Protests, Pandemic and Looming $1 Trillion Decision

By Yuval Rosenberg

Amid Protests and Pandemic, Congress Faces a $1
Trillion Fiscal Cliff

The nation is being rocked by protests, grappling with
endemic racial injustice and still struggling to cope with the
ongoing coronavirus pandemic and its fallout. As disturbingly
turbulent as the situation is, The Washington Post’s Jeff Stein and
Erica Werner warn that the toxic stew of troubles now boiling over
in city after city could be further catalyzed by a looming “fiscal
cliff” that threatens to abruptly withdraw $1 trillion in emergency
economic support provided by Congress to millions of Americans — or
by the political battles surrounding the costly choices lawmakers
face.

At the very least, the protests — and the political
clashes they have sparked between the White House and Congress —
could make it harder to avoid the fiscal cliff and address the
difficult decisions it will force:

“Policymakers must decide in the coming weeks whether to
extend emergency unemployment benefits for more than 25 million
Americans. They face growing calls to provide billions of dollars
in assistance for states and cities, even as President Trump
increasingly feuds with governors and mayors. If lawmakers do not
act, about $1 trillion in emergency federal aid used to stabilize
the economy will disappear in the next quarter.”

Stein and Werner report that the federal government has pumped
about $1.2 trillion into the economy since April, but that could
fall to about $200 billion over the third quarter of the year,
according to Michael Feroli, chief U.S. economist at JP Morgan.
“The expiring aid risks creating a ‘fiscal cliff’ that, if not
addressed by lawmakers, could arrest or reverse a rebound,
economists say. White House officials and several Republicans have
resisted pressure to approve more spending, but they are at odds
over how to proceed, and the path forward is unclear,” Stein and
Werner write.

Calls for more congressional action: “The violence, the
anxiety that is taking place — we are naive if we think that it’s
separable from the economic calamity we are in,” Darrick Hamilton,
an economist and the executive director of the Kirwan Institute for
the Study of Race and Ethnicity at Ohio State University, tells the
Post. “Congress needs to do something to mitigate this pain — and
at the very least not make it worse.”

Business groups also say Congress must act. “It’s important that
Congress acted to support families and businesses as the economy
came to a halt,” Neil Bradley, executive vice president of the U.S.
Chamber of Commerce, says. “They can’t now leave it where they
found it. They had to do step 1, that was critically important.
They now need to do step 2 because that’s equally as important ...
they can’t leave it where the bottom is, that’s not acceptable to
anyone.”


Read the full story at The Washington Post.

A Third of Unemployment Benefits Haven’t Been Paid Out:
Report

The U.S. Treasury paid out $146 billion in jobless
benefits in the three months ending in May as tens of millions of
Americans lost their jobs due to the coronavirus pandemic. Although
the number is massive — larger than all of the unemployment
benefits provided during the depths of the Great Recession in 2009
— it’s smaller than it should have been, according to a new
analysis by Bloomberg News.

Crunching the numbers on weekly unemployment filings and
average claim size, Bloomberg found that total jobless benefits
should have come to roughly $214 billion during that
time.

“The estimated gap of some $67 billion shows how emergency
efforts to boost payments, and deliver them via creaking
state-level systems, are lagging the needs of a jobs crisis that’s
seen more than 40 million people file for unemployment as the
economy shut down,” Bloomberg’s Shawn Donnan and Catarina Saraiva

wrote Tuesday.

A tough calculation: Although it’s hard to put a precise
number on the shortfall — the Labor Department pushed back against
the method used by Bloomberg to develop its estimate — there is
general agreement that there are many people who still haven’t
received the unemployment assistance they are entitled to. “There’s
a lot more money that should have gone out that has not gone out,”
said Jay Shambaugh, an economist at the Brookings Institution who
has been studying the issue.

Bloomberg says its analysis likely provides a conservative
estimate of the shortfall. Some states are still working through
backlogs of unemployment claims — Texas alone is waiting to verify
nearly 650,000 cases — and more than 7 million people are still
owed retroactive benefits under the Pandemic Unemployment
Assistance program for independent contractors.

