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What would be more effective than a second $1,200 check in the next stimulus bill, according to an economist

House Democrats passed a $2.2 trillion stimulus package Thursday. Here's what experts think the final version of that legislation should include.

U.S. House Speaker Nancy Pelosi (D-CA) participates in a news conference at the U.S. Capitol in Washington, October 1, 2020.
Erin Scott | Reuters

Congress is still working to pass another stimulus bill.

House Democrats voted to advance a $2.2 trillion stimulus package on Thursday, but the Republican-controlled Senate has not signaled that it is yet willing to bring legislation to a vote. Throughout the week, House Speaker Nancy Pelosi has been in talks with Treasury Secretary Steven Mnuchin to bridge the gap between Democrats and Republicans on issues like aid to state and local governments and a liability shield for businesses and schools.

As of press time, the two sides have not yet come to an agreement.

The Democrats' latest package, an update of the HEROES Act, which originally passed the House in May, would reinstate the $600 per week in enhanced unemployment insurance through January, send a second wave of $1,200 stimulus checks to Americans, provide $436 billion in relief over one year to state and local governments, authorize more money for the Paycheck Protection Program (PPP) for businesses, and provide $75 billion for Covid-19 testing and contact tracing efforts, among other provisions.

While everyday Americans may be excited about getting another stimulus check, though, there are higher priorities, argues Heidi Shierholz, senior economist at the Economic Policy Institute, like instituting the $600-a-week enhanced unemployment benefit again.

Enhanced unemployment gives 'bang for the buck'

Reinstating the $600 in enhanced unemployment insurance the federal government provided Americans under the CARES Act, which was passed in March and expired in July, is one of the provisions that would give the economy the most "bang for the buck," says Shierholz. 

"Allowing that $600 to expire just means millions of people have to drastically cut back on their spending," says Shierholz. This has repercussions on the rest of the economy because "the unemployed workers are spending the $600 on goods and services produced by other workers who then lose their jobs when the $600 goes away."

VIDEO2:1802:18
What happens after enhanced unemployment benefits run out?

Video by Stephen Parkhurst

Shierholz believes the unemployment benefits are even more important than the $1,200 direct payments to Americans because they're more targeted.

"You have to make choices," she says. "That's where this ranking in effectiveness or efficiency of stimulus spending comes in. And when you do that ranking, stimulus checks fall way down the list because they're not well targeted."

While the one-time payments went to many people who were less financially affected by the pandemic, the $600 in enhanced benefits went to those who were dealing with lost income and needed "every additional dollar" to make up any shortfall, says Shierholz.

Since unemployment insurance ran out in July, experts have pointed out that economic recovery has also slowed.

State and local governments see 'a big drop in revenue in recessions'

Another crucial element that should be included in any forthcoming stimulus bill is aid to state and local governments, says Shierholz.

"State and local government, they see a big drop in revenue in recessions," she says. "If the federal government doesn't step in, they have to make savage cuts, cutting services, cutting workers. All that then ripples into the private sector."

Allowing that $600 to expire just means millions of people have to drastically cut back on their spending.
Heidi Shierholz
Senior economist, Economic Policy Institute

That means that when state workers lose their jobs, they then can't go out and spend money. As a result, businesses don't see as much revenue and more people lose their jobs.

"We did an estimate of the impact of the lack of enough aid for state and local governments in the aftermath of the Great Recession," she says, "and it delayed recovery from that recession by four years."

'Millions of jobs' rely on public health help from government

Shierholz also emphasizes the importance of funding for public health measures in any forthcoming package. "Millions of jobs," she says, "hinge on getting effective, coordinated federal actions to make it more possible for the economy to successfully reopen."

Funding for masks and contact tracing should be included, for example, she says.

Aaron Klein, a fellow at the Brookings Institution, largely agrees. In addition to making sure the next stimulus package contains a second round of checks and enhanced unemployment insurance benefits again, he says that making sure there's funding for testing and research is critical. 

"This is a medical problem, right?" he says. "Getting PPE and other equipment [is key] just to open schools."

The pandemic 'creates an opportunity to rebuild America'

Klein believes that any new stimulus legislation should include infrastructure projects as a priority, too.

"We have tremendous infrastructure needs," he says. This recession "actually creates an opportunity to rebuild America." Roads and bridges need to be fixed, and the traffic that these kinds of projects usually cause wouldn't be as much of a problem because "not as many people are driving right now."

These projects "would have the benefit of creating jobs," he says.

Getting PPE and other equipment [is key] just to open schools.
Aaron Klein
Fellow, Brookings Institution

The road to a compromise is unclear 

Klein says that it's hard to know what'll happen next in terms of the two parties coming up with some sort of compromise. 

The House passed the original HEROES Act in May, which never advanced in the Senate. Senate Republicans proposed the HEALS Act in July without ultimately bringing it to a vote and later tried unsuccessfully to pass a smaller "skinny" bill in September. 

It's not clear that this latest effort will succeed, either. "I'm pessimistic that anything will come out of it," says Shierholz.

Senate Majority Leader Mitch McConnell has opposed the Democrats' latest attempt at legislation, as many Republicans remain opposed to spending much more than the $3 trillion that has already been put toward relief efforts. Still, House Speaker Nancy Pelosi told MSNBC: "We'll find our middle ground. We're legislators. We'll get the job done."

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