Introduced to the house ways and means committee by Rep Courtney, Joe [D-CT-2] on January 24, 2019, getting 369 co-sponsors (201 Democrats and 168 Republicans) and signed into law by President Donald J Trump on March 27, 2020. The Coronavirus Aid, Relife, and Economic Securities Act, also known as the CARES Act, is the single largest stimulus bill in American history. Providing $2.2 Trillion in aid to individuals and families, small and large businesses, State and local governments, and public services with the intention “protect American people and industries from the health and economic impacts of COVID-19.” Each of these categories was for a different cause, received a different portion of the total $2.2 Trillion, and the allocation of money was broken down as such.
Individuals and Families
This was the largest component of the bill that received the most amount of funding. In total, it took approximately $603.7 Billion dollars which estimates roughly thirty percent of the pie. Even this money was broken into three distinct subgroups—cash payments to individuals and families, unemployment insurance money, student loans, and retirement plans.
Approximately $300 Billion was allocated to the first category of cash payments. These were the stimulus checks that individuals and families received in the mail by the government. It is also important to note that not everyone got an equal share of the money. Some people received more than others. If you are single and making $75k or less, you will receive $1,200. If you are single and making more than $75k and less than $99k, you will receive $200. If you are single and making more than $99k, you receive nothing. If you are the head of a household making $112k or less, you will get $1,200. If you are the head of a household and making more than $112k and less than $145k, you will receive $575. If you are the head of a household and making more than $145k, you will receive nothing. If you are a Married couple making less than $150k, you will receive $2,400, if you make more than $150k and less than $198k, you will receive $1,150, and if you make more than $198k, you will receive nothing. And finally, if you are a family of four, you will receive $3,400. The information as to your income will be found by your 2019 tax returns, and if the 2019 pieces of information if not available, they will use 2018s. It is important to note that because this is a stimulus check, this money is not taxable. The idea behind giving people this money is to get them to go out and spend it on things that they first and foremost need, but also things they want, so the economy will be “stimulated.” We will establish later on why the stimulus checks did not succeed in their task and did everything for our economy but stimulate.
The next biggest area the money was allotted to with regards to individuals and families was unemployment benefits. Contrary to the stimulus checks, this money is taxable. There is a lot of money that goes into this part of the bill, approximately $260 Billion. Each person on unemployment will get approximately an extra $600 per week on top of their normal unemployment money. This money will be given to you by the state government but then will automatically be registered in the federal program. This is a perfect example of Marble Cake federalism, where the state and federal government work together to accomplish a goal. The problem with this program is that every two out of three people on this program make more by staying at home rather than by going to work. This program was originally set to end on July 31st.
The next category was student Loans; it provided $44 Billion in student loans. This money differs from the Stimulus checks and Unemployment benefits in the sense that it must be paid back as it is a loan, not a grant. When you get a grant, it is money that you don't need to pay back, loans you must payback. This money is not taxable if paid in full prior to September 30, 2020.
Now we move on to evaluate how this bill has affected retirement plans for individuals. The plan provides multiple distributions, several of which are exempt from penalties, such as the 10% penalty that would have applied to any qualified plan, 403(b) plan, or IRA. Also, the in-service distribution prohibitions are waived for 401(k), 403(b), and 457(b) plans. However, they are not waived for other qualified plans. For example, pension plans are not waived. Also, the distributors don't have to pay a twenty percent federal income tax. For simplicity's sake, you are considered a qualified individual if COVID-19 had had a negative impact on your health, any family's health, or your financial standing.
Businesses
$850 Billion and making up approximately 44% of the entire budget, the second largest part of this bill went to Businesses. The federal government gave 662,516 loans of between $150,000 and $10 Million to varying businesses. The criteria for receiving this money was that the majority of your employees have to be in the United States or have less than $2.5 Billion in revenue. On top of this, approximately $58 Billion went to the airline industry. The major executive for this budget was the Small Business Administration (SBA). As most bills go, there were subsections in this bill about The loans given to small businesses. The first was eligibility, then the maximum amount for the loan, then the payroll cost, loan forgiveness, and finally, the process for requesting a loan. Next, we will examine the Economic Injury Disaster Loan Grant. Following this, we will look at the deferral and payroll taxes.
