If current projections hold, Joe Biden will win the White House while Republicans will retain control of the Senate. For anyone hoping for more economic stimulus, this may seem the worst possible outcome: Legislative gridlock is far more likely than new legislation.
Yet all hope is not lost. Passage of a Covid relief bill remains possible, both before the end of the year and after the inauguration in January. If House Speaker Nancy Pelosi wants to get a Biden administration started on solid footing, she will try to cut a deal with the most powerful Republican in Washington — that remains Senate Leader Mitch McConnell — before Biden is sworn in.
It's useful to recall just how stuck negotiations were before the election. Last month Pelosi and Treasury Secretary Steven Mnuchin were engaged in drawn-out talks over a Covid relief bill. There was little possibility that anything nearly as large as the two of them were discussing — about $2 trillion — was going to pass the Senate. Even before the election, many Senate Republicans had begun to rediscover their concern about the national debt.
Pelosi and other Democrats assumed, not incorrectly, that the prospects for any deal would be far better if they controlled the Senate and White House. With that no longer a possibility, Pelosi has an incentive to take what she can get now.
Holding out for a better deal doesn't come with the guarantee of a bigger package later — but it does risk damaging the economy in the meantime, making it harder for Democrats to govern once Biden is sworn in.
It would be a delicate negotiation. Any package that passed now would be much smaller than the one the Trump administration agreed to before the election. And Pelosi would have to use all her political skill to explain that she was not making a concession just as her party was about to take over the executive branch. Her best argument is that even a small stimulus could be enough to stabilize the economy over the next several months.
What is Republicans' incentive? McConnell himself has said that a stimulus bill is a priority when the Senate returns next week. And despite their general reluctance to spend, they do support some additional funding for schools, health care and loans to small businesses. They could also attempt to extract liability protections — a longstanding goal of McConnell — in exchange for some support for state and local governments that Democrats are desperate to pass.
After Biden is sworn in, the difficulty level greatly increases. With Trump gone, the Republican Senate would probably dig in and demand a return to austerity. The situation would call for the type of negotiation Biden excels at, and he would look to offer Republicans something they want more than a return to fiscal discipline. The obvious trade would be to make Trump's tax cuts permanent.
Again, that would open Biden to the charge of surrendering to Republicans just after winning a mandate to overturn their policies. But taking some criticism would be preferable to enduring the pain of a slow recovery.
Neither of these scenarios, admittedly, is appealing for Democrats, who will undoubtedly want to flex some muscle after taking the White House. But their main concern should be giving the economy the boost it needs now and next year. For both the country and a Biden presidency, failure to act would be devastating.
Disclaimer: This article first appeared on bloomberg.com, and is published by special syndication arrangement.