News : Don't celebrate the Covid deal too much — Governors rage over lack of aid

Thursday, December 17, 2020

Don't celebrate the Covid deal too much — Governors rage over lack of aid — One big loophole?

Dec 17, 2020

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Quick Fix

Don't celebrate the Covid deal too much — As I noted in POLITICO Nightly, the $900 billion Covid-19 stimulus bill that may be finally emerging from Capitol Hill is not awful. It will reportedly include direct stimulus payments of about $600 and a boost to unemployment benefits of around $300. But it's really late and has significant problems, foremost among them a lack of aid to struggling state and local governments (more on which below).

And of course, much of the economic damage from congressional inaction on stimulus for the last eight months is already done. The pace of jobs coming back from the 22 million we lost to Covid-19 is way down and potentially headed to zero this month.

Weekly initial jobless claims are creeping back toward 1 million, a massive number still well above the pre-Covid record. Retail sales tanked a worse than expected 1.1 percent in November, the second monthly drop in a row as household incomes continue to fall without more federal support.

Lessons not learned — The limited and delayed stimulus package means we could very well repeat the slow recovery from the financial crisis of 2008-2009. That one helped launch populist uprisings like Occupy Wall Street on the left, the Tea Party on the right and eventually helped elect President Donald Trump.

It's also quite possible this will be it for stimulus, especially if the GOP wins at least one of the Senate runoffs in Georgia next month and Mitch McConnell remains majority leader. And in addition to lacking state and local assistance, risking major layoffs, the stimulus checks and enhanced jobless benefits would both be sliced in half from the last round.

And the 2021 economy rests largely on successful and quickly distributed Covid-19 vaccines. Any mass failure on that front would render this latest stimulus package largely useless. In any event, as of late Wednesday it appeared that talks could drag on for a bit, perhaps into the weekend.

GOOD THURSDAY MORNING — Hello from a very snowy NYC region where we got somewhere around a foot of snow overnight. Feel from to come by and help MM shovel. Email me on bwhite@politico.com and follow me on Twitter @morningmoneyben.

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Driving the Day

GOVERNORS RAGE OVER LACK OF HELP — Our Stephanie Murray and Kellie Mejdrich: "America's governors seethed … over news that a much-anticipated federal stimulus package will not include a bailout for local governments — and accused Washington of abandoning states and cities.

"Leaders across the country pleaded with Congress for months to reach a deal that would deliver hundreds of billions of dollars to plug budget holes and shore up everything from schools to emergency services. … The stimulus agreement comes just as Cares Act funding is drying up, and as states are taking on two logistical nightmares: Weathering a winter surge of Covid-19 cases, and distributing Covid-19 vaccines."

BIDEN AND PENCE TO GET VACCINATED — Our Alice Miranda Ollstein and Matthew Choi: "President-elect Joe Biden and Vice President Mike Pence intend to get the Covid-19 vaccine in the near future. Biden plans to get the vaccine in public as early as next week, a transition official confirmed to POLITICO on Wednesday.

"Pence will get his vaccine publicly at the White House on Friday to 'promote the safety and efficacy of the vaccine and build confidence among the American people, his office announced. … Biden in recent days has indicated that he's torn — like many other political leaders — between wanting to set a good example for the country by getting vaccinated and not wanting to appear to cut in front of health care workers and other priority groups."

HAPPENING TODAY - ENERGY POLICY IN THE BIDEN ERA : President-elect Joe Biden has made energy and climate a priority for the incoming administration, but his agenda is bound to run into some challenges in a divided Congress. What will be the most viable energy policies during the Biden era? Join POLITICO for an engaging conversation on Biden's energy agenda, including fossil fuel production, renewable and clean energy, and climate policies. The virtual program will feature an executive conversation between POLITICO CEO Patrick Steel and API CEO Mike Sommers. REGISTER HERE.

ONE GIANT LOOPHOLE IN COVID BILL? — Brookings' senior fellow Adam Looney: "Congress is on the verge of giving a $120 billion windfall to the top 1 percent in its pending COVID relief bill. It shouldn't do that. Tucked into the bill is a provision to allow businesses to deduct expenses that were paid for by the government's Paycheck Protection Program (PPP).

