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This is no way to design fiscal policy

This is no way to design fiscal policy

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Only $5 for 5 months

With millions of Americans losing their expanded unemployment benefits this week, Congress and the Trump administration are still at odds over what to do. Details of the next phase of coronavirus relief should've been resolved long before now — because the main ideas shouldn't be controversial and time will be needed to implement them. Delay has compounded the problem. Temporary fixes, meaning further argument and holdup, will probably be needed to bridge the gap between the current measures and whatever comes next.

The blame for this object lesson in Washington dysfunction lies squarely with the administration and its Republican allies. They are only now presenting their response to the Democratic plan that was passed by the House in May. The Democrats' plan is certainly capable of improvement, but that's no reason to leave so many households unsure of where they stand or to burden the economy with further needless uncertainty.

The future of the $600 weekly unemployment supplement is a main point of contention. Democrats want to extend it through January. Republicans are proposing a less generous plan that would replace 70% of prior earnings up to a cap and cut the supplement to $200 a week until states can work out how to do it. Here, the Republicans have a point. The $600 supplement means that many of the unemployed are better off without jobs than they would be if they could return to work, and this risks holding back the recovery. But the suggested remedy is too harsh. A replacement rate of 80% to 90% would be fairer, and a transitional supplement of $400 a week would mean a less abrupt reduction in payments.

The two sides also disagree about the size of the overall plan. The Democrats' new package would cost some $3.5 trillion; the Republicans' comes in at about $1 trillion. Again, it would make sense to find a compromise. A balance has to be struck between the extraordinary demands of the coronavirus emergency and the need, in due course, to restore fiscal discipline. One way to improve the terms of this trade-off would be to link measures to the state of the economy, as opposed to fixing outlays in dollar terms regardless of what happens. A plan suggested last month by a bipartisan group of economists would cost less than $1 trillion if the economy comes back quickly and $2 trillion or more if the slowdown persists.

A smart compromise would build in that kind of flexibility. It would also offer emergency support for state and local governments, which are facing enormous revenue shortfalls; boost the earned-income tax credit to spur employment and reward the low-wage workers who've continued to do essential jobs during the pandemic; maintain programs to help out viable small businesses; and provide support for short-time working, so that employers contending with depressed demand are encouraged to spread work around rather than firing people.

All these ideas should've been debated and decided two months ago. Right now, the shape of what will eventually emerge is anybody's guess. The costs of incompetent government just keep mounting.

Bloomberg News

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