First, with regards to the eligibility of the small business loans through the SBA’s 7(a) loan-guarantee program, you must be a self-employed individual who runs a 501(c)(3) (non-profit), veteran organization, or “tribal business concern.” You must also have fewer than 500 employees. If a business is to receive a loan through this program, they may not also receive an emergency disaster loan. “The maximum amount of the loan for businesses will be the average total monthly payments for Payroll Costs incurred during the one-year period before the date on which the loan is made, multiplied by 2.5. For a person, ho runs a business that shuts down multiple times during a year (a part-time seasonal company)(Group, Wagner Law)”, The maximum loan that can be given out is $10 Million. Certain Payroll Costs may be covered by loans, mortgage payments, rent, and utilities that had to be paid for between February 15, 2020, and June 30, 2020. It also includes interest on any other debt prior to February 15, 2020 (Group, Wagner Law). Payroll costs can be defined as Wages, salaries, commissions, paid vacation, parental, family, medical or sick leave severance pay, cost of group healthcare benefits (including premiums), payments for retirement benefits, and Payments for state or local taxes on employees’ compensation. If an employee makes more than $100,000 annually, the loan can only cover $100,000. Eligible expenses do not include amounts for qualified sick leave, or qualified family leave for which a tax credit is allowed under the Families First Coronavirus Response Act, and compensation for employees whose principal residence is outside of the United States.”(Group, Wagner Law) With regards to Loan forgiveness, it extends between February 15, 2020, and June 30, 2020. Payroll Costs, Payment of interest on any covered mortgage loan that must be paid, and payment on any covered rent obligation may all be forgiven. However, there are some special rules that were outlined by the bill for employees that work part-time. According to the bill, “For reductions in wages, the forgiveness amount is reduced by the amount of any reduction in total salary or wages of any employee during the covered period that is more than 25% of the employee’s salary or wages during the most recent full quarter of employment before the covered period. For purposes of any reduction in forgiveness due to wages, the term “Employee” is limited to any employee who did not receive, during any single pay period during 2019, a salary or wages at an annualized rate of pay greater than $100,000. However, the amount of the forgiveness reduction will be calculated without taking into consideration any reduction in the number of full-time equivalent employees or a reduction in the salary of one or more employees during the period beginning on February 15, 2020, and 30 days following enactment of the CARES Act if the employer eliminates the reduction in full-time equivalent employees by June 30, 2020; or In the event of a salary reduction, the reduction is eliminated by June 30, 2020. Amounts forgiven are not subject to taxation as cancelation of indebtedness income. The amount of the loan that is not forgiven shall have a maximum maturity of ten years. Lenders must provide deferment relief for the payment of principal, interest, and fees on loan for at least six months and not more than one year. Interest on the loan cannot exceed 4%.”(Group, Wagner Law) Once more, the bill outlines very clearly what the provisions for requesting a loan are “To be eligible for the loan the borrower must: Certify that, due to the uncertain economic conditions that currently exist, the loan is necessary to support the ongoing operations; Acknowledge that the funds will be used to retain employees and maintain payroll or make mortgage payments, lease payments, and utility payments; Certify that the borrower has not received any other loan for the same purpose and duplicative amounts, and certify that the borrower does not have a loan application pending for the same purpose and duplicative amounts. A self-employed individual must also submit the documentation necessary to establish the individual as eligible (e.g., payroll tax filings filed with the IRS, Forms 1099-MISC, and income and expenses from the sole proprietorship as determined by the Administration)(Group, Wagner Law).
Next, we look at the Economic Injury Disaster Loan Grant; this was designed to help small businesses with less than 500 people the most by expanding the eligibility for EIDL for them. Any loans that are less than $200,000 do not require any personal guarantees, and loans are given out purely on your credit score.
As promised, we will now look at deferral and payroll taxes. There isn't much that goes into this part of the bill. Companies basically just get an extension on the taxes they have to pay on the people’s payroll.
State and local governments
All in all States and Local governments will receive the funding they deem necessary in order to solve any problems due to the impact of COVID-19 in the area that falls under the jurisdiction of the State and Local governments. Once more, this goes back to the concept of federalism, allowing locally elected public servants to make decisions as rational actors to support the aggregate betterment of the people that they represent. The total amount of money that ended up going to the state and local governments was $340 Billion, which estimates to about 17% of the pie. $3 billion is reserved for direct payments to the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa, and $8 billion is reserved for payments to tribal governments. On top of this, each state will receive a minimum of $1.25 Billion.
Public Services
Although the Public services received the smallest amount of money in comparison to the other categories, it still received $180 Billion, which estimates to 9% of the total “budget.” The biggest public service we see are appropriations to hospitals, which were about $100 Billion, over half of the given $180 Billion.
Potential future bill
One potential future bill to basically serve as a “CARES Act 2.0” is called the “HEROES Act.” To put it quite simply, this is the “CARES Act” on steroids. It would be the single largest relief bill in American history, estimated to cost $3 Trillion. It is important to note this is an additional $3 Trillion on top of the $2.2 Trillion they already spent on the “CARES Act.” It is allocating many more funds in different areas on top of what was already given. All people who met the original qualification standards of the original bill will receive an additional $1200 per person, $2400 per couple; $1200 per dependent; and up to $6000 per household. This bill also gives state and local governments. It will give $500 Billion in state funds, $375 in local funds; $20 Billion in tribal funds; and $20 Billion in U.S. Territories. They have also allocated $200 Billion for all essential workers benefits such as hazard pay, family care, and protective equipment. Much of the bill was extending the programs we spoke of earlier, such as the unemployment program or the student loans. It cancels many of the Federal and private loans up to $10k. An extra $75 Billion funds COVID-19 testing, contact tracing and will allow any and all Americans to receive free COVID-19 treatment. Farmers are also not at all forgotten about in this bill. $50 Billion will go to new farmers; $50 Million to pre-existing farmers, farmers markets, and local food outlets. It even focuses on areas like rent, it will help pay for rent, and ban evictions for another year. The Bill would give an extra $25 Billion to the United States Postal Service (USPS). And last but certainly not least, it would provide $3.6 Billion to help states with ensuring election security.
