With COVID-19 still wreaking economic havoc, both parties want to enact a new federal rescue package before they face voters in the fall. But Congress and the White House must avoid the mistakes they made in the $2 trillion CARES Act, enacted in March.
There is no question more federal help is needed. Continued public-health restrictions, as well as reluctance to shop or dine out, keep many people from working, even as they are eager to get back. Fear of travel, and closed borders, keep the tourist industry dead.
As a pandemic has turned into a recession, white-collar people have lost their jobs, too. People who fear losing their job — which is almost everyone by this point — have cut back on spending.
The CARES Act has done much good in alleviating the pain. In late June, 14.1 million people, or more than 11 percent of the private-economy workforce, were receiving extraordinary unemployment benefits, including $600 a week from the feds in addition to the average $400 from state governments.
Extra $1,200 stimulus checks helped tens of millions of people pay the bills. And the $521 billion Paycheck Protection Program has helped companies keep 51.1 million people employed, even if some of these workers have seen job cuts only delayed, not avoided, as the slowdown has continued beyond the program’s initial eight-week scope (now extended to 24 weeks).
But the unemployment aid was too broad. With the extra $600 a week in unemployment benefits, 40 percent of recipients are making more now than they did at their jobs. And the benefits were targeted to a fast recovery, when it’s clear COVID isn’t going anywhere soon. In an attempt to stimulate the economy, Congress sent $1,200 checks to tens of millions of people who didn’t need the money.
They still have their jobs — and there is just little to spend a windfall on right now. In fact, America’s savings rate is at a record high, with people saving a quarter of their earnings. With people still unable to travel, or do much of anything fun, safely, that check just went right to the bank.
Congress should extend extraordinary unemployment aid, yes. But target it to people who need it. Applicants should earn no more, per week, than their 2019 income. (People who were on parental leave or otherwise out of the workforce could reach back to 2018 — the IRS has this data.)
No more checks to everyone, much as it is politically tempting before an election.
As for helping the hardest-hit small businesses and state and local governments, Congress can address these needs with one program: a sales-tax holiday.
Starting in the fall, Congress should provide state and local governments with the money they would have taken in from sales taxes, were it not for the pandemic — about $400 billion for a year.
This protects state and local governments from their biggest revenue loss, while giving everyone who wants to go out shopping or dining a hefty discount — nearly 10 percent in New York City — on their purchases.
A sales-tax holiday will help parents with back-to-school supplies and could help save the holiday season. It also satisfies the Democratic need for state revenue and the GOP need for a tax cut.
(And, when the pandemic is over, people who have grown accustomed to lower bills on the dining table or at the takeout counter may put pressure on their state and local governments to cut sales-tax rates permanently.)
Finally, mass transit. Cities (and their suburbs) can’t recover until transit recovers. Transit systems will need operating aid to replace fares that missing riders aren’t paying right now, tied to long-term cost reform.
Congress and the White House should shy away from anything too arcane. As part of the CARES Act, Congress authorized the Federal Reserve to lend money to small businesses. But the program is so complex that it has taken months to design — and few companies are likely to use it. Members of Congress should use a simple rule of thumb when voting: If I don’t understand this program, small-business managers won’t, either.
Washington has an excuse for the CARES Act’s shortcomings. Lawmakers and the president enacted it in haste, when we still had no idea what had hit us. Fair enough. Now, we know — and can take some time to do the next care package right.
This piece first appeared at the New York Post
______________________
Nicole Gelinas is a senior fellow at the Manhattan Institute and contributing editor at City Journal. Follow her on Twitter here.
This piece originally appeared in New York Post