Since March, when the lockdowns ordered by state and local governments began due to the novel coronavirus, Congress has passed $3.8 trillion in four COVID-19 response bills. While the economic damage continues from these lockdowns, Congressional discussions about more action is at a stalemate. In lieu of other Congressional action, the Foundation’s proposed Recovery Act would narrowly target resources temporarily to aid businesses operating and workers working.
More here: https://files.texaspolicy.com/uploads/2020/08/25143156/082420-Overview-of-Recovery-Act.pdf
President Donald J. Trump recently signed four executive actions in response to a congressional stalemate on the next round of COVID-19 relief, drawing praise from a Texas economist.
Texas Public Policy Foundation (TPPF) Chief Economist Vance Ginn provided brief overviews on the use of federal Disaster Relief Funds (DRF) to boost state unemployment insurance funds, the payroll tax issue and enhanced unemployment insurance.
“The goal of President Trump’s four executive actions on Aug. 8 is to provide financial assistance at a time when Congress hasn’t acted to help struggling families due to the disruptions caused by COVID-19,” Ginn wrote. “Currently there is uncertainty regarding these actions that could weigh on employer and employee decisions until further clarity is provided.
While these actions may increase uncertainty that hinders economic activity, they can help American families in the short run by providing additional aid until state and local governments, hopefully soon, safely fully reopen society.”
TPPF Chief Economist Vance Gin | Photo courtesy of the TPPF Ginn offers an informed perspective, having recently served more than a year as the associate director for economic policy for the Office of Management and Budget (OMB). His role was to advise the OMB’s director on economic and fiscal policy matters, manage a team that sought evidence of good government and modeled the economic assumptions in Trump’s fiscal-year 2021 federal budget, which proposed a record of $4.6 trillion in cuts to the national debt over a decade.
Ginn said the Aug. 8 executive actions do not increase the deficit directly.
“The $44 billion for the federal enhanced unemployment insurance is paid from the funds available in FEMA’s disaster relief fund," he said. "And the deferral of payroll taxes is just a deferral so doesn’t add to the deficit unless Congress forgives those taxes through legislation later. Also, the Social Security Trust Fund won’t take a hit as money will be transferred from the General Fund to it until the payroll taxes are paid or forgiven, which is what happened after the 2010 tax bill under the Obama administration cut the payroll tax by 2 percentage points.
"Regardless, there is a need to get businesses operating and workers working again by reopening society so problems related to the lives and livelihoods of Americans along with our fiscal solvency aren’t put further at risk.”
Ginn said Trump's moves could put more money in taxpayers’ pockets as well as helping people find jobs as state and local governments loosen their lockdowns.
“This could happen by deferring the payroll taxes and employers not withholding it to possibly pay it later and then by the $300 per week in enhanced [unemployment insurance] not being so high that 68% of Americans who make less than the $600 per week previously provided,” he said. “Again, the key is to get businesses operating again and for workers to be connected to a job that will help to increase economic activity on the supply side that is critical for us to have a stable and strong recovery.”
Ginn said that more can — and must — be done to speed economic recovery.
“Families across America are struggling from being unemployed and being uncertain whether they can keep their business open or when they will get a job or be called back,” he said. “In order to help the American people, we need accurate and reliable COVID-19 data that includes timely demographic information to understand more about its contagion and effects so hospitals aren’t overwhelmed and vulnerable populations are assisted with necessary resources as governments reopen society for everyone else. Along with that, there is a need to rightfully provide funding to businesses that were stripped of their resources from governments during lockdowns.”
The TPPF supports a targeted, short program called the Workplace Recovery Act, which covers businesses‘ net operating losses so they can keep workers onboard and rehire others until this lockdown situation is over.
“Fortunately, Congress could reauthorize the available $1.3 trillion from its other already passed legislation for this program and scrap the rest of the measures under consideration that aren’t targeted or timely,” Ginn said. “In addition to state and local governments reopening society and Congress passing the Workplace Recovery Act, there is a need for governments to get their budgets under control by reducing wasteful spending so that this redistribution of incomes through the government sector doesn’t further slow economic activity.
“Another thing is ending unnecessary regulations, particularly those that were suspended during the lockdowns,” he continued. “By following this approach, American families can have some calm from increased certainty about their future during a chaotic time, which is what the president seems to be trying to provide even as Congress does its best to make the situation worse.”
