The federal fiscal response to the coronavirus outbreak in the U.S. has properly focused on two objectives: fight the virus and stabilize the domestic economy. To date, Congress and the president have enacted three pieces of emergency legislation, each one significantly larger than the last. The Congressional Budget Office just released a preliminary score for the third emergency response measure, H.R.748, the CARES Act which will deliver financial assistance across a broad spectrum of the domestic economy.
For individuals:
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Recovery rebates ($293 billion). The CARES Act authorizes the Treasury to issue direct payments of $1,200 (singles) or $2,400 (married filing joint) for taxpayers with incomes up to $75,000 (single) or $150,000 (married) plus $500 for every child for households with less $75,000 (single) or$150,000 (married). The rebate is reduced $5 for each $100 in taxpayer income that exceeds the phase-out threshold such that no rebate is available for taxpayers with income exceeding $99,000 (single) or $198,000 (married).
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Expanded unemployment insurance ($269 billion). The CARES Act extends regular unemployment benefits an additional 13 weeks for a total of 39 weeks. Adds a $600 bonus per week through July 31 on top of what beneficiaries would receive from their state programs. Expands eligibility to workers not traditionally eligible for unemployment benefits (part-time, self-employed, gig economy workers, and those with limited work history).
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Tax relief ($221 billion). The bill temporarily suspends certain retirement fund rules regarding minimum distribution and early withdrawal penalties ($8 billion). It also modifies restrictions on the tax deduction for charitable contributions, making the deduction more attractive to taxpayers who itemize ($3 billion).
For businesses:
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Economic Stability Fund ($454 billion). Seed capital which will be leveraged by the Federal Reserve Bank to provide up to $4 trillion in collateralized loans to businesses and state, local, and municipal governments.
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Paycheck Protection Program ($377 billion). Federal funding for no-fee loans and loan guarantees for small businesses to cover paid sick leave, insurance premiums, utilities, and mortgage or rent payments. PPP loans will be forgiven as long as the borrower retains the same average number of employees and does not reduce salaries more than 25 percent of prior year wages.
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Tax relief ($221 billion). For non-corporations, CARES would allow the full amount of business losses to offset non-business income for tax years 2018-2020 ($170 billion). The bill also temporarily enhances business deductibility of interest expense ($13 billion) and net operating losses ($26 billion) and allows businesses to defer payment of 2020 payroll taxes to 2021 and 2022 ($12 billion).
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Employee retention tax credit ($58 billion). CARES established a refundable payroll tax credit of 50 percent of wages paid ($10,000 maximum wage per employee per calendar quarter) as another incentive to keep employees on payroll.
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Airline industry direct assistance ($29 billion). CARES provides cash grants and credit assistance for payroll support for passenger airlines, air cargo airlines, and independent contractors. It also suspends collection of the aviation excise tax in 2020.
For hospitals and healthcare providers:
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Direct grants to hospitals ($100 billion). Federal funds to purchase personal protective equipment for healthcare workers, testing supplies, and to construct temporary hospitals and emergency operation centers.
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Other health-related spending ($67 billion). The CARES Act includes $45 billion to replenish FEMA’s Disaster Relief Fund; $16 billion to replenish the Strategic National Stockpile, $4 billion for personal protective equipment and other materials; $1 billion to shore up medical supply chains and $1 billion for the Indian Health Service.
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Medicare ($8 billion). Provides Medicare reimbursement for telehealth services and other changes.
For state, local, and municipal governments:
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Coronavirus Relief Fund ($150 billion). Population-based grants to state, local and tribal governments for necessary expenditures incurred while fighting the novel coronavirus. Minimum state grant $1.25 billion. Includes $3 billion for the District of Columbia and U.S. territories, combined, and $8 billion, total, for tribal governments.
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Other emergency appropriations ($149 billion). Emergency funding for existing federal programs that support local schools and online learning, transit systems, sanitation, childcare programs, housing programs, economic development programs, election assistance, and tribal governments.
The CARES Act initially carried a $2.2 trillion price tag according to congressional lawmakers, but the CBO score is much lower – $1.8 trillion. This difference is largely attributable to how CBO scores the budgetary effects of the Federal Reserve bank’s emergency lending facilities.
H.R.748 provides $454 billion to the Federal Reserve as seed capital to support nearly $4 trillion in collateralized loans and loan guarantees for large businesses as well as state and local governments affected by the coronavirus outbreak. According to budget law, CBO is required to score these loans and loan guarantees on a net present-value basis. The up-front cost of the loans is offset by the amount of principle and interest the federal government expects to recover over the life of the loans.
As CBO notes in its summary, in the past the Federal Reserve has not sustained losses on similar lending. For example, loan programs in operation during the Great Recession of 2008-2009 were actually profitable for the government. For this reason, CBO assumes that the income and costs of the CARES Act Federal Reserve credit facilities, on average, will balance out and will have no net effect on the federal budget deficit.
Additional congressional action is expected. At the time of this publication, a fourth bill that recapitalizes the Paycheck Protection Program and provides additional funding for hospitals is being negotiated. To avoid exacerbating the fiscal imbalances that pre-dated this crisis, The Concord Coalition will continue to advocate on behalf of measures that are timely, targeted, and temporary.
