The eight-hundred-and-eighty-page Coronavirus Aid, Relief, and Economic Security Act, which the U.S. Senate passed last night by ninety-six votes to zero, amounts to the biggest fiscal stimulus in American history. It is designed to provide a total spending boost of about two trillion dollars, which is roughly nine per cent of the gross domestic product. As a comparison, the Obama stimulus package that was passed in 2009 was about 4.5 per cent of G.D.P., or half as big. But that spending package was spread out over two years. This stimulus is designed to go into effect straight away, and almost all the money would be doled out in the next few months.
The package, which the House of Representatives will vote on Friday, consists of five major measures: cash payments of up to twelve hundred dollars for almost all Americans; an expansion of the unemployment-insurance system that would raise benefits and enable gig workers as well as regular employees to receive them; a three-hundred-and-sixty-billion-dollar assistance program for small businesses; a five-hundred-billion-dollar bailout fund for big businesses; plus hundreds of billions of dollars in emergency funding for states, hospitals, and other medical providers.
The best aspects of the stimulus are its over-all scale and the fact that it contains a lot more money for displaced workers than the bill that Mitch McConnell, the Senate Majority Leader, proposed a week ago. At that stage, Congress was discussing a package of up to a trillion dollars. The doubling in size reflects the widening shutdown of the economy, which some experts think could cause the G.D.P. to contract at an annual rate of thirty per cent in the second quarter of this year and raise unemployment to double digits by May or June.
Even during the Great Depression, the U.S. economy didn’t experience such an extreme stop. Economists of all political persuasions agree that drastic action was essential. “The bill isn’t perfect, but it is evidence that Congress has finally grasped the urgency of the economic moment, particularly as regards to households without income and businesses without revenues,” Jared Bernstein, a Washington economist who served as an economic adviser to Vice-President Joe Biden during the Obama Administration, told me, as the Senate was preparing to vote on Wednesday.
Thanks to pressure from Democrats, a central element of the bill is a big expansion of unemployment insurance, which will allow many people who have lost their jobs to receive weekly or bi-weekly payments of close to a hundred per cent of their prior earnings for the next four months. Previously, the “replacement rate” was typically about fifty per cent. The other important change is that, for the first time, gig workers who are classed as self-employed will be able to apply for unemployment benefits. This is an essential move to fill a major gap in the economic safety net. It isn’t yet clear, though, precisely which gig workers will qualify for benefits and what hurdles they will have to jump over. Obviously, these are important details.
The cash payment of up to twelve hundred dollars will also help people adversely affected by the virus. In the original Republican bill, these payments would have been regressive—low-income people would have received less. That lamentable inequity has been eliminated, but there is still another troubling aspect to this part of the bill, which Bernstein pointed out to me. To be eligible to receive the cash payments, you have to be a Social Security recipient or someone who has filed federal tax returns in recent years. About seven million low-income households don’t fall into either of these categories. Before they can obtain their payments of twelve hundred dollars, members of these households will have to file a tax return. In most cases, that can be done online, but it can be a challenging process that requires a lot of time and effort.
Other disappointments in the bill are the pitiful amounts of financial support it allocates to front-line states like New York—“a drop in the bucket,” is how Bernstein described them—and its failure to lengthen mandatory paid sick leave beyond two weeks, which means that people who are still suffering from the coronavirus could have an incentive to return to work.
These were two of the “holes” in McConnell’s bill that Gene Sperling, the director of the White House National Economic Council under both Bill Clinton and Barack Obama, identified to me last week. When I got in touch with Sperling again on Wednesday evening, he lamented the failure to address these issues, but he also pointed to some of the things that had been done, such as raising the level of unemployment benefits, helping gig workers, and providing more financial aid to hospitals. “It provides hundreds and hundreds of billions of dollars more to working families and the people most in need,” he said. “Is it perfect? No. But Democrats control only one of the three branches of government, and I give them a lot of credit.”
Sperling told me, however, that there are other aspects of the bill that raise concerns, including how the changes to the unemployment-insurance system and the assistance package for small businesses will be implemented. Under the bill, any small businesses that have been adversely affected by the shutdowns will be able to apply to the Small Business Administration for an emergency loan, which could be forgiven when the crisis ends if it keeps most of its workers on its payroll. But the S.B.A. is a small agency, and it’s far from clear that it will be able to deal with millions of loan applications in a timely fashion. “We have to hope against hope that this Administration takes execution and implementation more seriously and shows dramatically more competence than it did on testing, and ventilators, and masks,” Sperling said. “If this becomes the same type of nightmare—in providing things like the small-business aid and the expanded unemployment assistance—then a lot of people are going to suffer.”
The ugliest provisions of the bill relate to corporate bailouts, which will likely be numerous and large. Given the scale of the shock to the economy, there is a strong argument for providing some assistance to corporations that have seen their revenues collapse through no fault of their own. The challenge is to safeguard the interests of taxpayers and make sure that financial aid is confined to the truly needy. The bill goes some way in this direction, but nowhere near far enough.
On the plus side, it would force corporations that obtain emergency loans from the federal government to forgo dividends and stock buybacks and limit the compensation of their senior executives. But the bill also contains a clause that allows Steve Mnuchin, the Treasury Secretary, to waive these requirements if he deems it “necessary to protect the interests of the Federal Government.” And there is a separate provision of the bill that appears to have been specifically designed to help Boeing, a highly profitable company that brought its financial troubles on itself by building an unsafe airplane, the Boeing 737 Max.
In another disappointment, the authors of the bill ignored calls for the government to give the taxpayers an equity stake in the companies they rescue, which is what the Reconstruction Finance Corporation did during the Great Depression. The bailouts will be provided in the form of loans rather than stock, and many of these loans will be provided through the Federal Reserve. Supposedly, there will be real-time oversight from an independent board and an Inspector General. But it’s far from clear how this will work in practice.
At the insistence of the Democratic leadership, the bill does include a clause barring the government from providing bailouts to companies controlled by the President, the Vice-President, Cabinet members, or members of Congress. That sounds reassuring. However, a New York Times article on Wednesday pointed out that Donald Trump’s businesses might still qualify for assistance through parts of the bill designed to help small businesses, such as family-run restaurants and hotels.
Another potentially alarming possibility is that big companies that are registered overseas for tax reasons, such as cruise lines, could apply for a bailout for their U.S. subsidiaries. A draft of the bill that Seth Hanlon, a tax specialist at the Center for American Progress, posted online, said a company can only get assistance if it was “created or organized” in the United States and has “significant operations in and a majority of its employees based in the United States.” As an example, that seems to rule out giving any assistance to Carnival Corporation, the parent company of Carnival Cruise Line, which has escaped U.S. taxes by incorporating in Panama. But what about Carnival Cruises Line, itself, which is a U.S. subsidiary based in Miami? Some tax experts say there is a loophole that companies like it could exploit.
A final question relates to the size of the stimulus. Even if it gets administered properly, will it be sufficient to save the economy? Despite the bounce in the stock market, many economists are skeptical. Ian Shepherdson, of Pantheon Macroeconomics, described the bill to me as “a great start rather than a complete job.” Shepherdson thinks the effects of the coronavirus shutdown are so severe it would take about a trillion dollars a month in stimulus spending to offset them, which suggests additional measures could be needed as early as June. Bernstein agrees that Congress will have to take more action. “I strongly believe there will be other trips to the stimulus well,” he said.
