Image for Trump, Congress Grapple with Coronavirus Outbreak, Economic Downturn

Coronavirus has led to a growing number of fatalities, a nationwide lockdown in Italy, travel bans, canceled events and tanked global stock markets. Now the impact of the virus is consuming the White House and Congress over how to respond in an election year after already approving an $8.3 billion public health funding measure.

President Trump is proposing a temporary payroll tax rollback and bailouts for the hard-hit travel industry. Democrats are focusing on paid leave for workers forced to stay home, relief for small businesses and some form of economic stimulus. The possibility of a compromise or a political head-butt seems equally likely, but some direction may take shape by the end of this week as political leaders fear the current economic disruption could descend into an early-than-expected, pre-election recession.

While Trump has urged Americans not to overreact to the still-expanding coronavirus outbreak, there is growing concern members of the Trump administration – and the president himself – may have been exposed to COVID-19 via a contact at the recent CPAC gathering. Members of Congress are worried about an outbreak at the Capitol and at a meeting Monday night explored the idea of conducting business remotely, an idea Speaker Nancy Pelosi quickly quashed. Four lawmakers who were at the CPAC event have gone into self-quarantine.

Visiting Capitol Hill on Tuesday, Trump talked with Republican lawmakers about a payroll tax rollback that would last through the election. Reducing the federal payroll tax is a quick way to put more money into the pockets of people on payrolls, but it can be spendy. A one percentage point cut would reduce federal revenue by up to $75 billion. Most of the revenue raised by the federal payroll tax funds Social Security, Medicare and other social insurance benefits.

Trump earlier urged deeper interest rate cuts. However, that idea fell out of favor after the Federal Reserve enacted an emergency 0.5 percent rate cut, which buoyed the stock market for one day before continuing to plunge to depths not seen since the 2008 housing crash.

The coronavirus outbreak is continuing to expand in the United States, as test kits become more available to confirm cases.

Several states including Oregon and Washington have declared states of emergency. In Washington which has experienced the largest number of deaths (22) linked to COVID-19 in the United States, Governor Jay Inslee is exploring more stringent steps to limit the community spread of the infectious disease. Many Seattle-area employers and the University of Washington are closed down and urging employees and students to work from home.

Social distancing and increased handwashing, however, may not be enough to ward off a widening epidemic or a more serious economic downturn caused by an accumulation of unrelated factors. The 2100-point market freefall this week was linked to an international squabble over oil prices. Underlying weaknesses such as a sluggish manufacturing sector, federalaTrump tariffs on China and a mountain of corporate debt, which includes a large pile of “leveraged loans” that resemble junk bonds, could combine to tip the economy into recession, according to some economists. Enlarged corporate debt is often a harbinger of recession.

On the other hand, news of White House and congressional interest in an economic stimulus package helped the market on Tuesday recoup some of the lost ground from Monday’s disastrous session.

Bolstering the economy will attract bipartisan interest, but perhaps not bipartisan consensus. Even Democrats have historically favored payroll tax cuts as a way to lessen tax regressivity and put money into the pockets of low and middle-income workers. However, they may eye a temporary cut as a Trump re-election talking point and perhaps an inadvertent step toward trimming Social Security and Medicare benefits. Congressional Democrats are more likely to favor economic stimulus via infrastructure investment for water, transportation and broadband projects that can get underway in as little as 90 days.

Some form of paid leave for homebound workers could be the glue that connects divergent Trump and House Democratic economic proposals. Paid leave provides both public health and economic benefits by making it easier for workers to stay home without losing their paychecks. It would be likely that paid leave would be subsidized, at least for small businesses.