Senate Majority Leader Mitch McConnell, R-Ky. Senate Majority Leader Mitch McConnell, R-Ky. (Photo: Andrew Harrer/Bloomberg)

A new stimulus package is in the works.

Senate Majority Leader Mitch McConnell said Monday that Republicans would likely unveil a plan as early as next week and then start talks with Democrats.

The news from McConnell comes two months after the full House passed the Democrats’ $3 trillion coronavirus stimulus package by a narrow 208-199 vote on May 16. In passing H.R. 6800, the Heroes Act, 14 Democrats voted no, and one Republican voted yes.

On Monday, McConnell said he is working with the Trump administration on drafting a proposal.

McConnell and Treasury Secretary Steven Mnuchin “are already talking about the next stimulus bill, which will take shape later this month,” Greg Valliere, chief U.S. policy strategist for AGF Investments, said in his Tuesday morning email briefing. “Three competing narratives affect the talks: first, signs that new Covid-19 cases have stalled the economy; second, the need to provide funding for schools; third, grim new deficit figures, showing that red ink could soar past $4 trillion this year,” Valliere said.

The dominant factor, according to Valliere, “is that the virus is out of control in Florida, Texas and other states, which will necessitate another major stimulus bill. As for deficits — we’re still in the triage stage; Congress first has to save the patient.”

House Speaker Nancy Pelosi, D-Calif., told CNN on Tuesday that she’d delay the House’s August recess if a deal hasn’t been reached to renew enhanced unemployment benefits and other coronavirus relief expiring at the end of July.

The Hill reported that McConnell planned to have a draft bill ready Monday, when lawmakers return. “I’m predicting we will have one more rescue package, which we’ll begin to debate and discuss next week,” McConnell said.

McConnell’s goal, Valliere said, is to complete a bill in the next three weeks.

What will be in it? “There are so many ‘must pass’ provisions that it will be difficult to keep the price tag under $1 trillion; we think something like $1.5 trillion is more likely — with President Trump inclined to ‘go big’ on spending,” Valliere said.

Mnuchin, Valliere continued, “knows that two provisions are virtually mandatory — aid to reeling state and local governments, and liability protection for companies affected by the virus. McConnell will not bend on that; he said yesterday that he will insist on liability protection that would be retroactive to December 2019 and extend to 2024.”

Indeed, Sens. Elizabeth Warren, D-Mass.; Chris Van Hollen, D-Md.; and Catherine Cortez Masto, D-Nev., told Mnuchin and Federal Reserve Board Chairman Jerome Powell to provide greater financial assistance to state and local governments.

In a recent letter to Mnuchin and Powell, the senators also note that Congress must also provide long-term fiscal support for state governments.

“State and local governments have been uniquely affected by the COVID-19 pandemic and the associated economic downturn, with recent state budget shortfall projections alone totaling a cumulative $555 billion through fiscal year 2022,” the senators wrote.

“These shortfalls have forced governments to furlough workers, cut worker pay, or close facilities, and local budgets are also strained to meet the significant health needs of their populations,” the letter states.

The senators stated that the “budget cuts and furloughs, like the pandemic itself, hit communities of color the hardest: According to the most recent data available from The Center for Economic Policy and Research, Black Americans make up about a quarter of the state and local workforce. And funding for state and local services ‘can help reduce barriers to opportunity that keep major parts of our society, from jobs to education to housing largely segregated along racial lines.’”

But Valliere says an infrastructure provision being included in a new stimulus package is “unlikely.”

Other provisions that will likely be included are “aid to schools, some type of check to individuals and families, and an incentive to get people back to work. Trump’s chances of getting a payroll tax cut are fair at best,” Valliere said.

Once McConnell and Mnuchin “iron out a bill,” Valliere continued, “tough negotiations loom in late July between them and Democrats,” headed by Pelosi and Sen. Chuck Schumer, D-N.Y.

“Trump wants a bill. Fed Chairman Jerome Powell wants a bill. Most — but not all — Republicans want a bill. Many Democrats will abandon their $3 trillion package for something like $1.5 trillion,” Valliere said. “The simple fact is that the virus crisis is intensifying, and McConnell knows that failure to pass a bill would greatly increase chances of the GOP losing the Senate this fall.”

— Check out Jim Bianco: Don’t Count Out Trump Reelection Just Yet on ThinkAdvisor.