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Negotiations in Congress about the next stimulus bill aimed at countering the economic effect of the coronavirus have ground to a crawl amid debate over how big the rescue package should be. Not only is there the expected sparring between Democrats and Republicans, the issue is also reportedly causing a rift within the GOP itself.
A vocal group of Republicans have begun to raise concerns about adding how much the next stimulus will add to the federal deficit, “We have to be careful about not piling on enormous amounts of debt,” Treasury Secretary Steve Mnuchin said. Kentucky Sen. Rand Paul said some of his GOP colleagues are “no different than socialist Democrats when it comes to debt.”
House Democrats passed a $3.4 trillion stimulus bill in May. The proposal under consideration by Senate Republicans carries a $1.1 trillion price tag. Even if a significantly smaller package ends up being passed, the national debt will still be at historic levels. The $2.2 trillion CARES Act passed in March pushed the deficit over $26 trillion and has the country on pace for the largest annual ratio of debt as a share of the economy since World War II.
The coronavirus isn’t the only reason the U.S. has so much debt. After running a surplus in the late 1990s, the deficit has ballooned over the past two decades. Despite promising to eliminate the federal debt — which stood at $19 trillion when he took office — President Trump is on pace to have the largest deficit of any president.
Why there’s debate
So many things about the crisis caused by the coronavirus are unprecedented, but the debate over deficits is one of the most enduring conflicts in economics.
To many fiscal conservatives, large deficits pose a major risk to the economic stability of the country. Taking on debt may be a quick way to solve problems in the short term, but it only pushes the burden onto future generations, they argue. The weight of trillions of dollars in debt, plus the interest accrued, will stifle the country’s ability to recover from the recession and hinder growth once the economy improves.
America’s ability to keep borrowing enormous amounts of money, at least in theory, could run out if oversized deficits reduce confidence in the U.S. economy. If that happens sometime in the future, it could cause a major spike in interest rates, severe inflation or even an economic collapse that dwarfs the impact of the pandemic, deficit hawks fear.
Others argue that these potential future issues pale in comparison to the very real catastrophe that will happen without a large rescue package. Research suggests that the $600 weekly bonus added to unemployment has kept the economy from collapsing even further over the past few months. Now that it’s expired, millions of Americans are at risk of losing their homes and countless businesses could close permanently.
The only way to truly save the economy, some argue, is to get the pandemic under control. Spending money to improve testing, help people stay home and prop up struggling state budgets in the short term could prevent the need for an even bigger stimulus down the road. Some Democrats believe that concerns about debt are insincere and motivated by politics, since the GOP enthusiastically supported tax cuts in 2017 that are expected to add trillions to the deficit.
Negotiations in Congress are ongoing, but the deep divisions between Democrats and Republicans suggest that a final agreement could be days if not weeks away. Trump said he may pursue executive actions to address certain issues like evictions and a payroll tax cut, but did not provide specifics on what steps might be taken or when they would go into effect.
Limit deficit spending
The stimulus should be limited to the most essential remedies
“Senate Republicans are right to be worried about rising federal debt. But they are wrong to artificially limit the level of spending in the latest coronavirus relief package.” — Henry Olsen, Washington Post
At a certain point, U.S. credit may run out
“America’s borrowing capacity is large, but we may discover that it is not unlimited.” — Brian Riedel, National Review
Spend money now, but aggressively tackle the deficit once the pandemic ends
“When the pandemic passes, authorities need to shift out of rescue mode and start weaning capitalism off easy money and bailouts.” — Ruchir Sharma, Wall Street Journal
The previous stimulus proved you can’t spend your way out of a crisis
“Having wasted the opportunity to cool off the spending binge and put the country in a better position to deal with a crisis, Congress now appears ready to do the only thing it knows how: spend even more.” — Eric Boehm, Reason
Future generations will suffer from reckless spending today
“Long after an effective vaccination has been discovered, the events of 2020 could figure in another disaster: a forced reduction in Medicare and Social Security benefits, as well as unprecedented tax hikes, to deal with massive national debt.” — Chris Reed, San Diego Union-Tribune
Don’t worry about the deficit
Risk of large deficits pales in comparison to the harm insufficient stimulus will cause
“Deficits do matter in a sense, but not in the apocalyptic, over-the-cliff and straight-to-hell manner Republicans like to invoke when they’re feeling stingy. A high-enough deficit under the right circumstances could theoretically bring about inflation. But inflation is not some mystical, unsolvable force. The government has all kinds of tools at its disposal to deal with inflation.” — Zach Carter, HuffPost
Republican concerns about debt are purely political
“If there's one thing we’ve learned over the past decade, it is that there are no Republican deficit hawks — only poseurs who claim to care about deficits in order to block spending they don't like.” — New York Times columnist Paul Krugman
A large rescue package can jump-start the economy’s recovery
“Congress should use this opportunity to support the American people and the American economy. If we get the economy growing, we will be able to pay off the debt.” — Minneapolis Federal Reserve Bank president Neel Kashkari to “Face the Nation”
It’s better to overspend now and avoid a collapse
“We should be trying different things: stimulus payments, unemployment benefits, aid to state and local governments, aid to small businesses. Some of these things will be more effective than others, but it’s much better to err on the side of excess.” — Economist Gus Faucher to the Washington Post
Historically low interest rates make borrowing money a smart strategy
“Interest rates on federal debt are currently lower than the expected rate of inflation, so there's no good reason for restraint in the total size of the package.” — Vox correspondent Matthew Yglesias
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