Battle beginning over Phase IV legislation


In March, in response to the public-health emergency of COVID-19, Congress passed three large pieces of legislation in short order and with relatively little friction. Even the third and by far the largest of these bills, a $2 trillion economic relief measure that did involve some bargaining and partisan confrontations, was drafted quickly and pretty much passed unanimously. In late April, another bill adding funding to the small-business relief program created in March, again basically sailed through both houses.

But the next phase of relief and response legislation, the so-called “Phase IV” bill, does not look likely to go nearly as smoothly. Not only familiar partisan debates but also some divisions among Senate Republicans have been emerging as members turn their attention to that next stage. Ironically, these familiar dividing lines may be the first sign of a return to normality as the shock of the crisis wears off just a little. But they also suggest that Congress is dangerously disconnected from some of the most important realities of both the public-health and economic facets of the national calamity we’re living through.

I’d point to four emerging areas of division or uncertainty in the legislation. The first has to do with just who will have the pen and draft the bill. The CARES Act, that $2 trillion measure enacted in late March, began in the Senate and so was mostly drafted by Senate Republicans. Those Republicans were of course under pressure to satisfy both House and Senate Democrats to get the bill passed, and they were also constantly frustrated by the tendency of administration officials (especially Treasury Secretary Mnuchin) to negotiate directly with House Democrats. But they gave the bill its basic character.

Some Republican Senators were happy with that, but Majority Leader Mitch McConnell clearly wasn’t. He thinks holding the pen put Senate Republicans at a disadvantage, since it gave both House and Senate Democrats enormous leverage to make specific demands. McConnell was also immensely irritated by the administration’s behavior in that process—especially the president’s tendency to change his mind on key issues under the slightest pressure while Senate Republicans were trying to negotiate, and Mnuchin’s willingness to deal directly with Nancy Pelosi and undercut Republicans when the president changed his views.

So McConnell’s preference is to have the next bill start in the House. At this point, that looks likely to happen, even though House leaders have announced they won’t be returning to Washington next week as originally planned (and as the Senate will be). Not all Senate Republicans agree with McConnell’s view, but his sense is that if a bill is ultimately going to be shaped by negotiations between Mnuchin and Pelosi anyway, Senate Republicans will have more leverage by making specific demands against a House framework in return for their votes than they would by framing the bill and then conceding to Democratic priorities.

But just what demands would Republicans make? This is the second source of contention and uncertainty at this point. There has been a peculiar loss of focus by both parties in Congress on the particular challenges the country is facing in this crisis. Both are reverting to their familiar reflexes some. For the Democrats, those reflexes are fundamentally programmatic, and so Republicans are finding that their Democratic colleagues increasingly talk about the response to this crisis in terms of bulking up existing welfare programs and checking off longstanding agenda items with little connection to the pandemic. President Trump has been falling back on careless reflex too, with his ridiculous emphasis on “infrastructure” in the Phase IV bill. For Senate Republicans, the reversion to reflexes points toward the restraint of federal action and spending, so that some members are implicitly beginning to put this crisis in the past tense far too early.

John Thune, the Senate Majority Whip, expressed this view a few days ago to the Washington Post, saying, “As we start thinking down the road in future iterations, my hope would be that it’s more fine tuning what we’ve already done rather than taking on big, aggressive new initiatives that are paid for by additional debt.” It’s an understandable view, and concern about spending is certainly in order. Even before we faced a pandemic, the federal government was set for a deficit of roughly a trillion dollars this year. The demands of the crisis, and the ensuing recession, look likely to push that number to an unprecedented $4 trillion or so, according to the Congressional Budget Office. It could rise much higher before the year is out. Congress will no doubt need to take aggressive action to control the future growth of the debt when this crisis is actually behind us.

But the crisis is not behind us. The worst of it, especially in economic terms, is surely ahead of us. And it’s going to take more than fine-tuning to help Americans through it and to keep it from doing more lasting damage to our economy than it has to. My view, like that of NR’s editors, is that Senator Josh Hawley’s general approach—focused on keeping people employed and keeping businesses whole—makes a lot of sense. Even just a more open-ended form of the Paycheck Protection Program enacted in March would help. But it seems increasingly clear that support for such measures among congressional Republicans is waning.

