In recent days, we have seen our government officials appreciate that the coronavirus is the gravest risk to US public health in decades, leading to unprecedented restrictions on social activity. Protecting human life is rightly the primary priority of our public officials, but this will come at an extraordinary economic cost. Travel has ground to a halt, restaurants are shuttered, malls desolate, and roads empty. The coronavirus poses one of the gravest risks to our economy in decades, and we must respond more forcefully than ever before to safeguard it.
Now, no one likes bailing out a company that made foolish business decisions. In a functioning capitalist economy, some businesses fail. However, businesses like your local restaurant could face bankruptcy just because of the necessary response to the virus. If a government forces a business to close (as they are restaurants, international air travel, etc), isn’t it actually the fair thing to do to provide that business some financial assistance for the economic loss they suffer to protect society’s health? We are asking businesses to shutter for the good of the country, and so we should stand by them,
Acting decisively is incredibly urgent, as hard-working Americans are already losing their job. Senator Rob Portman reported initial jobless claims in Ohio surged to 45,000 last week from 6,500 previously; for perspective, they peaked at 41,000 during the Great Recession of 2008-2009. This surge in job losses is likely national; Connecticut, for instance, is seeing a spike to 30,000 from 3,500. We must act to stop Americans from losing their jobs due to the virus, and if we don’t act soon, this risks spiraling out of control into a severe recession.
Increasingly, Washington is rallying behind the idea of sending cash to Americans. While a noble idea, it simply is not good enough. If you are a waiter who lost your job, a $2,000 check can help meet your near-term cash needs (groceries, rent, etc), but it does not provide the stability and peace of mind of a job and the recurring paycheck it provides. After a recession, it usually takes *several years* to regain lost jobs. While cash payments will soften the blow over the next two months, resultant unemployment ensures that the economic damage of the virus will linger well after the virus is defeated. This is unacceptable and avoidable.
We need a policy that gets cash into the economy quickly and also keeps Americans employed. Cash payments meet the first criteria, but fail the second, as many small businesses won’t be able to make payroll with their businesses closed for weeks. And so, I implore our policymakers to contemplate a different response. The Federal government should pay the entire payroll of every company in America for the next two months (capped at a $200,000 salary for any one employee). Americans earn $9.465 trillion in annual wages, salaries, and tips, so paying 2 months’ payroll with a $200k employee cap would inject $1.2-1.4 trillion into the economy.
This plan would mean not a single American will lose their job over the next two months due to the virus because the federal government will be paying the payroll of every corporation in America. This would be constructed via an immediately refundable tax credit to businesses to cover their payroll.
Now, we only want to provide aid to companies that need it. Some like AT&T or Verizon will see minimal impact from the virus while restaurants face existential threats. However, it’s very difficult to provide aid in a targeted way while also getting cash out quickly. That is why the best path is to give cash to everyone and then claw it back from those who didn’t need it. As such, I would propose that companies face a 100% tax on 2020 profits above their 2018/2019 average up to the size of the payroll credit. This would be payable in April 2021.
So, if a company’s pre-tax profit in 2020 was $2.1 billion after averaging $2 billion in 2018/19 and they had received $100 million in payroll tax credits in March through May, they would pay that money back. In effect, they merely received a 12-month interest-free loan (which will help with liquidity strains facing the private sector) but no tax cut. Conversely, the local restaurant that sees its profits drop 50% won’t have to pay back any of its tax credit. Consequently, only businesses that were adversely impacted by the virus will receive tax cuts greatly reducing the cost of this bill. We protect the jobs of employees at risk without unnecessarily giving tax relief to un-impacted companies.
This proposal to cover 2 months of payroll economy-wide, which could be extended if necessary, means we can focus entirely on social distancing measures without worrying about a resultant rise in unemployment. The claw-back mechanism also ensures this program is targeted to those businesses truly facing a challenge due to the virus. This approach will ensure Americans stay employed and that the economy can quickly bounce back, rather than suffer from excess unemployment for months after the virus is defeated. Covering payroll for employers may not be as politically “catchy” as sending checks out, but this approach is the most effective potential approach to mitigating the economic impact of the virus and should be the centerpiece of our coronavirus economic response. Congress should implement this policy immediately. Every day we wait, tens of thousands of jobs are endangered.