The major talking point of nearly all US media outlets as well as many homes across the country has been the potential successor to the CARES Act – a financial stimulus package that was passed in March as a way to ameliorate financial hardships for people and businesses – and the negotiations that are ongoing between the Democrats and the Republicans. While the CARES Act has been generally praised as keeping the US from sliding down the chute of economic hardship, the parties’ ideological differences and the proximity of the November election have made negotiating the second package much harder. Jack Plotkin, a finance expert with a background in investment banking strategy who has spent nearly a decade at Goldman Sachs, elaborates on the key similarities and differences between the original and a new stimulus package as well as the current status of the negotiation.
The Coronavirus Aid, Relief and Economic Security – or CARES – Act is a $2.2 trillion economic stimulus bill that was passed by the U.S. Congress on March 26th, 2020 and signed into law by President Donald Trump the following day. Plotkin notes that it was a massive stimulus that included $300 billion in one-time cash payments to Americans, $260 billion in increased unemployment benefits, an initial $350 billion for loans to small businesses (Paycheck Protection Program or PPP), $500 billion in aid to large corporations, and $340 billion for state and local governments.
Along with the measures taken by the Federal Reserve, Plotkin states that the CARES Act introduced a series of fiscal measures that prevented or postponed large-scale defaults and the domino effect of a rapid downward spiral into a recession. One-time cash payments and unemployment benefits provided much needed support during an unprecedented COVID-19 crisis to over 30 million Americans who lost their jobs. The PPP program, while initially criticized for its lack of transparency and for providing loans to large corporations instead of small businesses, has helped many businesses of all sizes stay afloat. At the same time, the aid to state and local governments helped preserve key public sector jobs.
Plotkin notes that the federal unemployment benefits – a flat $600 a week that was paid to individuals who lost their jobs or were furloughed because of the COVID-19 pandemic – were perhaps the most recognized component of the act. This money was paid in addition to state benefits, and it was scheduled to expire on July 31st. The other stimulus programs were largely spent by the end of July as well.
Plotkin explains that, to address the on-going economic challenges after the CARES stimulus, the House of Representatives voted for a $3 trillion package that was termed the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act. The ambitious program included $1.13 trillion in assistance for establishments across several government sectors, and a continuation of federal unemployment benefits until the end of the year, among other provisions. However, Plotkin states that the Senate has signaled that it would not pass the HEROES act in its current form.
The Republican party has offered a counter-proposal called the Health, Economic Assistance, Liability Protection and Schools (HEALS) Act, encompassing approximately $1 trillion in aid. Although it is nowhere close to the $3 trillion contemplated by the HEROES Act, both proposals include a single payment to all citizens, expected to be $1,200 per adult and $500 per dependent.
Plotkin notes that a critical difference between the two Acts is the unemployment and municipal benefits. In the HEALS Act, the original CARES Act amount of $600 would be reduced to $200 and no additional aid would be offered to state and local governments. In addition, the Republicans have incorporated multi-year liability protection for businesses, physicians and schools against coronavirus-related lawsuits. The reduction in benefits and the liability caps are both strongly opposed by the Democrats.
Although it appears that the parties are moving toward a mutually agreeable solution, the timing is uncertain. Plotkin opines that the Republicans and Democrats appear to agree on direct payments and seem poised for compromise over the PPP program, eviction moratorium, funds for schools, and COVID-19 testing. He notes, however, that the biggest sticking point is unemployment benefits. One creative solution put on the table has been to tie the magnitude of the payments to changes in unemployment levels over time.
As of now, negotiators for both parties have been meeting daily and showing a very real sense of urgency to align on a stimulus package that can pass both chambers of Congress and receive endorsement from the President. In the meantime, Plotkin says that his heart goes out to the millions of unemployed and underemployed Americans whose lives literally depend on the outcome of these negotiations.