Either Stimulus Plan Would Fill Economic Hole Caused by COVID: Research

The bipartisan stimulus proposal on the table could yield as much as $20 billion more for U.S. economic output than the deal proposed by Treasury Secretary Steven Mnuchin, according to think tank research.

Despite this slight difference, both deals would be enough to close the economic output gap for 2021, researchers at the nonpartisan Committee for a Responsible Federal Budget (CRFB) concluded this week.

The output gap is the difference between expected economic output under current law and possible economic output if the economy were operating at full potential.

Using simplified multipliers from the Congressional Budget Office (CBO) and the Brookings Institution, the CRFB estimate Mnuchin's plan would boost the economy by about $640 billion (within a range of $550 billion to $725 billion).

The bipartisan plan would boost output by $660 billion (within a range of $560 to $760 billion), the research suggests.

Assuming the midpoint estimate for this economic boost and underlying GDP, the stimulus would be enough in both cases to boost GDP by roughly 1 percent over the next three years.

Lawmakers from both parties have endorsed plans to provide over $900 billion of COVID-19 relief as part of a year-end funding deal.

The Democratic leadership has called for something similar to the bipartisan group's $908 billion plan, while the Republican leadership has reportedly endorsed a $916 billion offer put forward by Treasury Secretary Steve Mnuchin.

Though the packages differ in significant ways, the CRFB estimates that both would boost economic output enough to close almost half of the output gap over the next three years.

Lawmakers also have until Friday to pass a bill to fund the government to avoid a shutdown going into the holidays. There is a push to attach coronavirus relief to the government funding bill in order to expedite it.

On Tuesday, House Minority Leader Kevin McCarthy (R-CA) said a deal was "close" while Senate Majority Leader Mitch McConnell (R-KY) told reporters he was "optimistic" one was imminent.

Congress' top four leaders—House Speaker Nancy Pelosi (D-CA), McCarthy, McConnell and Senate Minority Leader Chuck Schumer (D-NY)—met privately for several hours on Tuesday about the budget and COVID relief. As of late that night, the leaders had yet to strike a deal.

Two sticking points in the negotiations are liability protections and money for state and local governments.

Most Americans are not optimistic about the prospects of a deal. On December 15, YouGov asked 11,399 respondents if they thought it was likely lawmakers would reach a COVID relief deal by Friday's deadline.

The most common response was not likely at all, with 31 percent. This was followed by 30 percent who said not very likely, meaning some 61 percent of those asked cast doubt on the chances of a deal by Friday.

Mitch McConnell briefing press
Senate Majority Leader Mitch McConnell (R-KY) answers questions from reporters during a news conference following the weekly meeting with the Senate Republican caucus at the U.S. Capitol on December 15, 2020 in Washington, DC. He has said a stimulus deal could be "close". Rod Lamkey/Getty Images