This bill was passed in the democratically controlled house but was dead on arrival in the Republican-controlled senate. Therefore, it did not pass. There is still talk about getting it reintroduced, but it is minimal. I do not believe the bill will be reintroduced, especially considering it seems the republican will keep a hold in the senate.
My take on the stimulus bills
Personally, I have never been a fan of the Fed and do not believe they are the reason we ever get out of a recession or depression. To understand my claim We must first take note that for 138 years in American history, there was no Federal Reserve system. During the Great Depression, just 15 years after the adoption of the system; we see the worst failure of banks in history, precisely what the system was designed to prevent. From 1929-1933, the money supply was depleted by nearly a third. At any point during this depression, the Federal Reserve could have slowed down the downfall of the economy, if not prevented it entirely. Despite the best efforts of the other private banks and individual members of Congress to advocate for a change in their course of action, the Federal Reserve chose to continue with their failed monetary policies.
Two months after the stock market crash of 1929, the unemployment rate increased to 9%, and by June of 1930, it fell to 6.3%. At this time, the federal government enacted its first policy to combat the unemployment rate. To quote Milton Friedman, "The government solution to a problem is usually as bad as the problem." This case was no exception. The unemployment rate increased to and stayed in the double digits for the rest of the decade. The Federal Reserve failed so badly that they themselves shut their doors during the midst of the depression. After the depression came to a halt in 1933, the Federal Reserve proclaimed that if it was not for their wise policies, the depression would have been much worse. It is silly to believe this for even a moment.
The Federal Reserve today will not fail for the same reason it failed in the 1930s; it will fail because it is causing mass inflation by buying bonds issued by the Treasury. What is happening here is called Open Market Operations- the Federal Reserve buys the bonds issued by the Treasury to give banks liquid cash in order to increase the money in circulation. However, this is only useful when the money supply is decreasing. In today's society, although overall spending has decreased, the amount of money in circulation has remained more or less the same. Therefore, the approach by the Federal Reserve has been largely ineffective.
Another reason the Fed has continued printing this money has been because of the reason outlined above, COVID-19, and the economic impacts it has caused. I view this the same way I view the reconstruction programs of the 1930s. I can not deny the short term effects of the programs, they provided jobs and reduced unemployment, however, is it not true that the inflation rate rose significantly during the time of FDR’s “New deal” and because of the $2.2 Trillion stimulus deal, the inflation rate is expected to double in 2021.
The betterment of the aggregate American economy starts with the dissolution of the Federal Reserve. The chair of the Federal Reserve has the unilateral power to dramatically impact our economy at any moment they see fit. The central bank completely controls and determines the money supply, and has abused that power ever since its creation. Like most other government creations, the Federal Reserve, CARES Act, or even the HEROES Act intent are valiant, but the implementation is calamitous at best.
Process for a bill becoming a law
First, before anything, the bill must be drafted with members of congress, and get some co-sponsors. In other words, the bill needs support. Next, depending on whether the Sponsor was a Senator or Representative, It will either be introduced in the Senate or the house, if a Senator it will be in the senate, and If a Representative it will be in the house. Next, it goes to a committee, these are both in the senate and in the house. They will hold various meetings with experts in the field this bill relates to. However, they must act on the bill here, if they don't, it is deemed “dead.” Following the committee's approval, a subcommittee takes a deeper dive into the subject matter, next is the markup phase, this is where they can amend the bill, here too the bill can die. Next, the full chamber debates on the bill, they can discuss things like approving the bill as is, adding amendments, or even shooting it down. When either the house or senate passes the bill it is referred to by the other one, they usually reach some sort of agreement between their two versions, if they can't, the bill dies. Once both the house and senate approve of the final draft of the bill it is sent to the president for approval. If the president signs the bill it becomes law, or if he hasn't done anything about it for ten days it automatically becomes law. The President also has the power to veto the bill, if this happens Congress has the power to overturn the veto by a two-thirds majority in both the house and senate. It is a long and convoluted process, in which it can be shot down at almost any stage, given the modern political climate, it is amazing anything gets done, let alone a $2.2 Trillion spending deal while having a Republican-controlled senate and executive.
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