The long-awaited Coronavirus Aid, Relief and Economic Security (CARES) Act was passed, totaling $2.2 trillion in its final form. Despite hopes for passage mid-week, the final bill was delayed due to opposition about some components from politicians on both the far right and far left, as well as operational issues including very understaffed Congressional offices, and many members already having departed for home self-sequestering, which raised questions about a worst-case need for representatives to make their way back to Washington to complete the process.
This was described as a ‘wartime’-like bill, by far the largest in history. But, then again the economy has grown far larger over time (U.S. GDP is roughly $20 trillion), so of course these numbers are larger than those in the past when not quoted in percentage terms.
The breakdown of the bill’s larger components is largely as follows:
- $500b in loans and guarantees to businesses and state/local governments. A component demanded by Congress was that these funds should be targeted to critical functions and workers (with firms mandated to maintain current employment levels, discouraging layoffs). They also cannot be earmarked for stock buybacks, dividends, or higher-level executive pay packages (or ‘golden parachutes’). No doubt, some resentment over how some financial bailouts in 2008 were used and perceived by voters was a factor here. In this instance, airlines, transport/cargo, and other items key to ‘national security’ (defense contractors) were specifically targeted for funding. Interestingly cruise lines were not included in this round, as ships are generally not registered in the U.S. (a situation which may be addressed by either side in any future stimulus packages).
- $350b in loans and cash assistance to small businesses (fewer than 500 employees), at a zero interest rate and possible forgiveness if criteria are met. A key qualification is that businesses cannot lay off workers. This is a very significant part of the bill, which surprised many who first assumed this bill would largely be bookended for large companies at the top and workers at the bottom, with smaller firms often sandwiched in a difficult place in the middle.
- $260b in emergency unemployment insurance, including an extra 13 weeks of coverage (to 39 weeks). This includes self-employed, part-time, and ‘gig’ workers as well. Apparently, some members wanted to include a permanent increase to the federal minimum wage, which was not done. However, there are also extra $600 weekly payments through the end of July, which would result in far higher income for some workers, which may adjust return-to-work incentives in coming months, assuming conditions improve.
- $250b in direct payments to individuals and families at a level of $1,200/adult and $500/child (which begin to phase out at incomes over $75k/year).
- $150b in aid to hospitals/health care industry. These funds are targeted for coronavirus research, critical medical supplies and testing, as well as on-the-ground patient care.
- $150b in aid to cash-strapped state and local governments, including bridging the gap caused by a later income tax deadline.
- Other beneficiaries include homeland security, education, transportation systems, veterans, farming/agriculture/food banks, defense (including National Guard help if needed), and social programs.
- Unique stipulations include politically-based clauses, such as the President and other members of congress being blocked from receiving benefits at any companies under their ownership (directed at Trump’s hotel business), or any use of funds for a U.S.-Mexico border wall. On the financial planning side, retirement plan early withdrawal penalties have been eased, required minimum distributions have been waived for 2020, charitable donation benefits have been enhanced, and certain other payroll tax deferrals have been included.
- There was initially a push to ‘re-open’ America by Easter (Apr. 12), which has since been pushed back to at least Apr. 30. This appears to be largely due to non-direct concerns over laid-off and at-home workers’ well-being, with reports of increased alcohol consumption and worries of a worsening of abuse of opioids, meth, and other drugs. Certainly, probabilities of problems from these secondary effects increase the longer the personal distancing policy lasts, which could further erode productivity.