Congress’s COVID Response Is Stumbling. Josh Hawley Has a Plan to Fix It.
The COVID-19 relief bill was supposed to help workers affected by the crisis in two different ways. First, it offered loans to businesses to keep them solvent, promising the loans would be forgiven to the extent that these companies kept their employees on their payrolls. And second, workers who nonetheless lost their job would be eligible for expanded unemployment benefits.
The first approach should have had priority, because it keeps people attached to their employers and ready to go when this is over. That’s a key ingredient to a speedy recovery. Yet the bill’s business provisions have stumbled out of the gate, while the unemployment boost is proving more attractive than it probably should. Smoothing out the implementation of these measures should be a major short-term goal, and Congress should consider reforming, replacing, or supplementing them as soon as practicable. As it happens, Senator Josh Hawley already has a proposal in the latter spirit.
Immediately upon the bill’s passage, it was clear that these programs were less than ideal. Michael Strain of the American Enterprise Institute pointed out that the business rescue probably didn’t have enough funding to help all the businesses that needed it. And some Republican senators raised the alarm about the structure of the unemployment expansion: It gave out $600 per week on top of other benefits, which is more than many workers make if they stay on the job; and while it’s normally very hard to get unemployment if you leave a job voluntarily, the bill expanded eligibility to include those who had kids home from school or other COVID-related reasons for quitting. The senators thought the mismatch between unemployment benefits and wages was a “drafting error,” but it turned out to be an intentional kludge: States’ unemployment systems aren’t capable of implementing a complicated new benefit formula quickly, so the bill’s drafters resorted to the brute simplicity of $600.
All this and more is, in fact, turning out to be a problem. Thanks in part to the lack of funding, the Small Business Administration has required 75 percent of each loan to go specifically to payroll, leaving little left over to cover other expenses such as rent. Some businesses are reporting that their workers would rather get unemployment than stick around, which saves the businesses money but also reduces the loan forgiveness they’re eligible for unless they can hire replacements to keep their total payroll steady.
Meanwhile, banks are having trouble getting the loans out for several reasons, including lack of clarity about the rules. Out of concerns about being held liable for fraud, many are limiting loans to current customers. The government has already doubled the interest rates from 0.5 percent to 1 percent to lessen the risks banks take by participating.
In the immediate term, this is what we’re stuck with. Bureaucrats in the Trump administration and the states will have to make the best of it, doing what they can to stop unemployment abuse and smooth out the bumps in the business loans. There are signs that things are improving, at least on the latter front: Some loans are getting out the door already as banks find their footing, and the Small Business Administration is putting out a series of rules and guidance documents that should speed things up.
But there’s also talk of a “Phase 4” coronavirus bill that could transition us toward something better. Josh Hawley argues this should include a different approach to encouraging businesses to keep workers employed. In his plan, the government would essentially take over most of the financial responsibility of paying affected workers. As his office summarized it in a press release, he’d create:
A refundable payroll tax rebate covering 80 percent of employer payroll costs applicable up to median wages, including support for rehired workers, with a rehiring bonus.
A real-time advance system for providing payroll support immediately to firms.
A back to work reinvestment credit for firms to cover costs of any investment necessary to get back off the ground even stronger once this crisis subsides.
Hawley also includes a populist pet project, bringing supply chains for critical products back to the U.S., that might make sense as a longer-term response to the crisis but probably shouldn’t be a priority right now. But the above plan for businesses is definitely worth fleshing out, studying carefully, and, if warranted, enacting.
Admittedly, there’s a zillion-dollar question here. If state unemployment systems, the Small Business Administration, and banks have all had difficulty pulling off what we needed them to do, will this be any different? We can only hope, with a little more lead time, that Phase 4 will be less of a mess than Phase 3 is turning out to be.
