What Trump’s Trillion-Dollar Bailout Gets Right, and Wrong

By Michael Grunwald

Even by Washington standards, a trillion dollars is a lot of money. It could fund the Environmental Protection Agency for 120 years, or the Securities and Exchange Commission for 550 years, or 20 end-to-end border walls with Mexico. It could buy every American adult four new iPhone 11 Pros. The last time the U.S. economy imploded, after the 2008 financial crisis, House Speaker Nancy Pelosi warned then-President-Elect Barack Obama’s team that if he wanted to pass a stimulus bill, he shouldn’t even bother proposing anything that required the T-word.

But President Donald Trump is about to do just that, and suddenly a 13-digit ask no longer seems so controversial.

With the coronavirus slamming U.S. commerce to a halt, Trump’s administration has released the outlines of a $1 trillion stimulus proposal, half to send checks to individuals, half to backstop ailing businesses. [Update: Senate Republicans have now released their own trillion-dollar package.] And barely a decade after the vicious partisan war over Obama’s merely $800 billion The American Recovery and Reinvestment Act, Republicans and Democrats generally seem to agree that a $1 trillion stimulus package makes perfect sense—on top of two bipartisan pandemic response bills with a combined $100 billion-plus price tag that have already flown through Congress—and may well need to be followed up with even more stimulus.

Their disagreements will be about what’s in it. The two-page memo summarizing Trump’s proposal that the Treasury Department released Wednesday is as short on details as it is long on dollars, but as a starter document, it gives a sense of what the president wants.

“We’re going big,” Trump declared at a White House press conference. “We don’t want airlines going out of business or people losing their jobs and not having money to live.”

People are already losing their jobs, and money is already getting tight, but this time, it seems like Washington might send help in a hurry. Here are some of the questions raised by the five main elements of Trump’s plan—and also by what’s left out of it.

Free Money
The $500 billion centerpiece of the Trump stimulus is a meme-maker’s dream, a straightforward proposal to give American taxpayers money. Obama’s economists, 11 years ago, described the ideal short-term stimulus as “timely, temporary, and targeted,” and sending people checks is certainly timely—the memo proposed one round in April and a second in May—as well as temporary. But it’s not yet clear whether the Trump version will be targeted at the poorer Americans who are most desperate for help and most likely to help the economy by spending it quickly to pay bills or buy essentials. The memo did say the payments would be “tiered based on income level and family size,” but did not specify whether the “individual taxpayers” who receive them would include the 75 million Americans who don’t earn enough to pay federal income tax, who presumably need the money the most, or, for that matter, millionaires and billionaires who don’t need the help. Congressional Republicans suggested Thursday that the payments could be “phased in,” so poorer families would actually get less.

Nevertheless, there’s wide agreement that sending people money can be good stimulus—and it can be even better politics, which is why nobody in Washington wants to try to stop the cash train. Like the Danny DeVito character said in Heist: Everyone likes money. That’s why they call it money.

Republicans would have screamed bloody murder if Obama had written $500 billion worth of checks and simply added the cost to the federal deficit, but under Trump, they’ve stopped warning about debt crises or national bankruptcy or runs on the dollar. So what’s not to like? Direct government payments are hard to steal, hard to screw up and easy to understand. Forget timely, temporary and targeted. Dumping cash on the American people is like those Xfinity ads: simple, easy, awesome.

Friendly Skies
Trump recently suggested that when it came to industry rescues, “airlines would be Number One,” and the memo includes a $50 billion secured lending program designed to keep American passenger and cargo carriers in the air. There does seem to be broad agreement that the airlines, unlike cruise lines or restaurants or other businesses devastated by the pandemic, are vital to the functioning of the economy and the country. And even though the airlines asked for an aid package evenly divided between grants and loans, the Treasury plan would limit aid to collateralized loans that would presumably be paid back with interest after the crisis subsides, much like the 2008 bank bailouts that turned a profit for taxpayers. The memo even floated the idea of limits on increases in executive compensation until the loans are repaid, a nod to populist anger that is also reminiscent of restrictions on bank compensation in the 2008 bailout.

But Democrats are already pushing to attach much tougher conditions on the airlines, which have spent the vast majority of their cash in recent years on stock buybacks that enriched their investors and executives. They want to attach harsh limits on buybacks and dividends as well as executive bonuses in exchange for Uncle Sam’s largesse. A group of eight senators has even called for attaching restrictions on the industry’s carbon emissions, which is clearly not a concern of Trump’s. The Treasury memo actually suggests that airlines should face “continuation of service requirements,” which could amount to a perverse requirement to fly empty planes when most Americans are no longer traveling.

Insert Bailout Here
The memo also suggests $150 billion in aid to “Other Severely Distressed Sectors of the U.S. Economy,” which will probably include just about all of them by the end of the month. This one-sentence placeholder is likely to inspire the most pushback, in part because in addition to secured loans, it floats “loan guarantees,” which means the government would be on the hook if they aren't repaid.

But the real question would be who qualifies for a bailout, and what would make them deserving. Trump recently pointed out that cruise lines are not at fault for their ongoing plunge in bookings, but one prominent Republican told me in an email: “No aid to cruise lines. Not essential. Owned by foreigners who don’t pay taxes or billionaires.” Climate-conscious Democrats are likely to be even less enthusiastic about bailouts for oil and gas interests that have been battered by the virus and an overseas price war. And bailouts for the tourism and hospitality industries could be even more controversial, partly because it’s even less clear how they’re essential to national survival, partly because Democrats will not want to bail out the international hotelier who currently lives in the White House.

