Another $500 Billion in Coronavirus Relief?

Plus: The deficit fights ahead

Congress Eyes Another $500 Billion in Coronavirus Relief

Lawmakers are reportedly closing in on a deal to replenish the $350 billion program designed to assist small businesses reeling from the coronavirus pandemic.

The Paycheck Protection Program, created with the goal of keeping workers on payrolls by providing loans and grants to businesses with fewer than 500 employees, ran through all of its funding in less than two weeks, leaving millions of small business owners wondering if they would be left out in the cold.

In a bipartisan compromise, Republicans signaled they would support a bill that includes funding for programs in addition to the Paycheck Protection Program. Democrats, who have pushed for a more comprehensive package, said they would accept a smaller number of additional provisions, including billions more for hospitals and new money to support testing.

The package could be worth between $470 billion and $500 billion, including:

  • $310 billion for the Paycheck Protection Program, with $60 billion of that set aside for rural and minority areas;
  • $60 billion for the Economic Injury Disaster Loan program, which also focuses on small businesses;
  • $75 billion for hospitals;
  • $25 billion for testing.

Democrats have reportedly agreed to push other elements they were seeking — most notably, aid for state and local governments — to a separate relief package to be negotiated later.

Final sticking points? Although a deal is reportedly close, funding to boost testing for the coronavirus has emerged as a last-minute sticking point in the negotiations, Erica Werner of The Washington Post reported Monday. Democrats are pushing for free testing for all Americans, Werner said, but Republicans want more emphasis on state responsibility. And Bloomberg News reports that the two parties still disagree over the formula to distribute health-care aid to the states.

The deal was not completed in time for a brief pro forma Senate session Monday, but the upper chamber has scheduled another meeting on Tuesday in anticipation of a vote. House Majority Leader Steny Hoyer said the lower chamber would meet as soon as Wednesday to consider the emergency bill.

Questions about the program: Reports that some large businesses have benefited from the small business program raised questions about the design and fairness of the plan. The legislation allows chains and franchises to count each location as a separate business, enabling some large, publicly traded companies — including Shake Shack, Potbelly and Ruth’s Chris Steak House — to receive millions in aid, even as small mom-and-pop stores have been shut out. (Following an uproar on social media over the issue, Shake Shack founder Danny Meyer said late Sunday that the company would return the $10 million it received.)

“I am concerned that many businesses with thousands of employees have found loopholes to qualify for these loans meant for small businesses,” Republican Sen. Rick Scott of Florida said Monday. “Unfortunately, when it comes to the PPP, millions of dollars are being wasted.” Scott also called for a change in the rules to include a requirement that small businesses show “substantial reduction in revenue” related to the coronavirus before being approved to receive aid.

A record level of support: “If the changes are signed into law this week, Congress would have approved more than $700 billion in emergency assistance for small businesses alone in just one month,” said Jeff Stein of The Washington Post. “That would be more than the entire $700 billion in bailout money approved during the 2008 financial crisis.”

Essay of the Day

“In the U.S., we don’t even have the ability to get federal bailout money to the people and businesses that need it. Tens of millions of laid off workers and their families, and many millions of small businesses, are in serious trouble *right now*, and we have no direct method to transfer them money without potentially disastrous delays. A government that collects money from all its citizens and businesses each year has never built a system to distribute money to us when it’s needed most.

“Why do we not have these things? Medical equipment and financial conduits involve no rocket science whatsoever. At least therapies and vaccines are hard! Making masks and transferring money are not hard. We could have these things but we chose not to — specifically we chose not to have the mechanisms, the factories, the systems to make these things. We chose not to *build*.”

– Tech entrepreneur and investor Marc Andreesen, writing about the disorganized response to the coronavirus crisis. CNBC editor Matt Rosoff provided a response to Andreesen’s analysis that’s worth a read, outlining some of the reasons American institutions have had so much trouble preparing for and responding to the pandemic.

The Deficit Fights Ahead

As Congress works to add hundreds of billions of dollars more in coronavirus relief funding, it’s clear that the federal budget deficit and national debt are soaring to levels never seen before. The deficit, which was expected to top $1 trillion even before the pandemic struck, is now projected to approach $4 trillion this fiscal year, far exceeding the previous nominal high of $1.4 trillion in 2009. As a share of the economy, the deficit is likely to rise to nearly 20%, a figure topped only during World War II, and debt held by the public is now expected to top 106% by 2023, years earlier than previously projected.

Even the most dedicated of deficit hawks say that the unprecedented deficit spending is necessary and that protecting lives and mitigating economic devastation in the midst of the pandemic should take precedence over long-term debt concerns. But as The Washington Post’s David J. Lynch and Carl Hulse of The New York Times wrote over the weekend, some analysts are warning that, as the sea of red ink rises to historic levels, a reckoning lies ahead.

“We should be very worried,” Atif Mian, an economics professor at Princeton University, told the Post. “We are talking about a level of debt that would certainly be unprecedented in modern history or in history, period. We are definitely at a tipping point.”

There’s scant evidence that debt concerns are currently weighing on markets or further depressing what’s left of the pandemic-plagued economy. Interest rates remain at historic lows, making borrowing more affordable, and most economists expect them to stay low for years. But Torsten Slok, the chief economist at Deutsche Bank Securities, tells the Post that interest rates are being kept low by the Federal Reserve’s emergency bond-buying, which has seen the central bank add more than $2 trillion of loans to its books over the past six weeks — as much as in the four years following the Great Recession, according to the Post.

Some analysts warn that the massive amounts of debt being added will present new challenges for the Fed and Treasury while also threatening to weaken future growth and leave the country less prepared to make much-needed investments or address the next crisis. “Once we get beyond this disaster, some very hard choices will have to be made, or you will have a federal government that is simply crippled in terms of being able to respond to crisis — whether it is a coronavirus or a natural disaster or a military conflict or economic downturn,” Kent Conrad, the former Democratic chairman of the Senate Budget Committee, told the Times.

Others say that the debt fears are overblown. “The point at which the size of the U.S. debt is too great for the market to take on is eons away,” Guy Lebas, the chief fixed-income strategist with Janney Montgomery Scott, told the Post. “If anything, the covid crisis has increased global demand for U.S. debt.”

The fiscal fights ahead: The debt surge may dramatically diminish the political appetite for new debt — and it’s almost certain to spark even more heated battles in Congress over the appropriate levels of taxes and spending. “It is going to make budgeting in the future extraordinarily difficult,” Conrad said.

Those deficit fights, fundamentally, will be much like the ones that have come before, with Republicans ideologically opposed to tax increases and Democrats pushing to maintain spending on key priorities. As Hulse writes:

“The pandemic response will amplify the push and pull that has long shaped the fiscal wars, between those who argue that the answer to deficits is to reduce spending and those insisting that the solution is new revenue streams. Complicating the situation, each side will suspect the other is using the crisis to advance their own policy agendas, as either an excuse to raise taxes or a justification to squeeze spending on programs they already didn’t like.”

Read more at The Washington Post or The New York Times.

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