As the COVID-19 pandemic continues to pose a danger to public health across the globe, lawmakers in Congress have begun talks on what another fiscal relief package might look like to blunt the virus’s economic toll. The nation’s top infectious disease expert, National Institute of Allergy and Infectious Diseases Director Dr. Anthony Fauci, recently testified before Congress that the pandemic is “not, as it were, under control,” and the continuing instability to American life means that businesses and individuals alike will still require federal assistance to see the crisis through.
With another 1.4 million Americans filing for unemployment insurance in the week ending July 18th bringing the total currently unemployed to one in five of all working Americans, it is clear additional relief will be needed to prevent a domino effect that would cause more permanent damage to the economy. CDC guidance warning against indoor dining due to the virus’s ease of transmission in enclosed spaces for extended periods of time is just one example of how businesses are trying to navigate this harsh new reality.
What policies should be taken off the table?
Congress’s first major relief package — the $2 trillion CARES Act — was undoubtedly necessary to keep America’s families and major economic sectors from being financially strangled by the strict initial steps aimed at preventing a nationwide paralysis of our healthcare systems. While this major influx of federal funds was necessary, any succeeding congressional aid package should look for ways of improving upon the first iteration of emergency relief to make it both as effective and mindful of waste as possible.
The CARES Act’s Paycheck Protection Program (PPP) is one obvious area of improvement. Less than two weeks after going online, the $349 billion program meant to keep employees on the payroll and cover costs that could make or break small businesses ran out of money. A contributing factor to this pitfall was that estimated $243.4 million of the first round of PPP relief, per a Morgan Stanley report, went to large publicly traded companies, while a second, slightly-improved round of replenishing funds had to be expedited to keep the program solvent and tighten up loopholes.
As of the start of July, over $30 billion in PPP loans going to large companies has been returned. Avoiding a repeat of this misappropriation farrago should be a topline concern in any follow-on relief bill discussions. These funds are a lynchpin for keeping unemployment numbers from continuing their unprecedented climb for the duration of the pandemic while also ensuring that the many small businesses relying on the bridge loans to cover their thin operating margins will be able to exist post-pandemic.
Another important factor to consider in a CARES Act 2.0 will be to keep politically-motivated items out of the bill. A recurring bad idea in the newest round of relief talks has been whether or not to include a capital gains tax cut in the next package. As economist Karl Smith notes, “even modern supply-side models of the economy suggest that a capital gains tax cut would have a tiny effect on long-term GDP” due to the fact that businesses are currently more likely to hold onto cash instead of invest it. Though a perennial Republican wishlist fixture, a capital gains tax cut will eat up a valuable portion of the final price tag that would be better-directed toward struggling individuals and small businesses.
Increasing deductions for business meals and entertainment — an idea President Trump argued “will bring restaurants, and everything related, back – and stronger than ever” — is a similarly shaky policy likely to make it into the second-round relief bill. Unfortunately, the virus has something to say about its likelihood of success. Though tax breaks have become a policy for all seasons, the safety to pursue pre-pandemic activities like dining in at a restaurant or attending a baseball game will not come from being able to write these activities off on a tax form. Only beating the virus can do that.
What would the most fiscally responsible CARES Act 2.0 look like?
While the above pitfalls risk wantonly ballooning the price tag of the final relief bill, some policies being discussed are clear in how they would provide smart relief and lay the groundwork for climbing out of the deeper fiscal hole we will be in after the virus abates. Proposals agreed upon by both parties like additional rounds of direct cash payments to Americans, replenishing the PPP program, and new funding for testing and support for health providers are all effective means of keeping both people and businesses solvent through the crisis.
In an op-ed for Deseret News, Senator Mitt Romney (R-UT) advocates for some additional measures to improve upon the CARES Act. To address the flaws of the original PPP program, Sen. Romney suggests extending “federally guaranteed lending, but only to those businesses small and large which are demonstrably suffering.” Significantly, he adds that “any loan forgiveness should be limited to very small enterprises.” These finer parameters would ensure larger businesses with greater capacity to repay loans they would take relative to smaller struggling businesses do so, whereas smaller businesses receive the capital they need to keep the lights on without fear of plunging themselves into inescapable debt.
Speaking of debt, perhaps the most consequential of new ideas being discussed is the inclusion of Sen. Romney’s TRUST Act in final relief package. It is the bare minimum that can be done to show that Congress is serious about reckoning with the dire fiscal situation we will find ourselves in after the pandemic. Austerity will be the name of the game after the emergency spending carries us through, and the TRUST Act will make that bitter pill easier for dilatory lawmakers to swallow.
From one crisis to another.
The need for additional relief spending after the CARES Act was always a matter of “when,” not “if.” As American Enterprise Institute Resident Fellow Brent Orell and Research Analyst Matt Leger remind, “in a global pandemic that has affected economic activity the world over, severe economic pain was inevitable, government shutdown or not.” Smart spending that improves upon the CARES Act should be the first priority.
When all is said and done, however, America will be facing another crisis just as we weather the once-in-a-century pandemic; it will be long overdue to get our balance sheet back in order. Though it may be an even more daunting effort for lawmakers, action on this front will be necessary in shielding young Americans from a lifetime of world-historic crises.