The Time Has Come To Buy More Time
In late March, as the coronavirus was starting to spread rapidly through the northeast and two or three other hot spots, the Congress enacted the CARES Act, appropriating $2.2 trillion to help keep the nation’s economy afloat as it curtailed all non-essential business activities in an effort to stem the spread of the virus. At the time, the Trump administration was being guided by epidemiological projections which reflected that if those restrictions were kept in place during the months of April and May, the nation’s death toll could be limited to somewhere between 60,000 and 90,000. Thus, the monies so appropriated were calculated to keep the economy going for roughly three months, figuring that it would take another 30 days for the economy to recover after it had been awakened from this self-induced coma. Because the nation had found itself largely unprepared for the pandemic, this same period would be used (a) to replenish the nation’s supply of ventilators, face masks and other forms of personal protective equipment, (b) to create testing kits to detect the virus and ramp-up test processing facilities and (c) to assemble and train contact tracing teams.
Although the plan was well-conceived, its execution was not. That was because the President was never really convinced that the pandemic wouldn’t go away on its own, like a stray cat, if we just ignored it. He, therefore, looked upon the task of preparing for life after the lockdown as more of a public relations effort than one of preparing for combat with a dangerous enemy. In addition, he grew impatient with the idea of waiting until the end of May to begin the process of restarting the nation’s economy. As a result, he put pressure on the nation’s governors to lift their restrictions on business activity at the beginning of May, long before the spread of the virus had been contained. This triggered a resurgence of the virus which is now generating twice the number of new cases each day than it did at its initial peak in mid-April.
There are now two time-clocks winding down. The first one is the approaching expiration of three programs embodied in the CARES Act designed to assist working families. These programs include (1) a Direct Payment Program under which working class families received two monthly payments of up to roughly $3,000 each (depending on the size of the family), (2) an unemployment supplemental benefit of $600 per week, and (3) the Paycheck Protection Program under which small businesses were provided funds which they were encouraged to use to continue to compensate their furloughed employees. The second time clock is running in the other direction and measures the time when the rising surge in virus cases is likely to cause a number of states (including the nation’s three most populous states—California, Texas and Florida) to again start closing down their economies in order to save their healthcare systems which are currently on the verge of being overwhelmed with COVID-19 patients.
This coming crisis was clearly foreseeable by early-May when approximately 30 states opted to reopen their economies before they had even come close to containing the spread of the virus. Congressional Democrats, realizing that the federal funding provided by the CARES Act would be exhausted by mid-summer and that the virus would likely be resurging at that time, adopted their HEROES Act, a $3.3 trillion veritable Christmas tree of goodies not only providing for further economic relief for wage earners, additional monies for state and local governments and hazard pay for healthcare workers, but also a few benefits which seemed unrelated to the pandemic, such as student loan forgiveness and debt relief provisions. Not surprisingly, it was declared “dead on arrival” by the White House and premature for consideration by Senate Majority Leader McConnell. More specifically, McConnell stated that he was not going to even consider additional governmental assistance until the Senate reconvened during the third week in July which has now arrived.
Unlike our President, the Senate Majority Leader thinks ahead and carefully calculates his every move. Therefore, there can be little doubt that he realized that there was little to be gained by agreeing on additional appropriations before the current ones expire. That would have only given the Democrats time to mount a public relations campaign revealing the inadequacies of any proposal he might make. He must have also realized that his bargaining power would likely increase as the deadline for enacting that additional economic aid approached. That’s because Democrats tend to be disorganized (fourteen of them did not even vote in favor of the HEROES Act) and there was no reason to give them additional time in which to adopt a unified position. Democrats also suffer from a compulsion to extend a helping hand to those in need (a gene that seems absent from the Majority Leader’s DNA). With those thoughts in mind, he has said nothing about the parameters of any legislation his caucus would be willing to support. In fact, he is currently in discussions with the White House trying to formulate a proposal which would be acceptable to both the President and his caucus. Even so, Senator McConnell recognizes that additional support for the economy is vital to any chance of getting the economy moving sufficiently to enable the President to win re-election and Senate Republicans to hold onto their seats.
Thus, the first issue that must now be decided is how much money will be needed to keep the economy from tanking before the elections. I’m sure Senator McConnell is thinking that there is no reason to look beyond the election. If the President is re-elected, Senate Republicans can always revisit the issue at that point and the bleeding-heart Democrats will eagerly support legislation providing additional economic assistance for working Americans. On the other hand, if the Democrats win, then taking care of the nation’s economy will be their problem; and he and his caucus can sit on the sidelines and complain how wasteful the Democrats are with taxpayer money.
