Is the Recession Already Over?

Plus, Treasury set to borrow record $3 trillion over three months By Yuval Rosenberg and Michael Rainey Trump Pushes Payroll Tax Cut Panned by Economists As the Senate returns to the Capitol this week, the obstacles to the next round of emergency coronavirus relief legislation seem to be mounting. Trump insists on a payroll tax cut: President Trump said on Sunday that he won’t support any stimulus package unless it includes a payroll tax cut. “We’re not doing anything unless we get a payroll tax cut,” Trump said during a Fox News virtual town hall. Trump has been pushing the idea of temporarily suspending both the employer and employee payroll taxes, meaning the 12.4% tax to fund Social Security and the 2.9% tax to fund Medicare. But lawmakers — both Republicans and Democrats — largely dismissed the idea when Trump floated it in March. Critics have routinely pointed out that a payroll tax cut [won’t help]( those people most in need of a financial lifeline: those who are no longer on payrolls. “The 30 million people who’ve lost their jobs wouldn’t get a direct benefit, and economists say a payroll tax cut likely isn’t enough by itself to boost consumer spending -- a prime driver of the economy -- and spur companies to begin rehiring,” Bloomberg’s Laura Davison [reports](. And advocates on the left [warn]( that a payroll tax cut would undermine Social Security and Medicare by cutting their dedicated funding. A full elimination of payroill taxes from now through the end of the year would cost about $650 billion, Marc Goldwein of the Committee for a Responsible Federal Budget told Bloomberg. Infrastructure: Trump also said Sunday that “we will be doing infrastructure,” adding that he and Democrats agree that it’s important. But Senate Majority Leader Mitch McConnell has [said]( that infrastructure won’t be part of the next coronavirus bill, calling it “unrelated” to the pandemic. “We need to keep the White House in the box” on infrastructure, McConnell [told]( Republican Senators on a conference call last week, adding that “Democrats and the White House both need to get the message," according to [Axios](. Trump also wants a pause: The president, top administration officials and leading GOP lawmakers have all indicated that they’re in no rush to push through additional coronavirus relief. “I think we want to take a little bit of a pause,” Trump told reporters last Thursday. White House economic adviser Larry Kudlow [echoed]( those comments on Sunday, suggesting it was time to wait and see what happens with the trillions spent so far. The bottom line: Republicans are still insisting on coronavirus liability protections for businesses, which McConnell last week called a “red line going forward on this bill.” Democrats continue to push for more aid to state and local governments. The two sides remain very far apart on those issues. So as we told you [last week]( any additional coronavirus legislation is likely still weeks away … and there’s little to suggest that the timeframe will speed up. Is the Recession Already Over? The coronavirus pandemic is still raging — and the Trump administration is projecting that it is about to get worse, with the number of new cases surging to about 200,000 a day and deaths rising from about 1,750 now to about 3,000 a day by early June, according to an internal report obtained by [The New York Times](. (“This is not a White House document nor has it been presented to the Coronavirus Task Force or gone through interagency vetting,” a White House spokesman told the Times.) Yet some top Wall Street economists say that the coronavirus recession is over, Bloomberg Businessweek’s Peter Coy [reports]( “Over the past two days, top economists from Goldman Sachs Group Inc. and Morgan Stanley issued reports saying the world economy was hitting bottom. If true, that means the recession is over and a [recovery has begun](. … To the average person, a recession means economic conditions are bad.