“The scope and speed of this downturn are without modern precedent,” Federal Reserve Chair Jerome Powell said on Wednesday. “Additional fiscal support could be costly but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery.”
To understand why the U.S. needs additional fiscal support, let’s review where we stand on government assistance.
In March, the U.S. passed the CARES Act, which helped families and small businesses in a variety of ways. Most famous, perhaps, were the $1,200 checks for tens of millions of families. Unemployment Insurance got a $600-a-week bump. Congress also created the Paycheck Protection Program to accelerate the distribution of emergency cash to small and medium-size businesses.
While the CARES Act was an impressive start, and the largest stimulus or relief package ever signed in U.S. history, it wasn’t enough. The $600 benefit for unemployed workers will lapse on July 31. Thousands of small businesses failed to snag necessary funds in the early rounds of the PPP. And now state and local governments are facing a catastrophic loss of tax revenue from sales and income taxes, which could force them to fire hundreds of thousands of people and slash funding for health care in the middle of a pandemic.
Derek Thompson: The economy is ruined. It didn’t have to be this way.
Preventing another Great Depression requires more relief, spread in at least four directions. The ideas and price tags below are a result of interviews with sources on the Hill.
For families: With unemployment projected to scream past 20 percent, the federal government has to step in to replace a big chunk of private-sector income. That should include adding another direct payment to families in the $1,000 range, an extension of the $600 unemployment-insurance benefit, and measures for food and housing, such as rental and mortgage support for families who might otherwise face eviction. The ideal economic-relief bill should also include a “hiring bonus” for workers who go off jobless benefits, to accelerate the labor-market recovery. Total cost: $1.2 trillion.
For businesses: PPP loan forgiveness has not worked for many small companies. The leisure and hospitality industry—which includes restaurants, hotels, and theaters—has accounted for almost half of job losses during the crisis but has received only 10 percent of the total PPP money. The federal government should guarantee zero-interest loans to small businesses that they could pay back over many years. This would give firms free money today, while pushing their expenses into the post-pandemic future. Total cost: $600 billion.
For state and local governments: After the Great Recession ended, state and local government employment continued to decline, falling by about 500,000 jobs from 2009 to 2013. The pandemic has torched income and sales taxes, which has decimated state and local-government treasuries. An analysis by the Center on Budget and Policy Priorities estimates that state budget shortfalls in the next three years could approach $700 billion.