Congress has approved a 2 trillion dollar emergency relief bill, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, and sent it to the White House, where it is expected to be promptly signed by President Trump.
The bill includes hundreds of billions of dollars in federal help for corporations, more than $350 billion for small businesses, and new funding for many major hospitals that believe they are on the brink of being overwhelmed by patients sickened by COVID-19.
The cornerstone of the bill is a one-time $1,200 check for an individual making up to $75,000 per year or $2,400 for couples earning less than $150,000, plus an additional $500 per child. After that, it will be scaled down until it reaches a $99,000 income threshold for an individual or $198,000 for a couple and then phased out altogether.
The bill provides four months of bolstered unemployment benefits as Congress braces for a spike in jobless claims, with the spread of the coronavirus curtailing businesses or closing them altogether. As part of the bipartisan package, the maximum unemployment benefit would be increased by $600. It also expands eligibility for unemployment benefits to gig workers.
The Senate legislation underwrites hundreds of billions of dollars in loans as federal incentives to avert massive layoffs. Small and medium businesses with fewer than 500 workers will be able to apply for government-backed, forgivable loans to cover the costs of their workers’ wages, as well as some other business expenses such as rent, up to a maximum of $10 million. If companies lay off workers, however, parts of the loan will not be forgiven. And to keep people on the payroll, eligible businesses — either those forced to close because of the virus or that faced a sharp drop in business — will get a tax credit for not firing employees. The incentive, a 50 percent credit on wages up to $10,000 per employee, would be fully refundable against a company’s share of payroll taxes.
Additionally, one of the most significant ways to help businesses is with the five-year net operating loss carryback for tax years 2018, 1019, and 2020. This means companies can seek a refund of taxes paid in a prior year based on losses in the current year. Considering the number of losses that might reasonably be expected in this year, companies could wipe out much of their prior-year tax liability.
The legislation also pushes off tax day from April 15 to July 15, but the government is encouraging folks to file early if they are going to get a refund. It should also be noted that many things don’t qualify for the extension – like estate taxes, excise taxes, plus those partnership returns that were due last week.
This third phase response by the government amounts to 10 percent of America’s total economic output for an entire year. Even so, many worry that it may not be enough because of the impact of halting economies around the world will likely have unknown and far-reaching consequences. And while people want to call these early bills by the federal government “stimulus bills,” they are really disaster relief bills. When you try and stimulate the economy, you want to push money into the hands of consumers quickly, so they return to spending. However, there is no way to stimulate an economy that’s still in lock down.
So while the majority of the money in this bill is going to laid-off workers, small business owners, hospitals, and state and local governments, the bad news is many don’t believe it will be enough to stop a recession.
Of course, this is one of the reasons President Trump is so keen on trying to get the country to move quickly from lock down to back to “normal.” To do this, the administration is working on a plan as testing ramps up to classify different counties by their risk for contracting the COVID-19 virus, and if risks are low to open those counties up. The hope being a vast majority of states can get back to their daily routines and work. In areas where there are still large cases of spreading, the lock down would continue. Since there were no structural reasons for the economy faltering prior to the pandemic, the hope is that the economy can quickly rebound.
The Labor Department said this week that 3.3 million Americans applied for unemployment benefits last week, the biggest jump in new jobless claims in history, surpassing the record of 695,000 set in 1982. Although no official figures exist yet the unemployment rate has likely jumped to at least 5.5 percent, up from 3.5 percent in February. James Bullard, president of the Federal Reserve Bank of St. Louis, has warned that nearly a third of U.S. workers, or 46 million people, could be unemployed in the short term, which would nearly double what the country experienced during the Great Depression.
This is why many believe Congress isn’t done passing stimulus bills, and we expect them to return to approve at least one more package to stabilize and jumpstart the economy. And this is where the parties will most definitely clash. It’s clear the Republicans are more interested in using the tax code to assist businesses and individuals, such as a payroll tax cut. They may also reach beyond traditional stimulus ideas and move to more partisan ideas like the House of Representatives attempted to do in the package that just passed. They added a multitude of items to their wish list that had nothing to do with the goal of the CARES Act, such as many Green New Deal provisions.
Which also gives us insight into what the Democrats will ask for in the next package. House Speaker Nancy Pelosi (D-CA) already laid out House Democrats’ priorities for a Phase 4 package. At the top of their list is investment in
Infrastructure, which they would like to tie back to the Green New Deal priorities. Additional they’ll seek expanded family and medical leave, health worker and pension protections, Supplemental Nutrition Assistance Program (SNAP) benefits, state and local government funding, free coronavirus testing and care, equitable funding for residents of the District of Columbia, and higher amounts of direct payments to Americans.
And we know that the industries that were left out of any specific help from the government in this package will be eyeing up how to get into the next package. Several sectors are beginning to advocate for loans, grants, and other financing to help sustain them during the economic downturn, including the manufacturing, retail, transportation, and tourism industries. It’s clear that the economic picture in the coming months will dictate what happens next!
Stay healthy and let us know if we can answer any of your questions!
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