& But to an economist, a recession means economic conditions are worsening. Once they stop getting worse and start getting even a little bit better, a recovery has begun. Break out the bubbly and have a social distancing party. … By Morgan Stanley’s estimation, China bottomed in February, the euro zone probably bottomed in April, and the U.S. probably bottomed in late April, with Latin America still not there.” The bottom line: Those economists’ calls don’t mean the economic pain is over. Far from it. The Great Recession officially ended in June 2009, but unemployment didn't peak until October of that year and stayed at 9.4% for all of 2010. So recovery is likely to be much slower than the dramatic shutdown-induced plunge into recession. And, as Coy notes, the economists could simply be wrong. If projections of the pandemic worsening come true and states now attempting or contemplating reopening are forced to revert to lockdowns, the economic optimism will likely prove short-lived. Treasury Set to Borrow a Record-Shattering $3 Trillion Over Three Months The U.S. Treasury [said]( Monday that it expects to borrow $2.99 trillion during the second quarter of this year as it raises funds for the massive relief packages aimed at keeping the economy afloat during the coronavirus crisis. For the full fiscal year, the Treasury Department’s estimated borrowing will rise to nearly $4.5 trillion, up from $1.28 trillion last year, according to [The Wall Street Journal](. "The increase in privately-held net marketable borrowing is primarily driven by the impact of the COVID-19 outbreak, including expenditures from new legislation to assist individuals and businesses, changes to tax receipts including the deferral of individual and business taxes from April – June until July, and an increase in the assumed end-of-June Treasury cash balance," Treasury said in a [statement](. Quote of the Day “The era of tax cuts is over. There are going to be corporate and personal tax increases on the other side of this just to bring that budget somewhat closer to balance. The federal budget doesn’t have to be balanced, but the deficit has to be reined in so that it’s not increasing faster than general economic growth.” – Jim Millstein, the co-chairman of Guggenheim Securities who led restructuring efforts at the U.S. Treasury Department after the financial crisis, in an interview with [Bloomberg Television](. Millstein said it’s inevitable” that the wealthy and the “investor class” will face higher taxes. Health-Care Spending Plummets The coronavirus pandemic is wreaking havoc on the American health care system, pushing hospitals and providers to their limits amid the worst medical crisis in a century. And it’s having a powerful effect on the system as a whole, not just the emergency rooms and intensive care units that are dealing most directly with the virus. Patients are canceling or postponing surgeries, skipping the dentist and taking whatever steps they can to avoid the health care system. As a result, the health care industry is collapsing in on itself. In the first three months of 2020, health-care spending fell at an annualized rate of 18%, The Washington Post’s Todd C. Frankel and Tony Romm [report]( Monday. The decline was the largest single factor in the 4.8% annualized decline in GDP for the first quarter. Economists expect much worse numbers in the current quarter, with GDP falling at an annual rate of 30% to 40%. Vivian Ho, a health economist and professor at Rice University, told the Post that some health systems are reporting 50% or greater losses in revenue, resulting in furloughs and pay cuts. “And while I think they’re going to rebound, it will be slow and won’t go back to what it was before,” she said. Millions Would Avoid Care for Covid-19 Due to Costs A recent [Gallup poll]( finds that 14% of Americans would avoid seeking care for themselves or a family member if they had coronavirus-like symptoms (fever and dry cough), due to worries about cost. When the symptoms were described specifically as coronavirus infection, 9% of respondents still said they would avoid treatment due to costs. “Recent research has shown that millions of Americans know someone who has died in the last 12 months due to their inability to pay for treatment and that $88 billion in borrowing occurred over the last year for healthcare,” Gallup said. “As such, results that show 14% unwilling to seek treatment for COVID-19 symptoms and another 9% unwilling to seek treatment -- even when coronavirus is suspected -- should not be shocking, even amid the outbreak.” Gallup noted that such fears are not unfounded. Although testing is now free for most Americans thanks to the Families First Coronavirus Response Act, a trip to the hospital could still run thousands of dollars in out-of-pocket costs: “For example, if the doctor consulted determines that the visit does not justify a test, or is out-of-network, or if the trip requires treatment for other conditions not related to COVID-19, the health law does not cover the costs