America now faces the greatest economic crisis in living memory. Last month, the economy shed 20.5 million jobs, more than double the number lost during the 2008-2009 financial crisis. The official unemployment rate now stands at 14.7 percent. Many states are poised to begin the slow work of reopening their economies in the weeks to come, but they do so facing uncertain prospects. Consumption patterns for the industries most affected by the coronavirus lockdowns are unlikely to return to normal in the short term, and we may soon see the ripple effects in comparatively unaffected industries.
Workers and businesses are in a bind. They can’t remain frozen in place for a year, but they lack the financial security they need to restore operations in an uncertain environment. Without further federal action, America’s reopening will stall. Congress must act now to provide the economy the scaffolding it needs to reopen and build the growth curve back up.
To overcome challenges with uncertain revenues and possible worker reluctance to fully join the workforce again, Congress should provide wage support through the end of the year for businesses facing revenue shortfalls:
Rehiring and Job Protection
To help businesses staff up and get unemployment down, the federal government should provide temporary payroll support of 120 percent of a rehired employee’s wages, capped at $50,000 per employee. This would help businesses offer temporary wage increases to rehired workers to offset the difference between prior wages and pandemic unemployment. This temporary bonus should also cover newly hired workers to allow businesses that have survived the lockdowns to hire workers laid off from businesses that cannot reopen.
Any changes to the accounts of the Social Security and Medicare trust funds resulting from the delivery of this support via the payroll tax system would be fully offset through general revenue transfers, holding our nation’s retirement programs harmless.
Turning on the Lights
Businesses can’t rehire their workers if they can’t pay their bills, and for many industries the road back to normal could be a long one. In addition to payroll support, Congress should provide businesses grants applicable to rent, utilities, mortgage interest, and other fixed costs based on historic revenues.
In addition to these fixed costs, businesses operating in the pandemic economy need financing to make the substantial investments necessary to keep their workers and customers safe, attract new customers, and experiment with new business models. These investments will help not only to make these firms more productive but also to fuel demand throughout the economy as consumer demand slowly ramps up. To further induce businesses to reopen and rehire, Congress should provide an additional reinvestment credit offsetting these business investment costs.
These new credits should be made available to businesses of all sizes, including small businesses that have received Paycheck Protection Program loan forgiveness once they have exhausted that support, so long as they have experienced revenue declines of 20 percent or greater. Support will be capped at the level of a business’ revenue losses. To ease administration of the credit, verification of revenue losses and reconciliation of overpayment will occur in 2021 for small and mid-size businesses.