The rapid spread of the coronavirus has led to massive business disruptions in the U.S. over the past several weeks.
A growing number of states across the country ordered residents to “shelter in place,” and non-essential businesses such as sit-down restaurants, retail stores, and any event supporting public gathering have been forced to close or shut down.
Effectively, federal and state governments have shut down the U.S. economy. As a result, the pace of layoffs has been so swift, new fillings for unemployment insurance have skyrocketed to historic levels.
The Rescue Package
On Wednesday night, the Senate voted 96-0 in support of the $2.2 trillion emergency package intended to avert economic collapse. The 880-page bill goes to the House for a vote on Friday.
Unemployment: Some Workers will be Getting a Raise
Under the package, all unemployed workers across the U.S. will be eligible to receive $600 per week in federal aid. They will also receive unemployment benefits from their state-level unemployment insurance departments.
There does not appear to be any limiting criteria associated with the $600-per-week supplement in unemployment benefits.
In California, state-level benefits cover half of the salary of anyone earning up to $46,800 on an annualized basis. Workers earning more than $46,800 receive the maximum of $450 per week.
With state and federal aid combined, many California workers will begin earning more than when they still had a job.
For example, a full-time worker earning the minimum wage would have earned approximately $25,000 this year. Under the new bailout package, they will receive $600 per week from the federal government and $230 from California, leading to annualized earnings of $43,160.
The $600 per week federal benefits are effective through July, so for the next few months, laid-off workers in California that were making less than $54,600 will earn more from their unemployment benefits than they would have if they had kept their job, not counting things like employer-sponsored health insurance and retirement contributions.
Also in the bill: Gig workers like Uber drivers will be eligible for unemployment benefits for the first time.
The bill includes $50 billion for tax credits for firms that retain workers on their payroll and cover 50 percent of worker’s pay. Firms will also be able to defer payment of Social Security payroll taxes, which are 6.2 percent of the first $137,700 in wages for each of their employees.
Persons earning less than $75,000 in adjusted gross income will receive a stipend of $1,200. Households with two workers will receive $2,400. The stipend rises by $500 with each child. The subsidy phases out at higher incomes and no subsidy would go to individuals earning more than $99,000.
Much of the subsidy will be used to finance food and shelter expenses that have been distressed by the loss of a paycheck or business revenues.
Loans to Businesses
There is $850 billion in guaranteed loans being made available to businesses, both small businesses and distressed businesses of any size. This type of program could prevent many firms from permanently shutting down if the funding can be received during the month of April. Some businesses could still be saved if the loans arrive in May.
The bill includes $130 billion in cash payments to hospitals to finance resources. Many hospitals need to acquire new resources, including ventilators and hospital beds, to be prepared for a potential surge in patients.
How Significant is the Rescue Package?
Two trillion dollars represents a sizable volume of potential funding for the U.S. Economy. Total gross domestic product for 2020 (in the absence of the pandemic) was expected to be $22.1 trillion.
The $2.2 trillion bailout therefore represents 10 percent of annual GDP, or just over five weeks of U.S. economic activity. If, hypothetically, somewhere around 20 percent of GDP were lost due to the pandemic, then $2.2 trillion would offset about 5 months of economic loss, provided that consumers and businesses spend the bailout funds, rather than put them into savings.
Since much of the package takes the form of loans, nearly half of the amount would be returned to the U.S Treasury over time. The remaining $1.3 trillion represents a supplemental increase to the national debt, and will ultimately have to be repaid with higher taxation in the future.
Reprinted by permission from Mark Schniepp, head of the Goleta-based California Economic Forecast, an economic consulting firm that produces commentary and analysis on the U.S. and California economies. The firm specializes in economic forecasts and economic impact studies, and is available to make timely, compelling, informative and entertaining economic presentations to large or small groups.
Posted March 26, 2020.