Republicans are balking at how much state aid is in Biden’s stimulus, but Democrats maintain it’s necessary for a full recovery

Mitt Romney
Sen. Mitt Romney (R-UT) is one of the moderates who claimed state aid in the stimulus is excessive.

  • Biden’s stimulus includes $350 billion in state and local aid, but tax revenues are only slightly down.
  • Democrats argue that more state aid is needed to ensure long-term economic recovery.
  • Critics say aid should be further targeted. States surprisingly haven’t lost much tax revenue — yet.
  • Visit the Business section of Insider for more stories.

President Joe Biden wants to pump billions of federal stimulus into state and local governments as part of his $1.9 trillion package. But state tax revenues for 2020 were surprisingly healthy.

A JP Morgan survey called 2020 “virtually flat” with 2019 with regard to tax revenues for 47 states that reported their earnings, with revenues only falling by 0.12% on average. And while states expected to be hit hard financially when the pandemic began, the previous stimulus, including $600 weekly unemployment benefits, on top of the already allocated state benefits, allowed Americans to continue spending.

The results of the survey seem to support the conservative argument that states don’t need some or all of the funding in Biden’s relief package given that their revenues look fairly unscathed by the pandemic. 

The White House has pushed back on such criticism, saying it’s not in line with reality.

“I think our objective is to focus on not JP Morgan reports, but what state, local governments and others are telling us they need to ensure that the people in their districts, the resources in their districts, the people who are making government function in their districts have the funding and resources they need,” White House Press Secretary Jen Psaki said during a February 1 press conference. 

But while states haven’t yet appeared to take significant hits in tax revenue, experts suggest that the worst is yet to come.

jen psaki biden capitol commission
White House Press Secretary Jen Psaki.

The argument for state aid

Biden’s $1.9 trillion stimulus plan includes $350 billion in emergency funding for state, local, and territorial governments “to ensure that they are in a position to keep front line public workers on the job and paid, while also effectively distributing the vaccine, scaling testing, reopening schools, and maintaining other vital services,” according to a White House fact sheet

This would be in addition to $150 billion of similar aid from last March’s CARES Act, Democratic state treasurers said in a letter that more aid is needed for long-term economic recovery.

“Congress has the power – and the responsibility – to step in and fill the gap during this emergency,” the treasurers wrote.

Some states badly need the aid already. According to the Urban-Brookings Tax Policy Center, states such as Alaska, Hawaii, and Nevada suffered the greatest revenue losses at 42.5%, 17%, and 11.8%, respectively, because of the lack of tourism during the pandemic. But some other states saw a gain in revenue, like Idaho, up 10.4%, and Utah, up 8%. 

And growing evidence suggests a big hit to tax revenues is coming, because of the ripple effect that mass working from home has had on commercial real estate.

Unnamed government finance officials told The New York Times that cities heavily reliant on property taxes could face revenue losses of as much as 10% in 2021 due to empty facilities during COVID-19. The Urban Institute found in 2017 that although property taxes account for roughly 1% of state tax revenues, they can add up to 30% or more of the taxes that cities take in to fund local services, so further aid through Biden’s plan will be necessary to prevent mass municipal layoffs.

Susan Collins-Rob Portman
Sen. Susan Collins (R-ME) speaks with Sen. Rob Portman (R-OH).

The argument against state aid

Since Biden introduced his stimulus package, Republican lawmakers have taken issue with its costly price tag, and 10 Republican Senators even came up with their own $618 billion stimulus plan. That proposal was notable for completely cutting out aid to state and local governments. 

“I think the biggest gap between the president’s proposal and the Republican proposal relates to [$350 billion] or so going to states and localities,” Sen. Mitt Romney of Utah told reporters. “That kind of number just makes no sense at all.”

“Unfortunately, the White House seems wedded to a figure that really can’t be justified …” Sen. Susan Collins of Maine, who led the GOP stimulus plan, told reporters on February 23. “So what we’re looking at now is whether there are changes that we could make.”

As Insider’s Joseph Zeballos-Roig reported, moderate senators on the Democratic side think some of the state aid in Biden’s plan could be used for needs other than pandemic relief, such as broadband and healthcare.

Biden’s stimulus plan is set to be reviewed in the Senate over the next few days, and changes are already being made to the bill ahead of its expected passage in mid-March. 

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House Democrats pass $900 billion stimulus plan with direct payments and federal unemployment benefits, clearing the way for a Senate vote

Nancy Pelosi
  • House Democrats approved the $900 billion stimulus agreement, sending it to a vote in the Senate.
  • The package contains $600 stimulus checks and $300 federal weekly unemployment benefits among other measures like small business aid and funds for vaccine distribution.
  • The $900 billion package is just under half of the spending level that Democrats wanted before the election, and they say will press for more federal aid once Biden takes office.
  • Visit Business Insider’s homepage for more stories.

House Democrats passed the long-awaited $900 billion stimulus plan, sending it to the Republican-controlled Senate for a vote on Monday evening.

The 5,593-page bill was passed overwhelmingly 359 to 53.

Speaker Nancy Pelosi said earlier on Monday morning that she supported the package, but wanted additional aid spending once President-elect Joe Biden takes office in January.

“I look forward to a strong bipartisan vote today on this legislation,” Pelosi said. “Respecting it for what it does, not judging it for what it does not. But recognizing that more needs to be done.”

Passage in the House sends it to the Senate, where Majority Leader Mitch McConnell will put it on the floor for a vote. It’s expected to pass. Congressional leaders are operating on a swift timetable, seeking to merge the relief package with a $1.4 trillion government funding bill and pass them before midnight Monday, the new deadline for federal funding to lapse.

Lawmakers had little time to review the massive piece of legislation once it was introduced early Monday afternoon.

The rescue package would direct hundreds of billions of dollars into many sectors of the economy. Unemployed Americans will see an extra $300 from the federal government tacked onto their unemployment checks until mid-March. It also includes $600 stimulus checks will be sent to millions of Americans. Treasury Secretary Steven Mnuchin said many Americans will start receiving those payments early next week.

Read more: $600 checks for most people, help for entertainment venues, airlines and public transit. Here’s what else is in the $900 billion stimulus the House just passed.

The package also contains $284 billion in small business aid and $45 billion in federal funds for transportation. Meanwhile, the government funding bill would cover federal agencies through September 2021, and it also includes a bevy of tax breaks for businesses next year.

The legislation, though, is a significant step down from the amount of spending Democrats once sought. The chamber approved a sweeping $3.4 trillion stimulus package in May called the HEROES Act, but Republicans dismissed it outright.

Then, in October, House Democrats passed a $2.2 trillion relief bill to kickstart stalled negotiations with Republicans. It ultimately went nowhere. But Pelosi drew criticism from some Democrats for rejecting the Trump administration’s $1.8 trillion stimulus offer. Her defenders argue Senate Republicans would never have supported a plan with a large price tag.

After Biden’s election, Democrats embraced a $908 billion relief plan unveiled by a bipartisan group of moderate senators. It was later whittled down to a $748 billion piece of legislation, which Democrats increased to its current level of $900 billion by backing the addition of stimulus payments.

But they set aside one of their key priorities in the final rescue legislation, aid to states and municipalities struggling with large budget shortfalls. In exchange, Republicans dropped their demand for a liability shield to insulate businesses from virus-related lawsuits. Both parties will likely seek to address both of those measures early next year.

Read more: JPMorgan says stocks are primed for sustained gains in a way they haven’t been in years – and identifies 43 names to buy for above-average earnings growth in 2021

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