Trillion dollar stimulus – how should it be divided, and how can we pay for it?

 

4-9-2020

 

Congress has passed, and President Trump has signed, a $2-trillion stimulus bill. The Federal Reserve has agreed to kick in up to $4 trillion more in monetary aid. The combined initiatives represent the largest such package in U.S. history.

            While the bill had bipartisan support, some are chaffing at the high cost, and others complain that too much money is going to corporations rather than to the people most affected by the coronavirus crisis.

            The main question for Alison Anderson and Steve Clark for this month is: Should corporations receive  the amount of money allocated to them by the bill, or should a large share of that money go directly to individuals?

Alison:

It looks to me as though millions of unemployed, underemployed and part-time individuals will receive a modest supplement to their income or state unemployment benefits. There will also be help for renters (some evictions are prohibited), farmers and ranchers.

As far as the help the bill offers to corporations, hospitals will receive substantial grants in anticipation of the predicted onslaught of coronavirus patients (although insurance companies will not) and airlines and other struggling industries will have access to $500 billion in loans; however, they will not be allowed to use these funds for stock buybacks or executive compensation. Businesses will be given tax credits for keeping workers on their payrolls.

The checks to individuals will be issued on the basis of last year’s tax returns—so if people failed to file their taxes or had so little income they weren’t required to file, they’ll not receive checks.

Older Americans, recipients of Social Security benefits and disability recipients will get checks, and there are provisions for those on food stamps and child nutrition programs. For now, there are no funds for schools with children who lack Internet access, so study while school is not in session will be difficult.

The bill has substantial safeguards against corporate greed and protections for individuals. Hopefully, it will help businesses stay afloat through the next few months so there are jobs to return to once “shelter-in-place” restrictions are relaxed. The modest cash payments will buy time for individuals and families.

Democrats didn’t get everything they wanted, but nor did Republicans. This “feels like” a good, bipartisan bill.

Steve:

I agree, Alison. It’s amazing what can happen when our politicians decide to cooperate rather than bicker. We are, after all, in this thing together. However, I still hear a few voices contending that corporations are getting too much and individuals too little. I believe they have the calculation wrong.

In a matter of weeks we have witnessed businesses considered to be the titans of our economy grind to a halt. Airplanes are sitting on the ground or flying virtually empty. Cruise ships are tied to docks. Restaurants are shuttered, along with public and private schools. Even beauty salons and barber shops are affected.

Only weeks ago, going to the grocery store was just a normal part of our routine. Now we’re faced with empty shelves and wonder if the last person who opened the door on the ice cream freezer used hand sanitizer.

In all my years, I have never witnessed anything that has impacted the American economy the way this pandemic has. It’s been like a slow-motion repeat of the 1929 Black Tuesday crash.

Unlike 1929, when the government’s tepid, indecisive response turned the stock-market crash into a decades-long depression, our president and Congress are reacting quickly, forcefully, and effectively to prevent the pandemic from becoming the crash of 2020.

For my friends who worry that corporations are getting too much, think about this. Every dollar that helps preserve our businesses and industries is like a payment made directly to the individual citizens whose livelihoods depend on those businesses. Making sure those businesses survive will ensure that the plunge in the market is not followed by a depression that could affect our economy for decades. Kudos to our president and the Congress for acting decisively and courageously in the face of this worldwide crisis.

            But how in heaven’s name are we going to pay for this?

            Alison:

Ah, there’s the problem. We all agree that some drastic measures to cushion the blow of the coronavirus on our economy are necessary.

However, in spite of the recent gains in the stock market and employment figures, our national debt has skyrocketed due to the loss in tax revenues following the 2017 tax cut. Instead of taking advantage of tax cuts to pay their employees more, many corporations have paid their CEOs more, and bought their own stock back.

Counting on the rich for “trickle down” economic growth is ludicrous; when you give 1 percent of the population a large tax benefit, those few, very wealthy people may buy a yacht or build a mansion; when a large middle-class thrives, millions of people buy middle-sized homes and other goods, creating jobs and wealth for all of us.

The deficit grows during recessions and wars—during those times, tax receipts shrink and demand for government assistance rises, or defense spending goes up. During good times, the deficit normally falls.

Now we have a situation where the economic gains of the last three years have vanished overnight. To be caught medically and economically “flat footed” is shameful in a country as affluent as the United States.

Still, we’ll have to claw our way back from this; America did so following World War II, when the public debt was 112 percent of the GDP. The post-war economic expansion balanced that ratio almost immediately, by 1949 in fact. Our economy is resilient and robust, and we can do that again—but the country cannot do so if we squander our opportunities during prosperous years like 2017-19.

 

            Steve:

Paying for the stimulus is indeed a concern. Thank God we have an economy strong and robust enough to absorb the blow of the coronavirus.

Alison, you pointed out that the stimulus bill expressly prohibits stimulus money from going to executive compensation or stock buy backs, so that should remove concerns about corporate greed.

I do, however, take issue with your implication that only the rich were given a tax break in 2017. The bulk of taxpayers received a 3 percent tax cut and had their standard deduction doubled.

The people you call “the 1 percent” only received a 2.4 percent tax break, but more importantly, had many of their deductions eliminated completely, which affected them far more than the average tax payer.

Much of the $500 billion stimulus money allocated for businesses is recoverable. While individuals will not have to pay their money back, businesses will receive the money as loans or loan guarantees. To assure their repayment, the government is taking a temporary interest in large companies until their loans and/or loan guarantees are paid off.

Some gleefully look at this crisis as an opportunity to reimpose what they consider as Trump’s lost taxes, and want to layer on even more. What is that saying they use, “Never let a good crisis go to waste?”

It would be a mistake to rush into increased taxes without giving our robust economy a chance to recover. It would also be wrong to saddle our recovering economy with increased taxation at the very time we should be boosting the recovery, not stifling it.