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Policy

The effectiveness of the late March 2.3 trillion dollar Coronavirus Aid, Relief, and Economic Security (CARES), Act remains hotly debated.  It is the most comprehensive act of government support since the depression, and its cost is similar to expenditures characterizing wartime.  Many critics feel it did not go far enough in helping individuals and it actually missed the mark for propping up the most vulnerable businesses. Although voted unanimously in the House, some Republicans criticized the bill for recalling controversial government programs of the New Deal era.  Politicians moved in favor of the bill with the realization that something needed to be done quickly to help the unemployed and affected businesses.

On the individual level measures were taken regarding compensation for lost wages that were more generous than in usual circumstances.  These allowed gig workers and self-employed persons, typically ineligible for unemployment insurance, to collect at least half of their states compensation and 16 weeks of an additional weekly benefit of $600 at federal expense. Other laid off, or furloughed, workers also are eligible for the additional federal employment monies.  For lower wage workers, this income would amount to full replacement value of wages.  Some gig and self-employed workers, however, were excluded from the payments and so have no income.

The CARES Act also provided for cash payments to households of up to $1200 for individuals and $500 dollar per child.  These payments were based on income reported to the IRS but also excluded some of the most needy who did not file income taxes in 2019.  An estimated 30 million seniors, disabled, and veterans did not file taxes and are ineligible for cash payments unless they file, and free tax preparation aid was temporarily discontinued so it will be difficult for many to do so.  Another estimated 92 million did not file with direct deposit and consequently will not receive payment for months.  Some workers received no aid, such as low paid workers in healthcare and delivery who retained essential employment, though a quarter of whom make less than the federal poverty level.  While these programs are a step in the right direction they are time limited, rather than based on the ability of a person to return to full employment.  Additionally, some criticized the failure to provide more help to higher paid unemployed workers.  These two programs account for 550 million dollars of the CARES budget.

Another 350 billion dollars was allotted to a small business loan/forgiveness program. This program has perhaps suffered the most criticism.  Small businesses account for 44% of the Gross Domestic Product (GDP) and 49% of the private sector.  The money ran out in days and favored larger companies leaving many businesses with unfunded applications. Many of the unsupported were businesses with women or minority owners or in rural areas.    In order to qualify for loan forgiveness, the company has to spend 75% of its loan on payroll per SBA orders but the CARES act did not have that provision.  This put owners in a quandary, if they used 75% for payroll they could qualify for loan forgiveness but they were likely to be delinquent on rent, utilities, or paying vendors.  The CARES act distribution lacked oversight, opting for spending in the “pubic interest,” and lacking in any guidelines for specific rules. A small business, defined as having less than 500 employees, often did not receive aid while large corporations such as Ruth’s Hospitality Group and Shake Shack did (Shake Shack eventually returned their loan money).  These companies had tens of millions of dollars in annual profits.  The Act was criticized for securing shareholders’ interests over the financial and physical well-being of labor.  These programs also ran out of money, in days, and there were no provisions for automatic extensions or continued aid.  A second round of small business loans was better at hitting small businesses and provided for smaller grants to more businesses.  In this round, 61% who applied received loans.

Analysis

Some of the programs in the CARES act certainly have made a positive initial impact both for businesses and individuals but each program is limited by money and/or time.  Consequently, the  economic despair, brought on by the pandemic,  will be long lasting. In early June new legislation expanded the initial CARES act for small businesses.  There are three new programs.  One is called the Economic Injury Disaster Loan Assistance (EIDL) which lends money to small businesses and nonprofits with low interest rates and no forgiveness.  Another offers an extended Payroll Protection Program which gives varying amounts depending on several factors and has a 1% interest rate. Under specific circumstances, these loans can be forgiven if the money is utilized within 24 weeks of the loan’s origination.  Finally, there is the Main Street Lending Program which has three different levels of support based on the size of the company that can be as large as 15,000 employees with as much as five billion dollars in revenue.  Eligible companies must be able to meet their obligations for 90 days without facing bankruptcy.  These programs will address some of the deficiencies in the original CARES program. However the Main Street Lending Program has no oversight, and concern has been expressed that funds will be used to reward political allies of the administration.

For direct assistance to the individual, beyond short term relief from student debt obligations and mortgage loan relief, there is not much.  (Healthcare provisions in the CARES act are not addressed in this article and also are short term).  If the country is to reaffirm its ideals regarding the quality of life, there will need to be some long term programs to change the safety net for individuals and households and a different approach to small businesses focused on the long term health of companies considering the new economic and social realities.

Learn More

https://www.cnbc.com/2020/05/09/coronavirus-ppp-may-have-left-minority-business-owners-behind.html

https://www.epi.org/blog/despite-some-good-provisions-the-cares-act-has-glaring-flaws-and-falls-short-of-fully-protecting-workers-during-the-coronavirus-crisis/

https://www.forbes.com/sites/kathrynjudge/2020/04/20/the-design-flaw-at-the-heart-of-the-cares-act/#752bef26bede

https://thehill.com/opinion/white-house/493458-where-the-cares-act-went-wrong

https://www.tapinto.net/sections/government/articles/exclusive-rep-tom-malinowski-disappointed-by-the-failure-of-the-cares-act-to-help-small-businesses-55

https://rsmus.com/economics/coronavirus-resource-center/cares-act-expands-access-to-loans-for-small-and-midsize-business.html

Resistance Resources

https://www.fhfa.gov/Homeownersbuyer/MortgageAssistance/Pages/Coronavirus-Assistance-Information.aspxC 

A government website with housing assistance information. 

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