"Normally, a business owner may deduct only expenses they actually paid for. … Passing legislation to allow businesses to pay their expenses with taxpayer-provided PPP funds and then to deduct those expenses against their own taxes would be a windfall to high-income business owners—a windfall that would exceed the amounts that Congress is considering in unemployment insurance, rental assistance, food aid, or healthcare."

BIDEN CONSIDERS DIANA TAYLOR FOR ADMIN POST — NYT's Jonathan Martin and Maggie Haberman: "Biden … is considering Diana Taylor, a New York finance executive, to serve in his administration, an appointment that would elevate a woman with deep connections in the business community, but that would potentially irritate the party's left because of her ties to Wall Street.

"Mr. Biden is weighing Ms. Taylor for a number of positions, including administrator of the Small Business Administration … Ms. Taylor, a former managing director of Wolfensohn Fund Management and the former New York State banking superintendent … is also the longtime partner of former Mayor Michael R. Bloomberg, and was the de facto first lady of New York City when he was in office."

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Fly Around

FED UPGRADES ECON OUTLOOK — Our Victoria Guida: "Federal Reserve officials … said they expect the U.S. economy to shrink by 2.4 percent this year, a brighter forecast than they offered just three months ago, when they predicted output could drop much as 3.7 percent.

"Still, the hit to the GDP roughly equals that of 2009 — the worst year of the Great Recession, and Fed Chair Jerome Powell warned that the next several months would be rough, given the spike in coronavirus cases. … Central bank officials bumped up their projected growth rates for 2021 and 2022, in the wake of encouraging news about a coronavirus vaccine as well as renewed hopes for another round of economic relief. They also offered a rosier outlook for unemployment, expecting the rate to drop to 5 percent next year, down from an estimate of 5.5 percent in September."

MORE LEGAL WOES FOR GOOGLE — Our Leah Nylen: "Texas and eight other Republican-led states filed an antitrust lawsuit against Google … over its power in the advertising technology market, opening a second front against the search giant that could lead to its breakup.

"The lawsuit was filed in Texas federal court. Arkansas, Idaho, Indiana, Kentucky, Mississippi, Missouri, North Dakota, South Dakota and Utah also signed on. In a video posted to Twitter, Texas Attorney General Ken Paxton said the suit alleges Google engaged in 'anticompetitive conduct, exclusionary practices and deceptive misrepresentation.'"

BIDEN ROLLS OUT INAUGURAL DONOR PACKAGES — CNBC's Brian Schwartz: "Biden's inaugural committee sent out its fundraising packages to donors, offering some form of access of what will likely be a largely virtual event. The committee is offering four packages to donors, depending on how much they give, according to a list of fundraising options provided to CNBC.

"If an organization gives $1 million, it will be named a chair of the inaugural. An individual will get the same rank with a $500,000 donation. Biden's inaugural committee is allowing corporations to contribute, with the exception of fossil fuel companies."

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BIDEN COULD HAVE TOUGH TIME CHANGING TRUMP'S TAX CUTS — Our Brian Faler: "Regardless of who ultimately wins control of the Senate [Biden] will face a closely divided Congress, which means his most ambitious plans to rewrite the Tax Cuts and Jobs Act are probably dead. That will likely put pressure on his Treasury Department to act unilaterally, using its regulatory authority to hike taxes on corporations and the well-to-do.

"But agency veterans say rewriting your predecessor's tax regulations is a lot harder than it might seem. It's a long, laborious process – so much so that some predict the incoming administration will end up leaving most of the regulations filling out the Tax Cuts and Jobs Act intact."

GAO SEES NO THREAT FROM LEVERAGED LENDING — Our Zachary Warmbrodt: "The Government Accountability Office in a report released Wednesday said so-called leveraged lending to businesses with poor credit and high debt has not emerged as a major threat to financial stability in the eyes of regulators, even amid economic shocks from the pandemic.

"In the new study, the GAO — the watchdog arm of Congress — said federal agencies have found that the loans and the collateralized loan obligations they underpin have not contributed significantly to the distress of any large, potentially systemically important bank, insurer or other financial firm."

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