 2 trillion

The first hurdle was for the White House to give further ground on the top line, edging closer to the $2 trillion mark, which they did today, and now it will be Speaker Pelosi and the Democratic leadership’s turn to do the same in finally coming down from the $2.2 trillion in the bill the House already passed.

It can be difficult to fathom from the outside how hard it seems to be to split the difference. But as much as the specifics matter in how the spending will be allocated are the political optics so close to a pivotal election of who gave more ground on the total size, and both sides have allowed the $2 trillion figure to become a politically loaded line. That said, we think the headline number itself will not derail a deal.

But there are apparently at least a half dozen still unresolved or moving parts in how the funding would be allocated, the biggest of which remains the federal fiscal support to state and local governments. Much of this will be going to “blue states,” but both the critical swing state Florida and red state Texas are also looking for federal support to plug their balanced budget needs. The trade there that has been in the offing all along is for a concession from Democrats over some degree of liability protection against COVID lawsuits for a bigger headline on state and local aid.

The Democrats penciled in some $436 billion into their current bill, and the Trump Administration has now it appears upped its offer on state aid to $300 billion. The funding will need to be available over at least three years, but it won’t take a lot of sophistry to work out a sequencing with guardrails on how and when the funding could be topped up if needed and distributed.

We continue to expect the compromise on the total and sequencing of the state and local assistance to be the means to how Pelosi and Mnuchin defuse the politics of whether the top line of the Phase IV bill has a headline lower or higher than the $2 trillion mark. But after so many changing positions by the White House, and with polls showing Biden if anything widening his lead over Trump, the negotiating leverage lies with Speaker Pelosi.

And so “grace in victory” may become the needed template for Speaker Pelosi if there is to be a deal, and if Democrats are to get most of what they want now.

A Senate Unanimous Consent Needed

The second hurdle to be jumped for the speedy passage of a deal though may be as challenging as coming to terms on the total amount of the Phase IV deal and its parts, namely, how to get a House-passed deal through the Senate.

Senate Majority Leader Mitch McConnell has made it clear to everyone that he holds no passion for the fiscal deal, and is resolutely determined to ensure that neither it, nor anything else, including GOP Senators felled by Covid, get in the way of confirming Judge Amy Coney Barrett to the Supreme Court before the elections, or at worst, in a lame duck session if absolutely necessary.

And with every chance he gets, Majority Leader McConnell has expressed his skepticism the fiscal bill can be passed any time soon, including earlier today from Kentucky. But a translation of that could also be, we are told, that he won’t stand in the way of letting a House-passed bill go to the Senate floor, even if it will pass largely on the back of Democratic votes.

But to get that far will require McConnell convincing every Republican in his caucus to agree to a unanimous consent, in order to rule out a time consuming filibuster, which will be no mean feat and at the absolute minimum, require a full threated and tweeted Presidential support for the bill.

Equally important to that is a tight timeline: the initial deal and terms would need to be reached between Pelosi and Mnuchin no later than this weekend. Pelosi already has what she wants drafted in the necessary legislative language, so with a few deletions and tweaks, it could be rushed through the House Rules Committee early next week and passed later in the week.

It could then pass in the Senate floor within a day or two, but that is where the cloture vote to preclude a filibuster comes into play. The case may be made at that moment by Majority Leader McConnell that while the Covid fiscal largesse is not to his or Republican tastes, the President wants it, and it may on the margin help vulnerable Republicans to keep their seats, and thus a Republican majority control of the Senate. Indeed, many Senate Republicans pressed the White House to resume talks without haste when Trump broke off negotiations earlier this week.

But most of all, moving the fiscal bill smoothly and quickly, if possible, with the kicker of some highly desired liability protection inside, would clear the political decks for what the Majority Leader absolutely sees as a far more important Coney-Barrett vote.

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