President Trump just signed a $1.4 trillion government funding bill along with a $900 billion coronavirus relief package. The bill comes after months of negotiations that seemed to be going nowhere as lawmakers struggled to come to an agreement in a timely manner. Nevertheless, the bill made it to it's destination before the new year and now its time to see who benefits the most and least from the bill.
Relief from Covid
With vaccines currently being administered, forecasts on the economy were improving until news broke out about a new strain of coronavirus discovered in the U.K. Not much is known yet of the mutation other than it appears to be even more infectious than the original. Pfizer (PFE), BioNTech (BNTX), and Moderna (MRNA) do not know yet how effective their vaccines will be against the new strain but have expressed confidence that they will be effective. Coronavirus remains very much prevalent as vaccines are only beginning to be delivered and holiday travel is likely to cause a surge in cases in the coming weeks/months.
The development of this new strain along with rising cases might have been the final straw to get all sides to finally agree on a new stimulus with the economy’s recovery slowing and initial unemployment claims staying relatively flat since early October. A poor November jobs report that showed a drop in labor force participation and increasing permanent job losses only provided further data to support a struggling economy.
Winners
The new stimulus will assuredly help the economy recover but how it accomplishes this goal is the major focus. More than one-third of the relief bill ($325 billion) is going towards aid for small businesses. This along with a replenished Paycheck Protection Program (PPP) will help small businesses immensely. A focus on smaller companies is huge as many have already been forced to close due to quarantine measures and remote shopping being almost a necessity as people looked to avoid exposure to the virus. The aid to these businesses will also help keep thousands of people employed due to relief in this dark time.
For those who remain unemployed, benefits are set to be increased an extra $300 per week. The extra unemployment benefits along with a $600 stimulus check should help keep those struggling to afloat for a little while longer. The checks in particular will help increase consumption, the driver of the economy, as people will have more money to spend. Mental accounting may also lead to many viewing the check as “spending money” as opposed to saving such as money received through work.
The stimulus, especially the refunded Paycheck Protection Program, should in particular help a struggling banking industry that has not recovered nearly as fast as many other industries. A stronger banking system provides the base to a growing economy as companies and individuals can receive loans to expand their existing business.
Finally, over $16 billion is devoted to funding for vaccine development and distribution as well as funding for testing.
Losers
There may not be many who are adversely affected by the stimulus but there are definitely those who won't benefit much from this bill. Firstly, another round of stimulus checks are nice for the American people but $600 is half of the first batch and well short of the proposed $2000 checks that are being shut down in the Senate. There is still some hope for boosted checks but those are quickly fading as Republicans push back against the higher number.
There were mixed reactions to the effectiveness of the original $1200 checks as personal consumption increased dramatically but coincided with quarantine measures easing and businesses opening back up. The extra $600 per week in unemployment benefits from the CARES Act did show a significant effectiveness as once the benefits expired in July, the rate of growth in personal consumption dropped dramatically. The return of these measures in the new package is a welcome addition, but at half the size of CARES Act, it leaves more to be desired.
The biggest loss from the stimulus bill might actually be the lapse in unemployment benefits for 14 million people due to the bill arriving days late. These individuals were still receiving aid from the CARES Act that expired on December 26th and had an average weekly benefit of $317 in October. The lapse will lead to income dropping for millions of Americans before the new extra $300 per week benefits begins (which will still be below the average from before).
State and local governments will not be receiving extra funding from the Covid-19 relief bill as Congress considers these separate from the package focused on economic relief. The $160 billion for state and local aid has been split off into another bill that has yet to be voted on.
Lastly, there will be no liability protection from Covid-19 related lawsuits as Republicans have been pushing for. The proposed protection would guard businesses and other institutions from lawsuits of people claiming the institution led to them acquiring the virus. Democrats have voiced their strong disagreement with Mitch McConnell saying the party can live to fight another day on that protection as more packages are likely to be proposed.
