Commenting on the passage of the legislation, Joe Biden urged the US Senate to act quickly. However, the Dems have faced a setback while pushing ahead with the bill, as they were informed that a $15 minimum wage increase could not be included in the legislation under Senate rules.
The Republican House Minority Leader Kevin McCarthy (R-Calif.) criticised the bill, saying: "The amount of money that actually goes to defeating the virus is less than nine percent". He suggested that the Dems are in cahoots with "special interests" groups, adding that "the swamp is back".
Why Senate GOP Can't Stop the Bill
"Beyond the vaccine spending, the legislation is not very targeted", says Michael R. Englund, principal director and chief economist for Action Economics. "Only a small part of the benefits will go to people impacted by COVID. For the US economy overall, most sectors have climbed above where they would have been without the pandemic, while about 20% of the economy is massively underperforming. Our approach thus far has been to throw resources at everyone".
Senate Republican Leader Mitch McConnell (R-Ky.) has also voiced his discontent with the passage of the "ill-conceived" and "partisan" legislation in an official statement, stressing that "more than a third of its spending, including more than 90% of the K-12 school funding, would not even go out this fiscal year". He bemoaned the fact that the Dems "jammed through a bill" despite even liberal economists and editorial boards saying it is "not well targeted to this stage of the fight."
McConnell has a good reason for being dissatisfied with the process, as the Democrats have instrumentalised "budget reconciliation" to avoid resistance to the COVID-19 relief package. When a budget reconciliation tool is used, a funding bill needs a simple majority to pass, instead of 60 votes required to approve spending or revenue legislation; the Senate GOP won't be able to use the filibuster either. The $15 minimum wage boost has also become a casualty of the budget reconciliation being excluded from the bill to adhere to the procedure.
This means that the Democratic Party will need no Republican votes whatsoever if all Democratic senators support the bill: Vice President Kamala Harris would break a tie and the package in question would be swiftly passed by 51-50 votes. Then the bill would go back to the House for a separate vote before going to Joe Biden's desk.
Moderate Democratic Senators Will Determine Bill's Fate
"The stimulus legislation will reveal the role that moderate Democrats will play in the Senate, and how much influence they’ll use to steer the final composition of legislation", says Englund. "At issue is how much of the bill will get negotiated away in the Senate, before it goes back to reconciliation with the House".
Before passage in the House, Democratic Senator Joe Manchin negotiated the minimum wage down to $11 from $15, "which is key because West Virginia is one of the states with the biggest gap between the state and national minimum, so his move saved jobs at home, and made him look 'sensible'", the economist explains.
Now that the minimum wage boost is no longer on the table, the COVID relief package has become easier to pass, according to NBC News, which expects that Manchin won't throw sand in the gears of the bill.
While moderate Democratic senators are likely to support many provisions of the Biden-proposed legislation, they "may choose to show their restraint with cutbacks in $350 billion for state and local governments, tribes and territories, or change the distribution of the money so it is more equally distributed between states, i.e. more for their states", suggests Englund.
"The $130 billion for public schools, $40 billion for colleges, $39 billion for child care, 15% food stamp boost, $40 billion in housing aid may also be on the table", he notes. "Again, provisions can face cuts, or can be changed to make the spending more friendly to West Virginia, Montana, and Arizona. Earmarks are re-introduced in the bill as 'Congressional Initiatives', and this will be a lightning rod. We have yet to see if moderate Democrats will see this as a 'boondoggle', or as a good way to steer benefits to their states".
COVID Relief Bill Unlikely to Boost US Economy
When it comes to the impact on the US economy, one will only be able to “see” the benefits from the $1,400 payments to families, according to the economist, who believes that the extension of jobless benefits and money for states and education "will just prevent cuts that would have occurred otherwise, so they will only help the economy relative to a counterfactual that was unlikely anyway".
"Much of the money is spent over a ten-year period and won’t have any business cycle impact", Englund underscores.
At the same time, there could be "a market price to pay for spending recklessly", he notes, referring to the spike in yields over the past week.
"There hasn’t been much opposition to modern monetary theory, or 'MMT', but it will surely translate to higher yields and a weaker dollar if this is indeed our new framework to assess spending. We have gotten plenty of both higher yields and a weaker dollar in Q1", the economist underscores.