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MI Responds: Congress’ Response to the Covid-19 Crisis

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MI Responds: Congress’ Response to the Covid-19 Crisis

August 7, 2020
EconomicsOther
EducationOther
Legal ReformOther
Urban PolicyOther

Our nation is facing an unprecedented crisis. Families, businesses, nonprofits, schools, and other groups are struggling under the weight of Covid-19’s health and economic impact. Congress has spent trillions of dollars on relief and is now considering another round of spending to support the economy and tackle a variety of issues exacerbated by the pandemic. Manhattan Institute fellows are engaged in this urgent conversation, offering ideas and recommendations for lawmakers to consider as they attempt to chart a path forward. Check out some perspectives from MI’s experts on key issues below.

For more reporting and analysis related to Covid-19, visit Manhattan Institute’s City Journal magazine, which is offering ongoing coverage of the crisis.


 

ECONOMIC POLICY: Federal funds should be used to speed up the economic recovery by supporting those out of work, helping businesses rather than harming them, and making hiring a priority.

Supporting Businesses & Jobs

“So far, economic policy has been in triage mode because much of the economy had to shut down. Ending shutdowns has been a slow and uneven process. But it seems we are moving into the next phase of recovery. The next stimulus bill needs to aid and speed up this process by making hiring a top priority and supporting struggling businesses that still cannot operate at full capacity. This will involve extending and tweaking the Paycheck Protection Program (PPP) lending program. 

“Many businesses, especially ones that offer in-person services like restaurants, bars, and other hospitality, will need more support. Heavily affected industries like these should get priority for funds. The program should also change. Initially, PPP was targeted to cover a few months of payroll expenses. That made sense when we thought businesses could reopen quickly and take back their staff. Now more flexibility is needed. Business owners need help to pay rent and meet other expenses. The goal is no longer to keep everyone on staff; it is to stay in business. If they can, they will rehire some of their staff, and hopefully more people, as they slowly recover their lost revenues. Another way to help businesses is the option of property tax forbearance for landlords if they reduce their commercial tenant's rent. It would be more effective and less damaging to the private sector than mortgage forbearance or outlawing evictions.”

Allison Schrager, economist and senior fellow at the Manhattan Institute

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Unemployment Insurance

“Congress needs to work together to pass a new supplemental unemployment insurance benefit to ensure that Americans put out of work by the Covid-19 crisis don’t go hungry or homeless and also to keep dollars circulating in the economy, which could support a more rapid recovery. Concerns about “overpaying” unemployed workers to stay home are valid but overblown. The misalignment of incentives is likely harming some businesses. But the net effect of an overly generous unemployment insurance benefit payment has likely been minimal given the unprecedented slack in the economy. 

“Legislators should return to the drawing board to draft a new plan that phases out benefits over time, ideally with step-downs benchmarked to indicators of labor market health, like regional unemployment rates. A more sophisticated policy that would subsidize state programs to achieve a higher replacement rate of wages would be ideal, but it is unrealistic given the logistical constraints.”

Beth Akers, labor economist and senior fellow at the Manhattan Institute

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Federal Budget Concerns

“The coronavirus has produced three crises: a health crisis, an economic crisis, and—at the price of addressing the first two—a federal debt crisis. The recession at this point is likely to add $8 trillion to the national debt over the next decade when including the lost tax revenue from the economic collapse. Consequently, the national debt held by the public is now projected to rise from $17 trillion to $41 trillion over the next decade—and then continue growing rapidly due to Social Security and Medicare shortfalls. 

“In that context, lawmakers should spend what it takes to keep vulnerable families and businesses afloat—because bankruptcies would permanently kill jobs and extend the recession—but not a penny more than that. That means focusing on social insurance for the recession’s victims (such as unemployment benefits and business aid), rather than trillions in failed Keynesian stimulus schemes. Additionally, any deal to create “automatic stabilizers” that automatically increase unemployment, Medicaid, and other benefits during recessions should be paired with anti-deficit triggers that automatically pare back spending during booms. That would allow Congress to tackle recessions while reducing the deficit over the business cycle.”

Brian Riedl, economist and senior fellow at the Manhattan Institute

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EDUCATION: Congress must take action to ensure that all students receive the education that they deserve.

“Educational pluralism is an American virtue, which allows families and communities greater choice in schooling. Due to the Covid-19 pandemic, all schools—public, private, and religious—are facing tremendous financial challenges. Public schools must withstand substantial declines in tax revenue due to the economic downturn. Private and religious schools, which serve approximately 5 million students across the country, rely on tuition payments and will close en masse if families can no longer afford payments. All these schools serve a ‘public’ function because the education they provide benefits a functioning society.

“While the bulk of any federal money, up to 90 percent, must go to public schools commensurate with their size and the depth of their financial challenge, private schools need funds to stabilize as well, in order to preclude further unnecessary stress on the public-school system. Government support for private and religious schools could take the form of a federal tax credit for contributions to scholarship organizations. This credit should be available in all states, without a requirement for individual states to opt-in to the program.”

Ray Domanico, senior fellow and director of education policy at the Manhattan Institute

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LEGAL LIABILITY: Protect America's economic recovery from excessive Covid-19 litigation and greedy trial lawyers.

“Tort litigation in the United States, as a percentage of the economy, has long cost about three times as much as in the average European country. With businesses hemorrhaging cash in the viral pandemic, few will be able to fight back against lawsuits and stay afloat. Lawsuit-driven bankruptcies are a cost we cannot afford if we want our economy to recover.

“Of course, businesses should be accountable for misbehavior, but punishments should be reserved for egregious cases of intentional and reckless conduct. And states and localities beholden to the plaintiffs’ bar should not be able to imperil national industries—including vital healthcare services and food distribution chains. Well-conceived federal legislation could promote economic growth, while protecting consumers and workers, by encouraging compliance with reasonable safety guidelines.”

James R. Copland, senior fellow and director of legal policy at the Manhattan Institute

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STATE & LOCAL AID: Congress should provide aid, not bailouts, to preserve basic services and address the direct impact of the pandemic.

“The coronavirus crisis is becoming a fiscal disaster for America’s states and localities. The purpose of state and local relief funds should be to preserve basic servicesaddressing the direct impact of the pandemic on spending and relieving a specific share of revenue shortfalls—rather than to repair pre-existing budget shortfalls. (This holds true for transit agencies too, which are in imminent danger of collapse absent additional federal aid.) 

“Congressional dollars should also be tied to reforms, such as ending the unlimited liability of defined-benefit public pensions, and include some mechanisms to force savings, including incentivizing the use of rainy day funds. Aid could come in the form of loans, rather than grants, to be repaid gradually to encourage caution in spending. What support Congress does provide should not lose sight of Covid-19 as the ultimate source of our present troubles, which suggests that a significant sum of state aid should be targeted at building up mass testing and research capacity. States and localities are facing unprecedented budgetary hardships today, and with Congressional support, they can not only weather this storm, but become more resilient in the face of future shocks.”

Michael Hendrix, director of state and local policy at the Manhattan Institute

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Photo by Drew Angerer/Getty Images

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