So what do Senate Republicans agree on? In my conversations, there has been an emphasis on two issues above all: Fixing the perverse incentives in the CARES Act’s increase in unemployment benefits, and providing employers with liability protections as they re-open businesses.

On the unemployment question, Republicans seem utterly unified. They are hearing a lot about it from constituents—particularly employers who want to retain their workers through the crisis but are finding that those workers prefer to be laid off onto the unemployment rolls, where at least temporarily they can make more money. This makes it difficult for employers to make use of PPP loans (which are only forgiven if employers maintain payrolls), and will make it difficult for shuttered businesses to re-open when they are allowed to. But above all, it is worsening and will extend the economic downturn we have entered.

Democrats are dug in on this question—it is their version of regressing to reflex. Some seem almost to see this as a means of enacting more generous minimum wages, failing to grasp the enormous economic harm this approach is likely to cause. So while Republicans are intent on addressing the problem, their ability to do that in this next bill will be limited. They may be able to reduce the extra benefit (from $600 a week) as a condition of pushing back its expiration date. But that remains unclear.

The liability question, which McConnell has stressed, is also no simple matter. As my AEI colleague Adam White has noted, Congress will need to do more than just waive employers’ legal liability for workers’ exposure to the virus. That would be irresponsible. Members will need to frame some new rules and standards, and the work required to do that has barely begun. But without question, some relief from liability concerns is going to be important as states begin re-opening their economies this spring and summer.

Important though both these issues are, however, they are relatively marginal. Core questions of economic assistance, let alone of public health, remain to be addressed, and at this point Republicans do not seem unified around specific ways of doing that. They are also divided when it comes to helping the states, which will be an enormous challenge as Phase IV goes forward.

This is the third area of contention I’d point to: the coming crisis of American federalism. The pandemic and the ensuing economic disaster are placing enormous pressures on state finances, and there is no question that Congress will be called on to help. Some such help is in order, yet some states (like Illinois) are also clearly using this crisis opportunistically to try to backfill longstanding obligations resulting from their own fiscal mismanagement. Rather than clarify that distinction, Republicans are dividing over whether Congress should be helping the states meet urgent fiscal obligations at all. McConnell didn’t help matters by recently describing the issue as a debate over “blue-state bailouts.” (Even the pension crisis itself isn’t best understood that way. McConnell wouldn’t have to look far to find red states with massive pension problems that want federal help.)

But ultimately, this crisis is going to require both some form of federal bailout in response to pandemic-related state spending and some sort of reckoning for states whose longstanding recklessness is now becoming untenable. Changes to bankruptcy laws to give states more options (as McConnell implied) should be on the table when it comes to the latter. But Republicans will need to consider the former too—the real needs that states will confront in this crisis and the federal role in helping states meet them. McConnell’s resistance to aid for states and localities is not shared by all his Republican colleagues. And their division on that subject will be important to track as the Phase IV bill takes shape.

But all of these divisions, and the great bulk of the ongoing discussions about Phase IV, are about the economic response to the crisis. What about the public-health response? This is the fourth area of uncertainty I’d point to as the bill takes shape. Both Republicans and Democrats in Congress are paying too little attention to the continuing need for federal coordination, action, and funding for testing, tracing, and treatment of COVID-19. We may be passing the peak of this first phase of the pandemic, but to start gradually re-opening the economy and to be prepared for a second phase of outbreak in the fall, we will need to be mobilizing America’s public-health infrastructure and medical-research enterprise. Somehow, there is still not enough urgency on this front in Washington. Support for massively expanded testing and for research coordination in particular, should be part of this next bill.

It still remains far from clear what shape the Phase IV bill will take. But it’s already obvious that the process of its formulation will be more contentious and uncertain than Congress’s pandemic-response efforts have been so far. This is not the end of the world: Contention is Congress’s bread and butter. But it’s vital that members focus on the scope and character of the calamity the country is confronting and look for ways to address the actual problems we face, rather than just revert to longstanding partisan reflexes. Our politics will return to normal in time, and those reflexes will again have their proper place. But that time has not yet come, and pretending it has will only extend the crisis.

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