By Jonathan Nicholson
Throughout the failed fiscal stimulus talks of recent months in Washington, House Speaker Nancy Pelosi hammered home two demands – the need for more aid to states to pay “the heroes,” like health care workers, and top up state jobless benefit payments with federal add-ons.
But the data since the onset of the coronavirus pandemic in early 2020 have not borne out the worst fears on those fronts.
States have taken a sharp fiscal hit, but the strength of the economic rebound as business lockdowns were eased has helped their budgets partially recover. At the same time, the jobless rate has improved at faster pace than predicted even a few months ago.
Those improvements undermine the case for Democratic demands for generous state aid and unemployment add-on payments, some analysts say.
“It’s the same thing for state and local and unemployment,” said Marc Goldwein, senior vice president and senior policy director with the anti-deficit Committee for a Responsible Federal Budget. “Those needs have declined.”
Goldwein cautioned he still would like to see another fiscal stimulus package be passed to help support the economy, just that the needs in those two areas were less than had been expected.
Aid for state, local and tribal governments was a major stumbling block in negotiations between Pelosi and U.S. Treasury Secretary Steven Mnuchin on a sequel to March’s $1.7 trillion CARES Act.
The original House proposal passed in May provided $915 billion in direct aid to state and municipal governments. In the revised version of that bill, passed Oct. 1, that provision was cut to $436 billion.
That’s still way above $250 billion the administration offered and would be on top of the $150 billion in direct aid approved in March.
As for the labor market side, the Congressional Budget Office as recently as July projected the unemployment rate would be 10.5% in the fourth quarter and would only improve to 7.6% by the fourth quarter of 2021. Instead, the rate fell to 7.9% in September, a far faster drop than many had expected.
The decrease rekindled the debate among economists over how generous assistance to the unemployed should be. While the CARES Act passed in March included a $600 a week federal add-on to state jobless benefits, which can vary widely in amounts, some Republicans and the Trump administration said that level was too high and discouraged looking for work.
While some research showed those concerns were likely overblown when the jobless rate was higher, as the rate has fallen, concern has grown. Jason Furman, chairman of the Council of Economic Advisers under President Barack Obama, recently voiced his support for a $400 a week boost, “given the economy.”
Unlike the amount requested by House Democrats for state and local aid though, Democrats doubled down on the $600 a week add-on, including it in their revised $2.2 trillion Oct. 1 bill. The White House offered $400 a week, the same as Furman proposed, in August.
A Democratic leadership aide said recently the add-on issue was still unresolved, but the disagreement was over how long to extend the add-on payments, not their size.
Keith Hall, a former director of the Congressional Budget Office and former commissioner of the Bureau of Labor Statistics, said the official unemployment rate probably overstated the degree of improvement in the labor market, because of the number of people who have dropped out of the labor force and thus are not included in the calculations.