As July comes closer to an end, Senate Republicans have begun putting more focus on its Phase 4 COVID-19 relief proposal. Mitch McConnell wants to find a middle ground between the House Democrats’ bloated $3.4 trillion “Heroes Act” proposal and a strict stimulus-only approach favored by some Capitol Hill Republicans. McConnell told reporters that he wants the next bill to focus on “kids, jobs and health care,” and avoid state bailouts and other hobby-horse agenda items tossed into the House proposal.

McConnell’s approach has two problems. The first is that it’s still fairly ambiguous despite several weeks of debate over it. The second is that it may be too focused to please the White House:

A Republican-drafted coronavirus relief package will include $105 billion to help schools safely reopen, more tax rebate checks to families, a “targeted second round” of small-business loans and liability protection for health care workers, Senate Majority Leader Mitch McConnell said Tuesday.

Outlining the major elements of a GOP proposal that could be unveiled in coming days, the Kentucky Republican made no mention of an extension of expanded unemployment benefits or aid to state and local governments — two top priorities of Democrats.

Nor did McConnell mention a possible deferral of payroll taxes borne by workers, similar to a break companies got in the $2 trillion March aid package, which the Trump administration has been pushing despite GOP misgivings.

Instead, McConnell said the package would center on “kids, jobs and health care” in an attempt to find a “middle ground” between another massive rescue effort and a simple economic stimulus measure.

The GOP has been adamant that it won’t supply bloc-grant cash to the states, for the simple reason that it will just go toward covering up budget gaps rather than provide direct funding of COVID-19 containment efforts. The White House wants that payroll tax holiday, though, and Democrats won’t move ahead without some sort of trade-off. That will mean more cash for states, at least to some extent, and almost certainly some sort of temporary tax rebate or break.

That kind of negotiation will take some time, Kevin McCarthy told CNBC this morning, whose biggest demand is expanded liability protection for businesses and schools that reopen. McCarthy says all of this can be negotiated to a compromise, but it’s going to take quite a while. A new bill won’t emerge until after the end of the expanded jobless benefits, McCarthy hints, which is yet another sticking point between Democrats and Republicans:

“I envision that this bill doesn’t get done by the end of July,” House Minority Leader Kevin McCarthy, R-Calif., told CNBC’s “Squawk Box.” He said he expects Congress to approve legislation “probably in the first week of August.”

If lawmakers cannot pass a plan by the end of the month, a $600 per week federal unemployment insurance benefit buoying millions of Americans will at least temporarily expire. The GOP wants to change the policy or reduce the sum, while Democrats hope to extend the assistance as the unemployment rate stands above 11%.

Pelosi and Mnuchin forsee a somewhat quicker timetable for a compromise bill, but it may not be quick enough:

On a call with House Democrats on Tuesday, House Speaker Nancy Pelosi said she hopes the parties “can resolve our differences and have a bill by the end of next week,” according to a source on the call. The end of next week is July 31, and Congress would still need to vote on the legislation even if it can write the bill by the end of the month.

Treasury Secretary Steven Mnuchin separately told reporters on Tuesday that he hopes to strike a deal on legislation by the end of next week.

For now, the White House has been relatively low-key about its demands. Trump put up more of a fight over the NDAA, threatening to veto it if it contained language requiring the renaming of bases now named for Confederate generals. The Pentagon has moved ahead on those issues through other means, however, and now the NDAA will likely be delayed until after the election anyway. Trump has allowed Mnuchin to conduct quiet negotiations with all sides without necessarily issuing ultimatums yet, although he has expressed some conditional support for a larger bill (~$2 trillion) while asking for stimulus checks and the payroll tax cut especially.

Trump brought up the payroll tax cut earlier today:

“It’s one of the issues that we’re proposing,” House Minority Leader Kevin McCarthy told reporters at the Capitol. The California Republican met earlier Monday with President Donald Trump, Vice President Mike Pence, Treasury Secretary Steven Mnuchin, White House Chief of Staff Mark Meadows and Senate Majority Leader Mitch McConnell in the Oval Office.

“I don’t think there’s too much dispute as to the level of importance” of cutting payroll taxes, Trump said in remarks to reporters during the meeting.

Trump has been pushing a payroll tax holiday as part of the next round of COVID-19 relief, but it hasn’t been clear exactly how the proposal would be structured.

The provision Republicans are discussing would be structured as a tax deferral, a White House official confirmed. That means payroll taxes will be due at a later date and the break won’t add much to the cost of the overall bill. Lawmakers could waive the payback requirement in future legislation if they’re willing to absorb or offset the cost at that time.

The final product is likely to come closer to the House version in the end. The “kids, jobs, and health care” mantra from McConnell makes a lot of sense, but it won’t hold as a limiting principle. If Republicans want Democratic cooperation on liability waivers, they’ll need to give up something substantial. That’ll either be the $600/week bonus on unemployment insurance or bloc-granted state aid. In the end, it’s all imaginary money anyway, or at least Congress seems to think so.

What happens when inflation finally rolls across the globe like a tsunami? CNBC offered this wishful thinking that printing trillions of dollars/pounds/yen/etc won’t necessarily create inflation. Bookmark this one for 2021 or 2022, because it will either be seen as prophetic — or darkly hilarious.