The $2.2 trillion coronavirus relief deal will shatter spending records, and if it passes it will go down in history as the law with largest price tag — by far.
It costs more than the entire federal government spent in any single year until the 2001 terrorist attacks. It nearly doubles the price tag of the Obama-era Recovery Act, aimed at reviving the economy after the 2008 Wall Street collapse.
The bill is the third so far, on top of $112 billion in cash infusions in two earlier bills. And it’s not likely to be the last word, with lawmakers already talking about a fourth bill.
That’s all on top of the $4.6 trillion the government was expecting to spend even before COVID-19, meaning total federal spending in 2020 would near $7 trillion.
“This is certainly in terms of dollars, by far and away the biggest ever, ever done, and that’s a tremendous thing, because a lot of this money goes to jobs, jobs, jobs. And families, families, families,” President Trump said at the White House.
It’s too early to know the damage to the economy, but the president of the St. Louis Federal Reserve predicted gross domestic product, once projected to be about $22 trillion this year, could now be slashed in half.
If things play out that badly, it would mean federal spending would top 60% of gross domestic product. That would be a new record for the U.S., substantially higher than the 42% seen during World War II, and surging even beyond democratic socialist countries such as Sweden and Norway.
Even at the depths of the 2008 Wall Street collapse and the Recovery Act stimulus, federal spending didn’t top 25% of GDP.
“These are exceptional times indeed,” said Steve Ellis, president of Taxpayers for Common Sense. “Other things that happened affected sectors of the economy like the dot.bomb in 2001 and the financial crisis in 2008-09, or affected certain areas like Katrina or Sandy or Harvey. This is the first crisis that is going across virtually all sectors and across the entire country. No one really knows what’s on the other side of this.”
Those who wrote the bill said the big-ticket items include $500 billion for loan guarantees to large businesses from the Treasury Department; about $350 billion in loan guarantees for small businesses; $250 billion in expanded unemployment insurance payments; $150 billion to states, territories and tribal governments; and $130 billion to hospitals and other health facilities,
There’s also tens of billions of dollars set aside for the airline industry; $10 billion in additional borrowing authority for the U.S. Postal Service; a 120-day moratorium on evictions; forgiveness of grants for students who dropped out because of COVID-19 and a six-month deferral of nearly all federal student loan payments and interest; and $25 million to the Kennedy Center in Washington, D.C.
Mr. Trump said that last item was a Democratic demand, but he found it worthy — though he chopped $10 million off the original $35 million ask.
“The Kennedy Center has suffered greatly because nobody can go there,” the president said.
The $2.2 trillion price tag Mr. Trump put on the package is far more than the $1 trillion envisioned just 10 days ago, though it’s less than the $2.4 trillion measure House Democrats unveiled earlier this week.
“It is a huge, unprecedented price tag. And between the deficit-financed tax cut and the spending binge in good times we left ourselves in a difficult position to respond. But we’re going to have to respond. And deal with what comes,” Mr. Ellis said.
He said the bill includes elements of the 2008 Troubled Asset Relief Program (TARP) and the 2009 Recovery Act, as well as a slew of smaller disaster recovery bills.
Budget watchdogs said a massive response is needed for such a massive challenge as the virus — but they said the U.S. could have been in better shape to handle the budget challenge, had Washington used the last decade of good economic times to get its fiscal house in order.
“Even before this crisis, we were headed towards a $1 trillion deficit, which was reckless during an economic expansion. Now in a matter of moments, that has become many trillions, and we are on track to reach unprecedented levels of debt as share of the economy,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. “Once we get through this deadly pandemic and brutal recession, we will be faced with a challenging recovery complicated by our massive debt, made all the more painful by past years of excessive borrowing.”
After the last major upheaval, the 2008 Wall Street collapse, federal spending, which had wavered between 17% and 19% of GDP for the previous 15 years, soared to 24% in 2009. It hasn’t dropped below 20% since.
Brian Riedl, senior fellow at the Manhattan Institute, said coronavirus spending should, in theory, be short-term, and both tax and spending levels should revert to their previous trajectory.
“After all, the long-term fundamentals of the economy have not changed,” he said. “The long-term challenges arise if a large number of companies go out of business, or there is a permanent reduction in the workforce, or Congress makes ‘temporary’ budget provisions permanent.”