President Trump’s executive orders that extend COVID-19 relief to a U.S. economy battling back from its sharpest economic slowdown of the post-World War II era could put pressure on Congress to reach a deal, according to Goldman Sachs.
The president’s orders grant unemployed Americans an extra $400 per week in benefits and postpone the payroll tax through the end of the year, in addition to deferring student loan payments and freezing evictions.
In total, they will provide $300 billion to $350 billion of mostly temporary fiscal stimulus through the end of the year, the firm’s economists said.
“There is some risk that these orders reduce the urgency of talks on Capitol Hill regarding broader fiscal legislation, but we also believe they could motivate congressional Democrats to come closer than they have so far to the Republican offer of slightly more than $1 trillion,” wrote Goldman Sachs economists led by Alec Phillips. “We continue to expect a package worth around $1.5 trillion to become a law in August.”
While the Goldman Sachs economists believe the $400-per-week payment will be a temporary fix “at best,” perhaps only lasting one month, they say the payroll tax cut could provide “substantial” benefits if employers implement it and workers spend the extra money.
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A deal from Congress will provide further support to a U.S. economy that contracted at an annualized rate of 32.9% in the three months through June and has seen some uncertainty surrounding the pace of its recovery after a resurgence in new COVID-19 infections in June and July.
Negotiators will continue to work through Congress’ summer recess to bridge the gap between Democrats and Republicans. House Democrats, led by Speaker Nancy Pelosi of California, passed a $3 trillion relief bill in May while Senate Republicans, led by Majority Leader Mitch McConnell of Kentucky, last month unveiled a $1 trillion aid package. Democratic leaders said last week they would be willing to reduce their cost to $2 trillion.
Trump’s executive orders give congressional leaders some new deadlines to meet in September, according to Goldman. The payroll tax cut is scheduled to start at the beginning of September while funding for the additional $400-per-week payment could run out early in the month.
“If these policies are indeed implemented, this suggests that they might force Congress to act by then to avoid further disruptions,” the economists wrote.