American Action Forum President Douglas Holtz-Eakin joins Yahoo Finance's Zack Guzman to discuss the current state of stimulus talks.

Video Transcript

ZACK GUZMAN: We do have that optimism from Speaker Pelosi. But a big question mark there as the Senate moves forward with trying to pass their smaller, more limited package here at about a $500 billion price point, much lower than what Democrats have been negotiating at their $2.2 trillion mark.

So let's dig into that and where these sides still remain divided and what America needs on that front. So joining us now to discuss that is Douglas Holtz-Eakin, American Action Forum president, as well as a former director of the Congressional Budget Office.

And Mr. Holtz-Eakin, appreciate you coming back on. I love having you on because you're used to handling these issues. You've been in this position before. So talk to me about what you're seeing on the progress and how optimistic you are to see something finally come through here. Because it sounds like Speaker Pelosi is optimistic. It sounds like there's still a question of whether or not this comes before the election. So what's your take on the progress?

DOUGLAS HOLTZ-EAKIN: Well, I'm a lot less optimistic than the tone that the speaker has taken. You know, my view is that substantively, the Senate and the House still remain very far apart. You see that in the speaker's insistence on sticking with, essentially, all the content that was in the original HEROES Act, with the price tag scaled down a little bit by not having it last as long, but hasn't really changed what she thinks needs to be in the stimulus bill.

On the other side of the capital, the Senate is going to vote on a $500 billion narrowly targeted bill. And they're going to see how many Republicans vote for that and what they really support. That's a big gulf to bridge.

And the politics, I think, are equally dicey right now. If you were the Biden campaign, and you are leading in the national polls and leading in key swing states and have steadily maintained and expanded those leads, the last thing you want is to change the ground on which the campaign is being run. And so I don't think they want a deal.

And if this works the way things worked in my experience, they've told the speaker they don't want a deal. And she's going to negotiate optimistically, cheerfully, right through the election. And so I don't really expect to see any of this happen. We get daily reports, but I don't think it's going to be a go until after the election.

ZACK GUZMAN: Yeah, a lot of people pointing out the theatrics about this that normally maybe wouldn't be there if it weren't an election year. But you can look at that and what was behind the Democrats' proposal to pass the HEROES Act at that north of $3 trillion mark that everyone kind of knew and looked at and said, all right, you have control in the House. I might as well go for it. You can even anchor the negotiations to that price point.

Similar things could be pointed out for what Republicans are trying to do now in the Senate. But there is this weird kind of mix of the president coming out and saying he wants a larger number than even what Democrats want, and Senate Republicans saying they're not going to go for anything north of that $1 trillion mark. So how do you break that down in terms of where they agree and why you wouldn't see some of those agreements come through before the election?

DOUGLAS HOLTZ-EAKIN: It's always interesting with this White House because, you know, the president does unexpected things all the time. And you can't decide if that's policy or if it's just day-to-day tactics. And so what does he really want in the stimulus bill? Your guess is as good as mine.

So I think the real issue is to get a stimulus bill, you have to have the House, the Senate, and the presidential signature. And you can't get all three parties on one page right now. And so I just don't expect to see it happen for that reason.

I'd also point out, just, you know, if you think about it, the White House does not have a great track record of getting legislation through Congress, all right? It got the Tax Cuts and Jobs Act because Hill Republicans had started on that process long before he was elected president. They got the USMCA trade agreement because the business community desperately wanted it on a bipartisan basis. They got the CARES Act because no one came back to contest it. It was unanimous.

But they haven't ever really decided this is a piece of legislation we want and worked it through the House and the Senate. So I'm not sure they know how to get there.

ZACK GUZMAN: Yeah, I want to dig into that point, too, on this idea of political theater and kind of arguing around prices, you know, the total dollar cost attached to all of this and whether or not that's really the right way to be looking at it. Because there's still unused money tied to the CARES Act.

So if you're really talking about, well, let's look at solutions first, talk about dollars after, there's still a lot of money on the table that really hasn't been used or applied to a lot of the things we've been discussing, whether it be testing or supporting businesses here that have been unable to tap a lot of the money tied to the Fed's Main Street Lending Program. So talk to me about that and how many there is too much of an emphasis on this $500 billion versus the $2.2 trillion, whereas there's still money out there from the CARES Act that hasn't been applied.

DOUGLAS HOLTZ-EAKIN: I think there's way too much emphasis placed on that top line dollar figure. And indeed, the unused money from the CARES Act is one of the reasons you have trouble getting Senate Republicans on board, right? They looked at this and said, well, OK, if all that money was used and there was a need for more, yeah, we get that. But it's not. So why would we go do another trillion, $2 trillion bill?

And I think the real culprit here is the US Treasury, which has, you know, in the CARES Act, I think, like, nearly a half a trillion dollars to backstop lending programs. And that's produced about $20 billion in loans, all told. And that just is a serious underperformance. I don't understand it. And I think that the Senate Republicans also don't understand it.

If you look at their $500 billion bill, one of the first things they do is they take back a lot of that money. Well, if you're not going to use it, we'll take it back and find a good purpose for it. Put it in the PPP, or give it to schools, or, you know, one of those UI benefits that they're trying to push through. So I think that that's an issue. The substantive response to this crisis has not been good by the Treasury.

ZACK GUZMAN: Yeah, and I mean, I want to build off that point, too, because it sounds like, again, you're not optimistic on getting this deal before the election. A lot of people who watch this show might be in that camp, too, just as we see this back and forth continue and no one really wanting to change the status quo here before the election.

But also, even going back and tapping those funds that aren't going to be used seems unlikely as well because no side wants to walk away from the negotiating table without a victory and saying, oh, yeah, we came to some compromise. We didn't get what we wanted but here's we got.

So I mean, when you think about the economic impacts of that, because it's clear a lot of Americans are hurting as this fight draws out here, so what do you see as the impacts if we don't get that deal before the election or how long it might take even afterwards? Because I really don't think these results are going to be as clear cut as people hope.

DOUGLAS HOLTZ-EAKIN: So the key cause of the downturn was the high income individuals in America stopped consuming services that involved coming in contact with another person. And that big consumption household spending drop was the driver of the downturn. We haven't solved that problem.

And there isn't a check to a low income person or UI benefit that will get affluent Americans back out at the theater, back out traveling, in hotels. And so substantively addressing this crisis means dealing with the virus or dealing with ways to make people feel safe in the presence of the virus. And that's why the sort of focus on total dollars really misses the point.

But the longer we go without additional legislation and the longer we see these large swaths of relatively low skilled, low income workers unemployed, the more it's going to turn into a traditional demand deficiency and recessionary tendency. And so, there isn't an issue in getting something out in a timely fashion. And the politics here are really working against that. And that's not a good thing for the economic recovery and for those Americans.

ZACK GUZMAN: Yeah, and that's the other interesting piece of Nancy Pelosi, too, in that MSNBC interview just a moment ago, talking about whether or not you're going to get this deal not before the election day, but hopefully before those November rent checks come due, yet another timeline we see in her mind for when she wants progress and a decision made on these negotiations.

But we've got to leave it there for now. We'll continue to track what comes out of Washington, DC. But Douglas Holtz-Eakin, American Action Forum president, appreciate you taking the time to chat.

DOUGLAS HOLTZ-EAKIN: Thank you.