The industry lobbyists begging for bailouts argue that they need help in order to help their workers, but a more reliable way for the government to help workers is just to help the workers directly. The cruise lines say they need help to avoid layoffs, but it’s hard to imagine that they’ll avoid layoffs when they’re not offering cruises—so where will the money go?

A Scary Aside
One of Trump’s proposals should not cost taxpayers a dime, but may be his most frightening ask: a federal guarantee for the $2.6 trillion money market fund industry. Treasury did this on its own during the 2008 financial crisis after one fund collapsed, and it instantly reassured panicked depositors who were pulling their cash out of other funds, as well as panicked companies that relied on the funds to buy “corporate paper” to finance their operations. But after the backlash against bailouts, Congress stripped Treasury’s power to do it again. So Trump would need a vote to do it this time.

It makes sense to reassure the markets that money market funds will be safe, although it does raise the question of whether the funds should pay the government for insurance if they’re going to get backstopped whenever times get tough. It also feels a bit like a backdoor bank bailout, since one effect will be to reassure skittish companies that have been drawing down lines of credit from banks that they can rely on corporate paper instead.

But the most pressing question it raises is: Are these funds in more trouble than we realize? The last time Treasury did this was at the height of the worst panic since the Depression. Slipping this financial provision into an economic stimulus bill may be a far-sighted move to give Treasury the tools it would need to deal with a potential banking panic, but it could also send a message that Treasury is worried about a banking panic, and those kinds of messages can panic bankers.

Pardon the Interruption
The final piece of the Trump proposal is a $300 billion loan guarantee program to help small businesses keep their entire workforce on their payroll for eight weeks. This idea seems both unimaginably large—it’s seven times the annual budget for the State Department—and absurdly small, since there are 28 million small businesses in America, and it’s hard to see how restaurants or gyms or stores that don’t have customers are going to be able to pay back the loans after they pay their workers not to work for eight weeks. It feels like a program that could work if the business interruptions are very short, in which case it might not even get started in time to help, but it feels likely to get swamped by demand if the pandemic keeps the country on lockdown for long. The goal is to reduce disruption to people’s lives and careers—everyone prefers a paycheck to a government check—but this will be an extraordinarily disruptive crisis, and again, airlifting money to businesses is not always the most efficient way to help their employees, especially if the businesses end up failing anyway.

The Missing Links
The Obama stimulus included nearly $100 billion targeted directly at the most vulnerable victims of the Great Recession, particularly the poor and the unemployed. That aid turned out to be extremely effective not only in reducing poverty and easing pain but in reviving the economy; this Dartmouth study estimated that every dollar spent on the poor created from $1.96 to $2.31 in economic activity. The Trump proposal makes no effort to target the poor, although the bipartisan emergency response bill does include a modest boost in unemployment benefits and food aid.

Similarly, Obama’s stimulus sent about $250 billion directly to cash-strapped state and local governments, many run by Obama’s political enemies, so they wouldn’t have to slash services, raise taxes or lay off workers; studies found that aid to states also helped the U.S. avoid a second Great Depression, helping governors and mayors avoid “anti-stimulus” at the worst possible time. The Trump proposal did not include state aid, either, although Democrats did get a boost in the federal share of Medicaid payments in that bipartisan emergency bill.

In general, the Trump approach favors aid to businesses over aid to governments or the needy. And at least for now, it opts for just a few massive programs rather than a litany of small programs, an approach that will be sorely tested on Capitol Hill.

Congress larded up the Obama stimulus with all kinds of quirky add-ons, from fire stations to military hospitals to cemetery maintenance to emergency farm loans; Senate Appropriations Chairman Daniel Inouye inserted $198 million for Filipino veterans who had been denied benefits they were promised after fighting alongside Americans in World War II, an honorable but not particularly stimulative provision. The Trump approach has different vulnerabilities—strip clubs and porn studios may apply for business interruption loans, too—but its omissions could make it easier to pass and potentially easier to defend.

The trillion-dollar question is what Democrats will demand as their price for bailing out the sinking Trump economy. Pelosi has already warned that she wants to target the spending to the families that need it most. Democratic Senators Ron Wyden of Oregon and Amy Klobuchar of Minnesota have proposed to make vote-by-mail available to every American, a provision that could ease fears that coronavirus could disrupt the 2020 election, while Patty Murray of Washington and Kirsten Gillibrand of New York have said they won’t accept a stimulus without a dramatic expansion of paid sick leave for workers. The Obama stimulus included a powerful independent oversight board that scrutinized every dime, and perhaps as a result, it produced remarkably low levels of fraud and abuse; Democrats would like to see the same kind of oversight for Trump.

It’s also tempting to look beyond the current crisis. Democratic economists have floated the possibility of including permanent “countercyclical stabilizers,” which would automatically provide stimulus for a faltering economy even if a Democrat were in the White House and Republicans rediscovered their allergy to deficit spending. And after the Obama stimulus helped jump-start the clean-energy economy with massive investments in solar, wind and electric vehicle batteries, some Democrats are interested in using the Trump stimulus to advance long-term priorities like transit, green infrastructure, or at least virus-related public health initiatives.

Of course, time is of the essence, and the president is sure to demand immediate action on his proposals, while accusing House Democrats of leaving Americans to suffer if they don’t pass them right away. If they complain that the package doesn’t include funding for additional hospital beds, or for manufacturing ventilators, or for feeding the hungry, well, Trump and the Republicans seem perfectly willing to pass another stimulus bill after this one goes out the door. In Washington, a trillion dollars doesn’t seem to go as far as it used to.