How the coronavirus plays out in the public health sphere is anybody’s guess, but its current progress all but demands a response from Congress.  What might that look like?  Here’s what some of the experts are saying:

Cornerstone Macro – “Investors expecting a loud, bipartisan “amen” to calls for a massive bipartisan fiscal stimulus are not likely to hear it today.  Something is likely to happen, but the timing and size are uncertain.  Right now almost no one knows what they support, including President Trump.”  March 10th

Capital Economics – “Coronavirus outbreak to prompt fiscal response.  It looks increasingly likely that the escalating coronavirus outbreak will be met with a larger fiscal response, which should help to offset some of the economic damage.” March 10th

IPI – “IPI rejects such Keynesian-based stimulus plans. Economic growth comes from savings and investment, not from borrowing and spending. If the government is determined to do something, the best option is to reduce taxes in a way that encourages business investment.”  March 10th

Washington Analysis – “Last week we mentioned the possibility of a consumer-led stimulus focusing on a potential payroll tax cut of somewhere around 0.5% of GDP.  That now seems far too small, and we’d expect something in the $300-$500 billion range.  We would also expect a multifaceted approach, including: 1) a consumer-led stimulus in the form of a payroll tax cut, checks sent to individuals, or potentially targeted tax cuts, which should benefit Wal-Mart (WMT), Dollar Tree (DLTR), Dollar General (DG); 2) some form of paid sick leave, especially for workers whose employers don’t provide the benefit; 3) expanded unemployment insurance; and 4) assistance to companies negatively impacted by the virus, including potentially paying hospitals for the care of infected individuals with no insurance, assistance for airlines, and potential small business loans, which could be beneficial to SBA lenders.” March 9th

Jason Furman – “Given the mounting economic risks posed by the spread of the novel coronavirus, Congress should act swiftly but thoughtfully to pass fiscal stimulus. This would be in addition to continuing to provide ample funding for medical research, testing, prevention and treatment. The stimulus’s total cost would be about $350 billion, but could be larger or smaller depending on how the economic situation unfolds. Congress should design it to be accelerated, big, comprehensive and dynamic.”

Heritage Foundation – “The economic effects associated with the coronavirus epidemic are potentially significant. Moreover, in the United States, these effects represent an economic shock to an otherwise healthy economy. The response to the coronavirus should be targeted, temporary, and transparent. Any emergency fiscal policy response should link directly to the coronavirus in order to address the source of the economic shock while limiting any political abuse that can develop in moments of crisis. The epidemic tax credit outlined in this paper would achieve these purposes. Should policymakers want to improve the underlying fundamentals of the economy, they should look to other pro-growth policy tools.” March 11th

And here’s where the policymakers stand:

  • Administration – The President has been true to form – he speaks off the cuff, gets ahead of his staff, and floats ideas that are obviously not thoroughly considered. It’s a unique MO that should come with a “Don’t Try this at Home” warning.  Yet it also creates a dynamic where the policy discussion is accelerated dramatically.  There’s no confusion that the President wants to go big.  His preferred response is to zero out the payroll tax through the end of the year.  That would reduce worker’s tax payments by thousands, but also add a trillion dollars to the deficit.  The President has floated industry-specific relief as well.
  • Senate – While there is no “Senate” position, it is easy to see Senate Republicans rallying around a package of policies over the next couple weeks if the crisis continues along its present course. Doing nothing would not really be an option.  A package put together by Senator Steve Daines looks about right – a smaller payroll tax cut, 14 days of paid leave for impacted workers, suspension of tariffs, and increased insurance coverage for virus testing.  Industry has already taken action on the last item, but a package built around this core should have legs in the Senate.
  • House – House Democrats are putting together their own response. They don’t like the payroll tax approach, but its all but certain they will target employees with paid sick leave, enhanced unemployment insurance, tax credits for low-income workers, etc.  As Politico noted, their focus is to “give priority to workers’ needs over corporate interests.”

So what should folks expect?  The Treasury Secretary is meeting with the Speaker today, which could help shape what the House produces, but that’s not the base case.  Instead, we expect the process to proceed along more traditional lines, with the House releasing a package this week and seeing how the Senate and Administration to respond.  The Senate could develop its own package, or skip that step and initiate negotiations with the House and Administration immediately.

Whatever package is considered by Congress won’t be as large as what the President has proposed, but it will still be substantial and include 1) relief targeted at workers and the unemployed and 2) relief targeted at the health care sector response to the virus.  The Senate or Administration might push for very limited and very targeted industry relief as well.

How quickly anything happens, and the ultimate size of the package, depends on the course of the virus.  If it continues at its present pace — with daily reports of new infections, school closings, businesses asking workers to stay home, cancelled conventions, and high volatility in the stock market — expect something by the end of the month.  The worse the news, the faster Congress will come together and pass something.

What this all means for Main Street employers is unclear.  Helping workers and the health care sector makes sense, but the challenge for many businesses will be to support their workers, pay their suppliers, and stay current on their taxes, all in an environment where supplies are constrained and demand is depressed.  If it’s just for a few weeks, that’s a tough juggling act.  If it lasts longer, it’s an existential threat.  For that reason, Congress might want to consider the approach taken by other countries and suspend the collection of certain taxes while expanding access to credit during the crisis.  The virtue of this approach is it lets everyone hit “pause” until the crisis passes.