Ginn earned his doctorate in economics at Texas Tech University and has taught at Texas Tech and Sam Houston State. He joined the Texas Public Policy Foundation in 2013 and worked there until joining the Trump administration in 2019. He returned to the foundation in May.
Ginn said his goal at the TPPF is to preserve the state as a place where Texans can build their careers, raise their families and live their lives freely.
On Saturday, August 8, President Donald Trump signed four executive actions in response to a Congressional stalemate on the next round of COVID-19 relief. This brief covers the memorandum allocating federal Disaster Relief Funds (DRF) to enhance state unemployment insurance (UI).
Background on UI:
The federal-state UI system was created in 1935 as a form of social insurance run by—and usually funded by—states from collected business taxes, with the Department of Labor overseeing it.
Most states typically fund UI at half of lost wages for about 26 weeks while workers search for jobs (Texas requires the unemployed to report applying for at least 6 jobs per week).
The federal government can provide extended UI for 13 or 20 weeks longer and split that cost with states. However, the 2009 American Recovery and Reinvestment Act was the first time the federal government covered it all and lasted until 2013 when extended UI was provided for up to 99 weeks.
Congress passed the 2020 CARES Act that included federal funds for enhanced UI of $600 per week until July 31. Separately, the federal Pandemic Unemployment Assistance program extends the UI period for 13 weeks, for a new maximum of 39 weeks.
Economists find that 68% of eligible workers received enhanced UI greater than their lost earnings. Other economists highlight how high unemployment benefits can encourage layoffs, discourage work, and delay productive economic reallocation.
Details of the August 8 memorandum that provides enhanced UI by the federal government:
Directs up to $44 billion from the Federal Emergency Management Agency’s (FEMA) Disaster Relief Fund (DRF) to fund enhanced UI.
Offered $300 per week in enhanced UI if the state increased their UI by $100 per week. This requirement was then clarified so that an unemployed person could receive the enhanced UI if they already receive at least $100 per week from the state UI.
Enhanced UI terminates for work weeks ending on December 6, 2020 or when funds run out, whichever occurs first. An estimate predicts funds could run out after about five weeks.
Economic effects are minimal until an end to lockdowns & fiscal effects are neutral given DRF:
Fiscally neutral because money is in the DRF but would change if natural disasters occur this year (e.g., hurricanes) requiring more than $25 billion in spending—the amount retained in the DRF.
Federal enhanced UI is now tied to state UI if an eligible person receives more than $100 per week from the state UI. An economist estimated that nearly 1 million unemployed people currently receive below $100 per week so wouldn’t get the extra $300 per week.
Enhanced UI payments won’t start until at least late August, meaning many people who were dependent on the new total UI will receive only the normal state UI. The decline to the historical amount of the state UI could help incentivize people to search for work during or after lockdowns.
There’s evidence that enhanced UI may not have discouraged searching for work because jobs have been limited during lockdowns, so decreasing it may not have much effect until ending lockdowns.
Recommendations to improve the economy and the livelihoods of Americans:
Safely reopen society by ending state and local government-mandated lockdowns.
Get businesses operating and workers working again, such as with TPPF’s Recovery Act.
Eliminate wasteful programs to rein in excessive government and end unnecessary regulations.
Congress should scrap what’s currently being discussed in the next round of COVID-19-related recovery efforts. Instead, it should focus on getting businesses operating and workers working again after governments’ lockdowns severely disrupted the lives and livelihoods of Americans.
This can be done with the Foundation’s proposal of the Rehire America Workplace Recovery Act that includes the essential component of the free enterprise system: private property rights.
The proposal focuses on giving people the dignity of work by compensating businesses for cash losses incurred due to governments’ shutting down of society due to COVID-19. These net operating losses by businesses were realized from government lockdowns (beyond prior voluntary social distancing measures).
This proposal contrasts with much of the approach in Congress today that would prolong any economic weaknesses.
Handing out stimulus checks (some of which are erroneously sent to dead people) doesn’t get people working again. Extending overly generous unemployment benefits that exceed what 68% of Americans were earning disincentivizes work. And saturating profitable businesses with taxpayer dollars while letting too many small businesses go under fails, too.
The result of most of the current programs in Congress will be prolonged unemployment and weak growth. But our proposal would strengthen and shorten the recovery to let people prosper.
The COVID-19 economy has been one of records set in both directions.
