Speaking on the Senate floor on Sunday, Chuck Schumer, the Minority Leader, said that the new COVID-19 spending bill that both parties have agreed on was “far from perfect, but it will deliver genuine relief to a nation in the throes of a genuine emergency.” Based on what we know so far about the package, which the House and Senate are expected to vote on Monday or Tuesday, that is a pretty fair description. The bill will extend the emergency relief for small businesses and the jobless which Congress approved in March, and also provide more money to states for distributing vaccines and reopening schools. That’s all to the good, but the bill also has some significant drawbacks.
Its best features are that it is large—roughly nine hundred billion dollars—and that most of the spending will be concentrated in the next few months, a period in which the majority of Americans still won’t have received a prick in the arm. With the relentless spread of the coronavirus prompting more restrictive measures, jobless claims are rising again, and many small businesses are facing existential challenges. Millions of renters and homeowners have fallen behind on their monthly payments. If Congress had done nothing, the country would have faced a humanitarian disaster as well as an economic one in the New Year.
The biggest item in the new package is about two hundred and eighty billion dollars to extend the Paycheck Protection Program, which pays small businesses to keep people employed. The next biggest article—at a cost of about a hundred and sixty-six billion dollars—is the direct payment of six hundred dollars to each American, with an earnings cap of seventy-five thousand dollars for individuals and a hundred and fifty thousand dollars for two-income families, after which the amount gradually phases out. A working family of four under the threshold will receive twenty-four hundred dollars, which won’t be taxable. Another hundred and twenty billion will go to extend and expand unemployment benefits, including those that the CARES Act provided to gig workers in March. This time, though, the extra weekly payment is three hundred dollars instead of six hundred.
Together, these three measures will account for more than two-thirds of the new funding. The rest of the money will go to other programs associated with fighting the virus. Eighty-two billion dollars will be directed at efforts to reopen schools; forty-five billion will go to the stricken transportation sector, with twenty-nine billion to distributing vaccines and another twenty-nine billion to testing and tracing. An additional sixty-five billion will be allocated to programs that provide nutrition, rental assistance, and child care for needy families.
As Schumer indicated, much of this money will end up in the hands of people who badly need it, which is obviously a good thing. By raising the over-all level of demand in the economy, the new bill should also drive consumer spending and help prevent a double-dip recession. In macroeconomic terms, the total amount of spending is hefty. At approximately four per cent of G.D.P., it’s about half the size of the CARES Act and roughly comparable, relative to the size of the economy, to the American Recovery and Reinvestment Act of 2009. If you add it to the measures that Congress took in March and April, the over-all fiscal response to the pandemic comes to more than fifteen per cent of G.D.P. That makes it the biggest peacetime spending blitz in U.S. history, which is perfectly appropriate. The pandemic is probably the biggest shock that the U.S. economy has received in peacetime. Large-scale disaster relief was essential, and interest rates are so low that the federal government hasn’t encountered any difficulty in financing it.
The weaknesses of the package are tied to the politics of getting a bill passed on a bitterly divided Capitol Hill. To keep the total cost of the package under a trillion dollars, which Senate Majority Leader Mitch McConnell demanded, unemployment benefits will only be extended for eleven weeks. That means the new Congress will have to address the issue again, in March. Economists will point out that some of the direct payments will go to people who don’ t need them, but progressive Democrats and Trump were both demanding their inclusion. The lack of direct budget aid to states and municipalities, which have seen their tax bases hammered, is another problem that will need to be addressed this spring. Because cities and states are on the front lines of confronting the virus, reopening schools, and organizing vaccinations, they will receive some financial aid for these particular tasks. But more help will be needed to prevent another big round of layoffs of teachers, maintenance workers, and other public-sector employees as states try to balance their budgets.
Another problem with the package—which also applied to the CARES Act—is that it is heavily centered on the Paycheck Protection Program. In other developed countries, governments chose to address the pandemic by directly covering much or all of the payroll costs for businesses in badly affected sectors. The Paycheck Protection Program is a government loan program that operates through banks. As of August, the program had handed out more than five million loans, which in most cases don’t have to be repaid. But many small-business owners have complained that they had difficulty in accessing the money. Despite the program’s small-business targets, some of the firms that received loans turned out to be very large ones, and others were associated with elected officials and members of the Trump Administration, including Donald Trump and Jared Kushner.
According to initial reports, the new spending bill accentuates this inequity by introducing a big tax break for wealthy owners of businesses that previously received money under the program. Even though the government covered most of the costs that these business owners faced as a result of the pandemic, they will still be able to deduct some of those costs from their taxes, which means that the taxpayer will effectively pay them—twice. Even Treasury Secretary Steven Mnuchin has said that this would be a bad idea, and Adam Looney, a senior fellow at the Brookings Institution, has warned that it could deliver a windfall of a hundred and twenty billion dollars in tax savings to members of the top one per cent. But a version of this giveaway still made it into the final bill.
A final problem with the bill is that it only extends the federal moratorium on evictions through the end of January, leaving the onus on the Biden Administration to take further action. This and other clauses of the bill seem to have been designed to win the votes of senators, particularly Republicans, who are beholden to wealthy campaign donors—an all too familiar problem. In the final analysis, though, the new spending package should help keep the economy afloat until vaccinations are widely available. Its finalization was necessary and welcome.
