Trump's executive orders

Over the weekend, Trump made a bold move by issuing a series of executive orders that fundamentally try to bypass the legislative process entirely.  Trump announced four executives orders on Saturday.  One creates a new program to distribute aid to the unemployed.  A second allows people to defer paying payroll taxes until the end of the year.  A third allows HUD to consider extending a moratorium on evictions and a fourth allows people to delay making student loan payments.  The underlying strategy behind these executive orders seems to be that Trump knew he had to do something, but if forced to make a deal with Democrats he would have to spend much more than he wanted on stimulus.  As a result, he decided to circumvent the negotiations and enact a bare bones stimulus package that he can then claim credit for while also exaggerating its likely impact.

If you look at where the negotiations started, Republicans were offering a stimulus package worth about $1 trillion, the Democrats had their own proposal that cost more than $3 trillion, and if you look at Trump's executive orders, those combined together have the federal government end up costing less than $225 billion by the end of the year according to the Committee for a Responsible Federal Budget.  In general, he plans to devote less than $45 billion in federal money to his new unemployment insurance program while deferring payroll taxes until the end of the year would reduce revenue coming in by about $150 billion and allowing people to delay their student loan payments would cost around $30 billion.  The main result of his executive orders is that Trump managed to reduce the cost of the stimulus package to the federal government by an order of magnitude compared to any likely deal made with Democratic support.

The problem of course is that these executive orders are unlikely to work out as planned.  The executive order on unemployment insurance requires states to set up a whole new program from scratch, which could take months before any money goes out.  If programs do get set up, it would still result in a big cut to unemployment benefits, where the new program would have the federal government pay benefits worth $300 a week and states would have to fund an additional $100 a week, which is still below the current extra benefit of $600 a week provided by the federal government.  States are also short on cash right now and might not be able to fund their portion of the benefit, which means they would lose out on the $300 a week from the federal government as well.  Even if states do set up a new program and are able to pay for their portion, the $300 a week in federal benefits would run out of funding in a month or two, at which point states would have to pick up the entire tab.

The deferral in payroll taxes is designed to take the place of the stimulus checks, but the most important point to make here is that people who are not working would not get any benefit from a payroll tax cut.  If the new unemployment insurance program runs into hurdles, those who lost their jobs may face a severe cut in their benefits that could have been partially offset by a fixed $1,200 stimulus check that goes out to virtually everyone, but now will not be offset at all because the aid is structured as a payroll tax cut.  Most likely, the hardship faced by the unemployed over the short run will force Trump to go back to the negotiating table within a few weeks where a much larger stimulus package can be crafted between the two parties in Congress.

Ultimately, Trump's executive orders are trying to block badly needed stimulus from going into the economy during these difficult times.  It will not take long to figure out that these executive orders are badly designed and poorly crafted, making them essentially unworkable as a way to confront the economic problems our country is currently facing.  Unfortunately, this attempt to bypass the legislative process is going to slow down negotiations for weeks on end, requiring people to lose critical aid at a time when there are few jobs to be had for those currently unemployed. This new political strategy is likely to inflict serious economic harm in the short run that may be difficult to recover from quickly.  Only by changing course as quickly as possible can the country get back to a path where the economic harm from the pandemic is greatly mitigated by federal efforts to offset the economic damage.