There are clearly significant problems in trying to compute how much money will be needed. According to a leaked CDC report, there are now eighteen states in the “red zone” which means that they need to take bold steps to reverse the spread of the virus. This means that their efforts to reopen their economies will either have to be delayed or even rolled back, causing unemployment to remain at a high level perhaps well into the Fall. An even greater challenge is posed by the formidable task of reopening the nation’s schools.
The President, being a man who wants what he wants when he wants it, is eager to have schools reopen “on time” (presumably during the first week in September) and children in their classrooms. There are a number of good reasons for doing this. First, it is important for the children to resume their education which was interrupted in the spring when the school year was truncated by the onset of the pandemic. Second, many school children attending Title I schools depend on their schools for two of their three daily meals. There is also the issue that when schools are closed, their parents have to make arrangements for someone to supervise them during the day; and daycare facilities simply cannot handle the number of children who will require their services if schools remain closed. The children’s parent also need the schools to be open so they will be free to return to their jobs. Despite Republican contentions that worker receiving unemployment benefits have no incentive to return to their jobs, the vast majority of Americans would greatly prefer having a steady paycheck from their employers rather than having to depend upon funding decisions made by a perfidious U.S. Congress.
Not all of the relevant issues militate in favor of reopening the schools. There is a major safety issue, especially in those states (roughly 45 of them) that have not brought the virus under control. Thus, having children back in their classrooms could trigger further resurgences of the virus. While there is some evidence that children are not prone to being affected by the virus, they will certainly carry it home from their schools to their parents and grandparents, and that will be just as bad. There is also the problem that teachers and support personnel working at the schools will likely contract the virus unless sound efforts are made to inhibit the spread of the virus through the schools. This not only means that plans have to be formulated to operate the schools in a safe manner, but it may also require that physical facilities be expanded or modified and that school staffs be enlarged. Thus, in addition to allocating money to support the families of those whose jobs will continue to be unavailable during the period the virus is being brought under control, the new appropriation will have to provide monies to prepare the schools to resume activity. The very fact that the Senate Majority Leader chose to defer considering the need for additional funding might signal that he is not inclined to have the federal government help local school districts prepare themselves to better cope with the virus. If he had been so inclined, he would have wanted schools to get that funding as early as possible so they would be in a position to start classes at the beginning of the school year which is now just six weeks away.
Clearly at the top of the Senate Majority Leader’s priority list is to keep the nation’s economy from going into a tail-spin. This essentially means putting dollars into the hand of working families so they can go on with their lives and keep the economy moving, even if at a reduced pace. Naturally, there are major differences of opinions as to whom the monies should be given. It seems likely that one component will consist of cash distributions similar to those doled out in the Spring to individuals and households earning less than $75,000 and $150,000, respectively. A second component might be an extension of the $600/week supplemental unemployment benefits through the end of January. The Republicans have been reported to want to reduce the amount of that supplement to somewhere between $200 and $400 so as to avoid providing unemployed persons more than they had previously been earning. Even if the parties can agree on the size of weekly supplemental unemployment benefits, It also seems unlikely that the Republicans will agree to extend those benefits beyond Thanksgiving.
The Republicans will undoubtedly want to provide additional financial assistance to businesses. This could be in the form of an increase to the Paycheck Protection Program even though approximately $100 billion remains unused in that program. That program is also problematic in the sense that the low interest loans which it provides are subject to forgiveness under certain circumstances and the government does not have the resources to police whether the requisite conditions for forgiveness are actually met. Thus, in reality, a large percentage of those loans may simply turn into grants to business owners and may never be used to assure the continuing employment of their workers.
The President has stated that he would like this financial assistance package to include a payroll tax reduction. Aside from the President’s enchantment with tax incentives, it isn’t clear what the President has in mind. Payroll taxes consist of monies paid by business entities, half of which are paid by the business and the remaining half are taken out of the paychecks of the business’ employees. The portion of payroll taxes taken out of an employee’s wages get credited against the employee’s annual income tax liability. Thus, if the payroll tax is not collected, the only benefit an employee will receive is that his/her taxes will not be paid on a weekly basis, but will still be due at the end of the year. On the other hand, businesses will be relieved of having to pay their portion of the payroll taxes; and that savings will be added to their profits at the end of the year, but will be reduced by any corporate income tax due on those savings. The bottom line is that a payroll tax reduction simple seems to be a business tax reduction under the guise of a benefit for the business’ employees.
