Republican divisions threaten new stimulus proposal

The White House and Republican congressional leaders have reached a deal on a new package of stimulus measures to aid the US economy, but are facing a backlash from rank-and-file members of their party that could complicate prospects for a final agreement in Congress.

Republican opposition has been building over the course of the week, and intensified as Mitch McConnell, the party’s leader in the Senate, and Trump administration officials finalised terms of a plan to spend $1tn to sustain households and businesses grappling with the pandemic.

Final passage of stimulus legislation on Capitol Hill was already problematic because the Democratic-controlled House of Representatives had passed a $3tn bill, and was unlikely to accept a far smaller package.

Meanwhile, many Republican lawmakers are hardening their stances, arguing their party’s stimulus plan is too expensive and fretting that Americans risk becoming wholly dependent on government aid.

“We cannot use the crisis to justify opening the spending floodgates and borrowing from future generations to fund non-emergency priorities,” Mike Enzi, a Republican senator from Wyoming, said on Wednesday.

Ted Cruz, the Texas Republican senator, was more blunt. “We still don’t know the details of this initial proposal, but, as it’s written right now, I’m not only a no, I’m a hell no,” he told CNN. “This is the swamp in a feeding frenzy.”

The lack of internal consensus has led Republicans to consider extending one of the most contentious elements from the previous rounds of stimulus — $600 a week in enhanced jobless benefits — to give them time to coalesce around a position. Many Republicans have argued the extra $600 a week is discouraging some recipients from returning to work.

The emerging revolt may not entirely scupper the chances of a deal but it could lead to a scaled back package. Earlier this year, in the first round of stimulus, the White House and Congress agreed on $3tn in emergency funds, but its impact is fading as the resurgence of coronavirus in the last six weeks threatens economic recovery.

In a sign of Senate Republicans’ determination to limit the size of the next aid package, CNBC reported on Wednesday that they would only extend the enhanced jobless benefits until the end of the year if they were slashed to $400 per month, roughly one-sixth of the current level.

Line chart of Continuing claims for jobless benefits showing US unemployment remains elevated

Mr McConnell has made the case for additional stimulus, saying the US economy would benefit from a “shot of adrenaline” because the Covid-19 crisis had not gone away. He has emphasised the need for funding schools, coronavirus testing and contact tracing, incentives for job creation, and another round of direct payments to individuals. He has not embraced White House demands for a cut in payroll taxes. At a press conference on Wednesday evening, Donald Trump, the US president, said “ultimately something good will come out” of the negotiations.

Many Republicans are nervous their party’s plan will balloon once talks begin with congressional Democrats, including Nancy Pelosi, the House speaker, on compromise legislation to be sent to the president.

“There isn’t much appetite to do anything before the election,” said one Republican congressional aide, adding that only additional help for small businesses was popular. “For anything that we do, Pelosi is going to have to give her OK, and she will use the opportunity to get as many of her priorities in there, or have a big fight about it.”

Adam Michel, a senior policy analyst at the Heritage Foundation, a conservative think-tank, said Republicans embraced the first round of stimulus, worth $3tn, as a temporary “source of liquidity and support” for shuttered businesses and unemployed people. He said the dynamic had shifted and “most Republicans don’t believe the government should or has the ability to spend our way back into economic prosperity”.

Democrats are more united in their insistence on a hefty dose of government aid to help struggling households, some businesses, and cash-strapped state and local governments — and some in the party predicted the Republicans will ultimately come around.

“There will be a deal,” Ruben Gallego, a Democratic congressman from Arizona, told the Financial Times. “Largely it’s just a political reality that this president and the White House has to deal with. His numbers are low, he has too many senators that are on the chopping block themselves, and they are going to find a way to try and increase their numbers.”

He added: “Not handling Covid-19 relief in a proper way is only going to hurt them more, and I don’t think they are going to want to take that chance . . . it’s sheer political survival.”