New Report Highlights Urgent Need for More Fiscal Support as U.S. Continues to Address Economic Impact of COVID-19
Washington, D.C.— Today, Kentucky Congressman John Yarmuth, Chairman of the House Budget Committee, released a report, “The Economy Needs More Fiscal Support, Now,” summarizing key takeaways from a June hearing featuring testimony from two former directors of the Congressional Budget Office (CBO), Dr. Douglas Elmendorf and Dr. Douglas Holtz-Eakin, on how Congress can further mitigate the economic fallout and foster a strong and equitable recovery.
The report highlights forecasts suggesting that, while the economy has begun to recover, it will not return to its pre-pandemic state for several years if Congress fails to take further action. Both witnesses stressed that the economy will need much more support and agreed on the urgent need to provide additional aid to families and communities as our nation battles the coronavirus. Witnesses encouraged Congress to extend support to unemployed workers, help state and local governments close budget gaps, and provide aid to small businesses – all while bolstering our public health infrastructure.
“This once in a century pandemic has exposed failures in our public health system, upended our economy, and taken the lives of more than 120,000 Americans,” said Chairman Yarmuth. “The support Congress has provided to date has helped to alleviate hardship for millions of Americans and avert an even worse economic collapse, but the virus rages on. The President is delusional if he thinks he can ‘declare victory’ against COVID-19 when there is still so much work to do.”
The fiscal relief provided to date – including the Families First Act and CARES Act – has been critical to mitigating the pandemic’s damage and averting worse economic and budgetary outcomes. As CBO notes, the four laws enacted since March “will partially mitigate the deterioration in economic conditions” and lead “real GDP and employment to be higher over the next few years than they would be otherwise.” According to one analysis, had these laws not passed, the unemployment rate would have been nearly 2 percentage points higher in the current quarter and more than 4 percentage points higher in the third quarter. Nevertheless, as both witnesses stressed, the economy will need much more support.
“More fiscal support for the economy is warranted until at least 2022” — Dr. Elmendorf warned that “although the country is beginning to re-open following widespread shutdowns, a great deal of economic suffering still lies ahead of us, because bringing people back to work will take much longer than pushing them out of work.” Under current policies, he noted, CBO projects that only 30 percent of jobs lost will be restored by the fourth quarter of this year, and only 60 percent by the fourth quarter of next year; in fact, the unemployment rate is not expected to return to its pre-pandemic level even by the end of 2030.
“At this moment, the suffering is too great to sit idly by” — Dr. Holtz-Eakin stressed the need for Congress to act in order to alleviate the highly disproportionate impacts of the pandemic and its economic fallout on communities of color and low-income families.
“We are not done” — Dr. Holtz-Eakin emphasized that fiscal support for workers and businesses will continue to be necessary, but that Congress also faces a new challenge that requires more intensive public health efforts: “We now have to find a way to operate this economy in the presence of a virus that remains active, for which there is no vaccine, for which we are searching for adequate therapeutics and where contact testing and contact tracing is not yet sufficient.” To achieve a full recovery, substantially increasing our capacity to test and trace the virus, investing in the development of a vaccine and affordable treatments, and implementing workplace safety measures will be paramount.
“I think the worst thing you could do is let these benefits expire at the end of next month”— While Members discussed various proposals to modify the $600 supplemental UI benefit, Dr. Elmendorf stressed that whatever Congress decides to do, it must provide enhanced benefits beyond July 31 and until unemployment falls from its elevated levels. Extending benefits is “crucially important because of the fact that the second half of the year into next year there are still going to be millions and millions of people who can't find jobs, and they need and deserve support for their own sake and for the sake of the economy,” Dr. Elmendorf said. Allowing the expanded benefits to expire would not only abruptly eliminate a critical lifeline for a record number of unemployed Americans – effectively guaranteeing a pay cut of 50 to 75 percent overnight – but would also undermine our nation’s economic recovery.
“A premature tightening of federal fiscal policy in 2011 was a significant mistake. I hope that policymakers do not make the same mistake again.” — Dr. Elmendorf stressed that fiscal support must be sustained until the economy recovers – a lesson that was ignored during the Great Recession to our long-term detriment. Congress’ abrupt and unnecessary turn to deficit reduction in 2011, even as the unemployment rate remained over 8 percent, shaved more than a percentage point off of economic growth that year, slowed the recovery for years after, and likely worsened our fiscal outlook.
The Heroes Act passed by the House in May would go a long way toward meeting the economy’s needs. According to a recent analysis, the unemployment rate would fall to 6 percent by the end of this year if the Heroes Act were to become law, compared to 10 percent if it were not. The economy would recover all the jobs lost to date by the middle of 2023, 1.5 years earlier than would be the case if no additional fiscal support were provided. Real GDP would grow significantly faster in the second half of this year and into 2021, allowing us to avoid another economic downturn. The Senate must do its job and pass the Heroes Act immediately to protect public health, support families and communities, and secure a successful economic recovery.
About the House Budget Committee:
The House Budget Committee Democratic Caucus is fighting for budget priorities that reflect the values of families across the country. Under the leadership of Chairman John Yarmuth (KY-03), we are committed to investing in our country's future, building a strong economy based on broadly shared prosperity, protecting and improving health care and other vital services for American families, and keeping our promises to seniors, veterans and the most vulnerable among us.
# # #