Coronavirus stimulus: Failed negotiations will force Americans 'to make devastating cuts,' experts warn
Failure to get a bipartisan coronavirus stimulus agreement ahead of the presidential election would likely result in slower economic recovery and lower spending as millions of Americans' savings plummet.
"In October and November, unemployed families will run out of savings they rely on, and then we'll have to cut their spending horribly," said Ernie Tedeschi, executive director and political economist at Evercore ISI Yahoo Money. "Blowing through savings as a means of maintaining your spending is not sustainable."
The more than 26 million unemployed Americans currently on benefits have seen benefits drop from around 130% of their pre-firing wages to 50% now following the expiration of the additional $ 600 in July and the President's Lost Wages Assistance (LWA) program recorded. An analysis by Evercore ISI revealed.
At least 38 states have disbursed all funds available under the Lost Wages Assistance (LWA) program. (David Foster / Yahoo Finance)
And while some of these unemployed Americans have survived on accumulated savings in the past few weeks, much of that extra money will be depleted in the coming weeks with no further incentives.
"More and more families will reach the point where they simply have no savings to rely on," added Tedeschi. "If there aren't enough jobs, they'll face regular state unemployment insurance."
The president recently turned down a $ 2.2 trillion Democratic stimulus offer that was passed in the form of the updated HEROES bill, which was passed last week. House Speaker Nancy Pelosi, D-Calif., And Treasury Secretary Steven Mnuchin have spoken regularly to work out laws that could pass both the Democratic-controlled House and the GOP-controlled Senate.
Read More: Here's What You Need To Know About Eligibility for Unemployment Benefit
The White House says the counter-proposal is $ 1.6 trillion - although Pelosi said the most recent White House proposal was $ 1.3 trillion, according to CNN's Manu Raju.
The chances for a general stimulus package were "previously slim and now they're next to none," Mark Harkins, a former congressional staff member and senior fellow at the Government Affairs Institute in Georgetown, told Yahoo Money.
"Unfortunately, for some reason, the president doesn't telegraph what he really wants to do," said Harkins. "He jumps left, he jumps right and that makes it very difficult to negotiate."
U.S. President Donald Trump listens to Treasury Secretary Steven Mnuchin in the Brady Briefing Room of the White House in Washington DC on August 10, 2020. (Photo by BRENDAN SMIALOWSKI / AFP via Getty Images)
Americans will "have to cut spending at some point"
The sticking points for a White House-Democratic deal include extra unemployment benefits, school funding, aid to state and local governments, childcare assistance, funding for increased testing and tracking, and funding for other resources.
Read more: Do you have to pay taxes on unemployment benefits?
After ordering his reps to end the incentive, Trump went on Twitter Tuesday night, pushing for standalone stimulus bills for a second round of stimulus checks, $ 25 billion for the airline and $ 135 billion or that Payroll Protection Program (PPP) for small business businesses.
"Deals like this take a lot of nuance," said Harkins. “This is where his strengths simply do not lie - in the area of legislation. He's never been good at that serving. "
A fiscal package in line with key points of the White House-Democratic deal would result in a "shorter and faster" recovery, adding 4 million more jobs and 260,000 more per month by the end of 2021, according to Tedeschi's analysis of a descriptive fiscal package .
Unemployed Americans saw their unemployment benefit fall between 52% and 72% after the expiry of the additional $ 600 in July and the president's LWA (Lost Wages Assistance) program, according to an analysis by Evercore ISI. (David Foster / Yahoo Finance)
If a business cycle agreement is not passed, this will have a double impact on the labor market and expenditure. Fewer jobs are created, while those who have remained unemployed receive less unemployment benefits than those who received them under the CARES Act or the LWA.
Unemployed faced a cliff in late July when the $ 600 under CARES expired and a second at $ 300 to $ 400 a week under the LWA program, which has now expired in most states. Currently, unemployed Americans only receive regular state unemployment benefits.
Average regular state unemployment benefits in August were $ 323 per week or less than $ 1,300 per month before tax, while Lousiana has the lowest average of $ 181 per week or $ 724 per month before tax, according to the Department of Labor.
Unemployed make up around 15% of retail sales, which, according to Tedeschi, has resulted in a roughly 8% decline in total retail sales and a slowdown in the recovery in spending.
"You have to make ends meet, you have to cut spending," said Tedeschi.
Yahoo Money's sister site, Cashay, has a weekly newsletter.
Denitsa is a writer for Yahoo Finance and Cashay, a new personal finance website. Follow her on Twitter @denitsa_tsekova.
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