The many disruptions during March and April plunged the country into a deep recession. The economy shed 22.2 million jobs, with the unemployment rate jumping from its historic low in February of 3.5% to 14.7% in April.
Though official second quarter GDP figures have yet to be released, analysts are expecting a 30-plus percent annual rate of contraction. By any comparison, the U.S. economy has never experienced such a quick reversal in its economic condition.
Though these numbers paint a bleak picture, there are more recent signs of optimism.
The U.S. labor market in May and June added 2.7 and 4.8 million jobs, respectively. Both figures were record highs. More hiring drove the unemployment rate down to 11.1% in June.
If this momentum continues, one would expect third quarter GDP to rebound from its projected second quarter low. Existing home sales rebounded in June, increasing by a record 20.7% providing additional evidence we’re likely in the beginnings of an economic recovery.
The Recovery Act’s compensation strategy would assist this rebound. It provides funding to help employers keep current employees and to rehire those laid off due to cost-cutting associated with the COVID-19 shutdowns.
It also conveys a core principle of effective programs in that it is self-terminating and temporary. A recipient’s participation in the program automatically ends once it’s no longer suffering cash losses or at the end of the program.
That’s the goal of the Recovery Act — to stabilize business operations to provide confidence for firms to retain and rehire employees. In fact, it places a compensation premium of 20% on rehiring furloughed workers. By compensating businesses for cash losses (including employee costs), this proposal aligns with an improving economy.
One of us estimated the economic and fiscal effects of this proposal depending on the duration from July to either September 2020 or February 2021 above the base case recovery over the next year. It would contribute to an extra $498 billion to $1.4 trillion in GDP, between 1.8 and 5.6 million new jobs, and cost taxpayers from $450 billion to $1.3 trillion.
Though a hefty price tag for the longer duration, the $1.3 trillion cost looks to be within what Congress has authorized but not disbursed yet from prior phases of economic aid so no new spending may be necessary if reallocated. If that’s not an option, the Act’s benefits outweigh the cost and would repay itself under six years. These results seem much better than the major packages considered by Congress.
The spirit of the Recovery Act is in a recent bipartisan bill called the Small Business Recovery Comeback Act so there’s a way to get this done for Americans. It could be improved by including more of the aspects that we’ve outlined above to make it cost-effective and time-constrained.
We need Congress to take a fresh start rather than funding the same flawed programs and principles. The Recovery Act is grounded in a free enterprise system. This is both an economic argument and a moral imperative to recover Americans’ livelihoods.
(The Center Square) – Stimulus checks for Americans at the onset of the COVID-19 pandemic made sense, but a potential second round could prevent some recipients from working and prolong fiscal recovery, an economist says.
“Ultimately what we’re for is people going back to work,” Vance Ginn, chief economist at the Texas Public Policy Foundation (TPPF), told The Center Square. “We need to find a responsible way to end the shutdowns, and find ways for people to get back to work, instead of having incentives to not go back.”
Another stimulus check for individuals and families has been discussed as part of the next phase of federal coronavirus relief.
“There may have been good reason for stimulus checks during the major part of the pandemic outbreak, but we think that time is over now,” Ginn said. “The stimulus check payment was put in place when many people were forced out of work, but now we’re looking at how to get people back to work and having businesses open.”
There are other ways to help people pay their bills and expenses, said Ginn, who formerly served as associate director for Economic Policy in the Office of Management and Budget at the White House.
The $600 weekly unemployment benefit that Congress included in the CARES (Coronavirus Aid, Relief, and Economic Security) Act expires at the end of July, but people can still get state unemployment, which usually pays about 50 percent of what their weekly income was, Ginn said.
As short-term federal programs from the pandemic’s onset wind down, other proposals are under consideration to help businesses.
One is the Workplace Recovery Act, which addresses operational losses incurred during the government shutdowns.
“It would focus on replenishing net operating losses for businesses so they can stay in business,” Ginn said.
A payroll tax cut for employers and employees through the end of the year also would put more money in the pockets of workers, and incentivize businesses to grow because they would have lower costs and do more hiring, Ginn said.
Another key component to economic recovery is quelling fear.
“We need to deal with the pandemic situation in its full context,” Ginn said, “We don’t need to resort to lockdowns and closing society again because it would have a devastating effect on our lives and livelihoods.”
Vance Ginn, Ph.D.