President-elect Biden is scheduled to speak at 7:15pm tonight to outline his “vaccination and economic rescue legislative package”. As we noted late last night, there are a number of media reports regarding the potential size and details of that package, which vary considerably, even though the market’s attention was drawn to the largest one for obvious reasons. Fox example, the Washington Post reported the package could cost “more than $1 trillion”; Reuters said it “could exceed $1.5 trillion”; CNN reports it could be “roughly $2 trillion”, and Bloomberg reported that “Senate Majority Leader Chuck Schumer has pressed President-elect Joe Biden to propose more than $1.3 trillion”. Talk about multiple trial balloons.
However, as Goldman’s chief political economist Alec Phillips writes in his preview of Biden’s speech tonight, whatever the president-elect proposes, Congress will determine the outcome and it is likely to differ in several respects. How much it differs will depend on the views of centrist Democrats in the House and Senate whose support will be needed, as well as whether Biden intends to rely on Republican support in addition to Democratic votes.
Several reports suggest that Biden will seek bipartisan support for his package and hopes to pass it with at least 60 votes in the Senate, rather than moving it through the “reconciliation” process with only a simple majority. This is not surprising, but as Phillips notes, “it is hard to square a bipartisan approach with some of the large figures noted above, which we would not expect many Republicans to support.” Indeed, it is not clear that all Democrats would support a near-term relief bill costing $2 trillion.
That said, as the Goldman strategist warns, “seeking bipartisan support for the proposal is not the same as actually passing it with bipartisan support.” After seeking Republican support, congressional Democrats could move on to a second strategy relying on entirely (or almost entirely) Democratic votes, if necessary. These two tracks could even move in parallel, with congressional Democratic leaders attempting to win bipartisan support at the same time that the House and Senate Budget Committees prepare budget resolutions that include “reconciliation” instructions that would allow stimulus legislation to pass with only 51 votes in the Senate.
Goldman’s current assumption is that Congress will enact a near-term COVID-relief package costing $750bn, although risks are clearly skewing toward a (much) higher cost. As shown in the table below, the largest gaps between the October 2020 Democratic proposal and what Congress passed in December are state and local fiscal aid, education grants, stimulus payments and an expansion of the child tax credit, and unemployment insurance. These are generally the areas where the next round of fiscal measures will focus.