To be sure, there will be many businesses that will simply not be able to survive this pandemic. They include restaurants that cannot generate a profit serving a smaller number of patrons and movie theatres which have essentially lost their viewing audiences to home video systems. There will also be many businesses that will need to seek the protection of the nation’s bankruptcy laws, such as retail stores, oil and gas extraction companies with high cost structures, building owners that are losing tenants and air lines and cruise ship operators that will not be able to utilize much of their equipment. It is not clear what help, if any, the federal government can, or even, should provide to these entities.
High on the Democrats’ agenda is additional financial support for state and local governments that have incurred extraordinary costs as a result of their efforts to combat the pandemic while at the same time having their tax revenues diminished as economic activity has declined. Virtually all states are prohibited from running budgetary deficits and are already being forced to cut essential services. Over the Spring, Republicans opposed calls to provide additional aid to state and local governments as a way to force states to proceed with their efforts to restart their economies. At this point, a continuation of that opposition would likely prove to not only be counter-productive, but could cause such a great amount of distress that it would outweigh any political gain from a recovering economy.
Also high on the Democrats’ agenda is financial assistance for hospitals and their employees that have been shouldering the brunt of the hardships (economic, emotional and physical) caused by the pandemic. While Republican legislators are usually quick to offer praise to the nation’s first responders, it remains to be seen whether they will be as quick to offer financial assistance to those who have already provided extraordinary service in defense of their nation and are going to have to continue their efforts for many months to come.
It has been reported that Senate Republicans share Democrats’ eagerness to provide additional funds for virus testing kits and processing facilities, but have run into opposition from the White House which believes the revelation of additional virus cases as a result of continued testing makes the President look bad.
The CARES Act provided for a federal moratorium on evictions which is scheduled to expire at the end of this month. In their HEROES Act, Congressional Democrats provided for an extension of this provision. This may not be acceptable to Senate Republicans unless a means can be devised to protect real estate owners for their lost revenues.
Perhaps the most contentious issue will be the Republicans’ insistence upon providing businesses with liability protection from claims brought by employees and customers who contract the virus while in their premises. Democrats oppose indemnity proposals because they tend to remove all incentive for businesses to undertake measures that will protect their employees and customers. Their view is that businesses should be mandated to take reasonable measures (as may be devised by OSHA and the DOL) to provide those protections and insist that this will actually prevent such claims by eliminating the illnesses that give rise to them. In addition, a business that takes reasonable precautions to protect its employees would be well positioned to successfully defend any such claims.
Another highly contentious issue will be obtaining accountability for how the funds that are being appropriated are dispensed. On this issue, the legislators of both parties seem to be in agreement; however, the White House strongly opposes legislative oversight of its actions. When the CARES Act was being negotiated, it was Senate Republicans that insisted on creating oversight mechanisms that were included in the Act, presumably with White House approval. However, when the President signed the CARES Act into law, he also issued a signing statement announcing that no member of the Executive Branch would be reporting to the Congress on the actions of those dispensing the appropriated monies. In this type of stand-off, it is usually the least responsible party that prevails. Therefore, my guess is that both sides will hold firm and that the White House will prevail as neither party will be eager to fight this battle in the courts.
In the center of this debate will be Mitch McConnell who is trapped between the Democrats and a White House that is threatening vetoes unless the legislation provides for payroll tax cuts and requires schools to be reopened. To make his job even harder, his own caucus is not particularly united as many of its members have a phobia against increasing the national debt, especially an increase of at least $1 trillion on top of the roughly $3 trillion that has been chalked up during the first half of this year. Thus, the Majority Leader is likely to need the votes of Democrats just to get legislation passed in the Senate.
While I thoroughly expect that Congress will ultimately appropriate additional monies to keep the nation’s economy moving forward, that will only come just prior to the Senate next recess which is scheduled to begin in the second week of August. This will already be too late to prevent a substantial amount of suffering, particularly among the nation’s most vulnerable. Unfortunately, that’s the way our government operates. What may prove to be even more problematic is whether our federal and state governments will use wisely the additional time to fight the spread of the virus facilitated by these expenditures. On that question, I am less optimistic.
I welcome your feedback.