Rethinking the Composition of Covid Relief

12/2/20

I get worried when I hear about the design of the next phase of the Covid Relief package. As a recent post detailed, I’m totally on board with the size of the anticipated Democratic proposal (i.e., somewhere in the neighborhood of $2+ trillion), but the makeup of this program as it’s being discussed has me concerned.

To be clear, the most important requirement is to get the funds out there — soon. Exactly who benefits is secondary. Still, that secondary consideration is a big one. In concrete terms, I favor directing allocations to (a) those with little or no income, (b) state and local governments, and (c) segments of the health service industry. Where I differ from what I hear from both Democrats and Republicans who speak to the issue is their support for businesses — particularly small businesses. I’m totally comfortable with making loans to businesses, but when it comes to grants, businesses need to get to the back of the line. (I elaborate on this point in another post.)

Thus far, an important provision for small business enterprises fell under the Payroll Protection Plan (PPP). This program has allowed many companies to keep their doors open and workforces “employed” even when company revenues have been dramatically reduced, but it seems to have been riddled with problems from difficulty qualifying for and receiving the funds to outright fraud and misrepresentation. Moreover, given the discretion on the part of the direct recipients as to how these funds are used, I expect that in too many cases, benefits have been manipulated in a way that disproportionately serves the interests of business owners at the expense of their employees. The objectives of this program may have been well-intentioned, but the capacity for abuse is too broad.

In my own mind, I have difficulty thinking of “the business” as an entity different from “the business owner.” Put another way, I don’t see a distinction between a grant to a business and a grant to an owner. Keeping a business afloat, therefore, is no different from keeping an individual owner afloat. But in this time of widespread financial distress, shouldn’t the primary criterion for aid be based on need? How do we justify granting tens of thousands of dollars — or even millions of dollars — to individual business owners at this time, when so many millions of people are struggling to meet requirements for their most basic subsistence. Particularly at this point in time, when the threat of evictions seems more widespread in light of expiring eviction moratoria, we need to reprioritize who gets what.

I favor a program that provides for expanded unemployment compensation to include the self-employed and contract workers, as well as “regular” employees. These benefits, however, should be taxable, allowing for the possibly for some or all of these expenditures to be clawed back from taxpayers who surpass some critical income thresholds. This population is essentially the same audience as that targeted by the original PPP, but the prospective scale of the program would be quite different. It would undoubtedly constrain the size of the grant to any individual, but coverage would extend to a much wider population.

All segments of the private economy suffering under the effects of the pandemic are equally deserving of aid. Unfortunately, due to the complexity and uncertainty associated with the PPP in its original design, this program has not reflected this orientation. Instead, it’s worked like a lottery, bestowing benefits on a select group of winners, while ignoring the larger group of deserving prospective recipients who failed to qualify for these benefits for one reason or another. We ought to be able to do better with this next round of aid.