of the visit.” A Look at America’s ‘Broken Retirement System’ Millions of baby boomers are discovering that getting older isn’t getting any easier, thanks in part to a retirement system that fails to deliver security for millions of Americans. “Every day, 10,000 Americans reach the age of 65,” Will Englund [says]( Monday in The Washington Post, noting that the number will peak at 12,000 a day in 2024. “And every year, fewer and fewer of them have traditional employer-sponsored pensions to support them. The system that was supposed to provide for them is shot through with holes.” Fewer than half of Americans between the ages of 55 and 64 participate in a job-based retirement savings plan, and the pandemic-induced recession will likely push millions of older workers who do have 401(k)s to tap them for emergency funds, reducing their nest eggs. More broadly, the shift from pension plans to market-based retirement accounts has increased the risk for participants of failing to prepare properly in a complex and sometimes confusing financial system. “We’ve probably peaked in terms of retirement security — and it’s not great,” Monique Morrisey of the liberal-leaning Economic Policy Institute tells Englund. “And now it’s all downhill. Unless something changes, we’re going to start seeing much more hardship.” The Post spoke to six Americans who are facing those hardships as they enter retirement. [Read Englund’s conversation]( with baby boomers facing the harsh world of retirement with limited funds. News - [Daily Death Toll Will Nearly Double by June, Trump Administration Models Predict]( – New York Times - [34 Days of Pandemic: Inside Trump’s Desperate Attempts to Reopen America]( – Washington Post - [Trump Finds Skeptics Instead of Allies for Prize Payroll Tax Cut]( – Bloomberg - [As Senate Returns, Multiple Stumbling Blocks Threaten Next Coronavirus Bill]( – NBC News - [Why You Shouldn't Hold Your Breath for the Next Coronavirus Stimulus Bill]( – Axios - [Trump Team Plots Tax Cuts and Regulatory Suspensions to Boost a Coronavirus Recovery]( – Politico - [Treasury’s $4 Trillion Funding Task Signals Record Auction Slate]( – Bloomberg - [California Is First State to Borrow From Federal Government to Make Unemployment Payments]( – Wall Street Journal (paywall) - [The PPP Double Dip]( – Politico - [Some Small Businesses That Got Aid Fear the Rules Too Much to Spend It]( – New York Times - [Unemployment Benefits Will Be Reduced After July 31]( – CNBC - [A Timeline of IRS Stimulus Payment Glitches]( – Washington Post - [Gilead Covid-19 Drug May Exceed $2 Billion in Sales, Piper Says]( – Bloomberg Views and Analysis - [Republican Senator: Yes, Congress Should Send Money to State and Local Governments]( – Sen. Bill Cassidy (R-LA), Washington Post - [To Save the Economy, the Federal Reserve Should Drop Interest Rates to Less Than Zero]( – Kenneth Rogoff, Project Syndicate - [Tax Revolts Aren’t Out of the Question]( – Stephen Mihm, Bloomberg - [The New Great Depression Is Coming. Will There Be a New New Deal?]( – Michelle Goldberg, New York Times - [If Trump Has a Recovery Plan, It's a Mystery]( – Jonathan Bernstein, Bloomberg - [Airlines Got the Sweetest Coronavirus Bailout Around]( – Timothy Massad, Bloomberg - [White House Signals a Pause on Coronavirus Aid, Even as the Economic Situation Becomes More Urgent]( – Emily Stewart, Vox - [My Firm Was Attacked for Taking a PPP Loan, so We Returned It. Now We Face Layoffs]( – Sven-Olof Lindblad, Washington Post - [Always The Bridesmaid, Public Health Rarely Spotlighted Until It’s Too Late]( – Julie Rovner, Kaiser Health News - [The Bridge to the Post-Pandemic World Is Collapsing]( – Annie Lowrey, Atlantic - [Americans Are Lining Up for Food. What Is Team Trump Doing?]( – Matt Russell, Robert Leonard and Beto O’Rourke, New York Times - [The Problem With MMT]( – Willem H. Buiter, Project Syndicate - [The Pandemic Has Made Industrial Policy Palatable Even to Republicans]( – Shawn Donnan, Bloomberg Businessweek - [A Free College Plan That Pays for Itself]( – Marguerite Roza, The Hill [Like Us on Facebook]( [Like Us on Facebook]( [Read Us On the Web]( [Read Us On the Web]( Copyright © 2020 The Fiscal Times, All rights reserved. You are receiving this newsletter because you subscribed at our website, thefiscaltimes.com, or through Facebook. Our mailing address is: The Fiscal Times 399 Park AvenueNew York, NY 10022 [Add us to your address book]( Want to change how you receive these emails? [Update your preferences]( or [unsubscribe](.