Why it matters: In addition to the unnecessary suffering
the delays are causing, the shortfall is reducing the positive
economic effect that unemployment benefits are intended to provide.
“On paper the U.S. strategy is very generous,” Ernie Tedeschi, a
former U.S. Treasury economist now at Evercore ISI, told Bloomberg.
“But that generosity on paper is meaningless if it doesn’t
translate into actual money in people’s pockets when they need
it.”

Diane Swonk, chief economist at the accounting firm Grant
Thornton, said she is worried that lawmakers are experiencing
“fiscal fatigue” as the crisis wears on, risking a falloff in aid
that could prolong the recession. “We’re really talking about an
economy that is going to be operating at a fraction of its capacity
for a long period of time,” she told Bloomberg.

Private Equity Firms Getting More Than $1 Billion in
Coronavirus Relief Funds

Medical-service businesses owned by deep-pocketed
private equity firms including KKR, Apollo and Cerberus have
received more than $1.5 billion in no-interest loans from federal
programs designed to help cash-strapped health-care companies,
according to an
analysis by Bloomberg News.

Although major private equity investors have been shut out of
many coronavirus relief programs, they have found what Bloomberg
calls a “back door” at the Health and Human Services Department,
which has approved at least $1.5 billion worth of loans, based on a
review of more than 40,000 loans made public by HHS.

Critics worry that the private equity firms will use the
no-interest loans to buy up more health-care companies and load
them up with debt, in accordance with their typical business
model.

The money comes from two programs administered by the Centers
for Medicare and Medicaid Services that received additional funding
through the CARES Act to help companies in the health-care sector
survive the pandemic, but “went instead to hospitals, clinics and
treatment centers controlled by the richest investment firms as
they seek to take advantage of an economic downturn caused by the
pandemic to buy ailing businesses,” Bloomberg said.

CMS Administrator Seema Verma said her agency doesn’t ask loan
applicants about their ownership structure. “We don’t look into
ownership, what we look into is are they Medicare-enrolled
providers,” Verma told Bloomberg.

No-interest loans aren’t the only way private equity is
benefiting from coronavirus relief efforts, Bloomberg said. HHS has
also provided hundreds of millions of dollars in automatic grants
to health-care companies that have cared for Medicare patients over
the last two years, including some owned by private equity, and the
money never has to be paid back.

Chart of the Day: The Dire State of State Tax
Revenues

Lucy Dadayan of the Urban-Brookings Tax Policy Center
breaks down
the good, the bad and the ugly of the fiscal
crisis facing states as the coronavirus pandemic crushes revenues
and raises costs.

“Prior to the onset of the COVID-19 pandemic, most states were
generating
solid revenue growth. And many built up robust
rainy day funds. But the pandemic has largely wiped out earlier
revenue gains and most states now anticipate substantial revenue
shortfalls for the current fiscal year and for fiscal year 2021,”
she writes.

The good: Preliminary April tax revenue data show a steep
drop in estimated and final annual tax payments as the tax-filing
deadline got pushed back from April 15 to July 15. But taxes
withheld from paychecks grew in 17 states compared to April 2019.
“Tax withholding is usually a better indicator of the current
strength of the economy and of the path for personal income tax
revenue because it comes largely from current wages,” Dadayen
explains. On the other hand, 16 states reported declines of less
than 10%, while five states posted double-digits drops, so the
bright spots are limited.

The bad: “Declines in sales tax revenues have been fast,
steep, and widespread across the states,” Dadayen writes. How
steep? April sales tax revenues fell by 16% across 42 states for
which the Tax Policy Center has complete data. Twenty-three states
reported double-digit declines, while just five states reported
year-over-year growth. And since the April data mostly reflect
March sales, the May numbers are likely to be even worse.

The ugly: For the fiscal year so far, total state tax
revenue has fallen sharply — and next year is expected to be worse.
“With two months remaining in the fiscal year for 46 states, total
state tax revenues are now down about $57 billion, compared to last
year,” Dadayen writes.

After the sharp pandemic-related plunge in April, tax
revenues have fallen in 34 states compared to 2019 and risen in 12.
(New York, the state hit hardest by the virus, is surprisingly
among those dozen, but Dadayen says that’s only because its fiscal
year 2020 ended in March, so April’s devastation isn’t reflected in
the data. The state reported that net taxes and fees collected in
April, the first month of its new fiscal year,
fell by 69% compared with April 2019.)

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