The First Relief Package Wave
Part V: Yes, Now is the Perfect Time to Talk Economic Recovery in America
Note: This post is one part of my series, Yes, Now is the Perfect Time to Talk Economic Recovery in America, which provides an in-depth look at the current economic crisis and how the United States will climb out of it. Click the link or scroll to the bottom to check out the other posts in the series.
In January 2020, the novel coronavirus blipped on America’s radar. The Center for Disease Control (CDC) issued its first health advisory and within weeks would start screening airports.
By the end of February, an outbreak had hit Washington state. The Trump administration enacted international travel restrictions, the stock market had its worst week since the Great Recession, and the Federal Reserve aggressively lowered interest rates.
In many parts of the country, habits were just beginning to change. Even a few weeks ahead of “15 Days to Slow the Spread”, people were exiting normal, daily life. Spending see-sawed and confidence cratered. It tripped every alarm. The economy collapsed.
In a fairly immediate response, Congress and the Trump Administration sent relief. The initial months of the pandemic were met with aggressive funding measures to bolster an economy in shambles.
March 6, 2020
Coronavirus Preparedness Response Supplemental Appropriations Act
The first emergency spending bill passed with near full Congressional support.
The $8.3 billion spending package focused predominantly on providing additional support to the Department of Health and Human Services (HHS) to research, treat, and fight the virus. The package funded testing, therapeutics, and vaccine development through a program which would eventually become Operation Warp Speed.
More narrowly focused, this law provided some initial relief for small businesses in the form of disaster loans and subsidies. It also provided international funding to global health organizations and programs. These efforts were utilized to contain the virus and stabilize international markets which were all in a frenzy.
March 18, 2020
Families First Coronavirus Response Act
Passed with broad bipartisan support, this $192 billion spending package focused on protecting lower-income individuals and those more vulnerable to COVID-19. It expanded paid sick leave protections for two reasons.
First, the Federal government wanted to ensure that employees would still receive wages if they were out on sick leave. Second, it wanted to disincentive sick individuals from showing up from work and therefore spreading the virus. The law excluded small businesses (with less than 500 employees) which, at the margins, might struggle to pay expanded sick leave. The law also expanded unemployment insurance benefits, food stamps, and medical coverage.
For the entire nation, an important provision required “private health insurance to cover testing for COVID-19 without imposing cost-sharing (e.g. deductibles, coinsurance, or copayments) for the duration of the public health emergency”. In essence, it guaranteed that tests would be free going forward.
March 27, 2020
CARES Act, Stimulus #1
Just three weeks after the initial spending bill, the Coronavirus, Aid, Relief, and Economic Security (CARES) Act was the first full-scale bailout signed into law. The $2 trillion relief package, which was over twice the size of the Great Recession’s largest stimulus injection, brought sweeping financial aid to much of the American public and business sector.
Approximately a quarter of the package went to large companies and governments. The federal government wanted to sustain these entities to prevent bankruptcies and mass layoffs. Congress targeted funding to certain sectors like the airline industry. Unlike the auto-industry bailout in 2008, this airline bailout was widely structured as a grant rather than a loan. It will not be repaid. Many of the state and local governments received funding because public health measures required them spending well above their intended budgets.
A fifth of the package, approximately $400 billion, went to small businesses via the Paycheck Protection Program (PPP). Facilitated by the Small Business Administration (SBA), PPP is a program which connects small businesses to private lenders. In its initial iteration, it was intended to keep small businesses afloat and support operational costs like payroll, rent, and utilities.
The lenders for PPP are private banks and financial institutions. They provide risk-free loans which are fully-guaranteed by the federal government. SBA compensates for processing fees, and the Federal Reserve has set interest rates low so these loans are minimally profitable for lenders.
The federal funding primarily comes into play on the back-end. After small businesses receive these loans, they can apply for forgiveness. If these businesses meet certain criteria, like using 60% of the loan to make payroll, the federal government will pick up the tab. Essentially, the loan becomes similar to a grant. The federal government pays “up to the full principal” and the small business covers any difference plus the loan’s interest.
The chart below details a breakdown of loans disbursed and received by industry.
The CARES Act also provided the first round of economic impact payments otherwise known as stimulus checks. These direct cash payments included $1,200 for an individual with adjusted gross income up to $75,000, a prorated amount for an individual earning less than $99,000, and $500 per child under 17 years old. For instance, a family of four could have received up to $3,400. The disbursement amount was based on the most recent tax filings in either 2018 or 2019.
According to ProPublica, an independent nonprofit news outlet, about 160 million households had received a stimulus check by the end of October. However, as many as 9 million eligible people had not received a check by that point. These individuals, most of whom needed the checks the most, had earned too little to file taxes in either 2018 or 2019. The process for these people to apply and receive checks, since they were not sent automatically, was disjointed and ultimately left many without a payment at all.
Next, about an eighth of the package, or about $270 billion, went to expanded unemployment benefits. Everyone receiving state unemployment benefits would now be eligible for 13 additional weeks with a $600 federal benefit per week.
Lastly, the CARES Act provided additional funding for hospitals, health centers, and healthcare providers. It also created tax incentives to help small businesses who could now use business losses to offset nonbusiness income during the pandemic.
April 24, 2020
Paycheck Protection Program and Healthcare Enhancement Act
A few weeks after the CARES Act, Congress determined that more money was needed. The first round of PPP loans saw so much demand that the allotment ran out after just two weeks. The SBA had to stop accepting new applications. Over 1.6 million loans were approved and approximately 75% went to small businesses seeking less than $150,000.
The quick evaporation of funds was concerning but within weeks light would be shed on the situation. Many large businesses helped to deplete the funding by applying and subsequently receiving loans as well.
According to ProPublica, big businesses found a loophole by “counting each of their limited liability companies or other entities as separate businesses.” Without an initial cap, they could also apply for millions of dollars in loans and drain the pool. Many publicly traded companies, healthcare networks, gaming enterprises, law firms, and consulting firms cashed in. While likely hurting financially themselves, these businesses were not the intended beneficiaries.
As such, this follow-up law centered on immediately replenishing PPP loans. It would also buy time to redefine the program. With a $383 billion injection, the federal government could continue to aid reeling small businesses, implement stricter applicant guidelines, and audit big businesses which slipped through the cracks.
A number of these large firms, like Shake Shack and Ruth’s Chris, under mounting public pressure, ultimately returned the money. Still, many others artfully dodged criticism and received a loan in lieu of those needing it more. This legislative failure speaks to a lack of targeting and oversight.
Outside of PPP, an additional $100 billion went toward public health measures. Predominantly, this influx went toward hospitals and further ramped up COVID testing.
As the country looked ahead to summer, people were hoping for a reprieve. Unfortunately, the economic fallout was merely in its early stages.
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