Sunday, March 08, 2020

Fiscal Policies to Address COVID-19

by Calculated Risk on 3/08/2020 12:40:00 PM

First, some good news on the flu from the CDC:

"Key indicators that track flu activity remain high but decreased for the third week in a row. Severity indicators (hospitalizations and deaths) remain moderate to low overall …"
It appears flu season is starting to wind down, and that will lessen the burden on our healthcare professionals.

And on testing, Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases said on Meet the Press this morning:
"early on, there were some missteps" … "But right now I believe 1.1 million tests have already been sent out. By Monday there’ll be an additional 400,000."
IMPORTANT: See the entire interview with Dr. Fauci here: Fauci: Those 'vulnerable' to coronavirus should limit travel and crowd exposure (second video is full interview). Listen to his comments on testing! (first couple of minutes).  Dr. Fauci is transparent, honest and factual.

Test kits are just one part of the equation on testing.   We also need testing capacity.   Tests need to be ubiquitous, and free for all. Medicare is already paying for the tests, and most insurance companies have said they will pay for the tests. The Federal Government needs to step up and pay for the tests for the uninsured (with no citizenship requirement).

Currently qualifying for a test is too restrictive (due to the lack of test kits and capacity).   It should be easy to qualify (those that have symptoms, or close contact with someone with COVID-19, or healthcare workers and first responders, or staff at retirement communities and those that frequent those communities should all be able to obtain tests on demand).

On fiscal policy:

1) The Federal Government should immediately announce that tests are free for the uninsured.

2) For those that test positive (but don't need hospitalization), the experts should determine how to isolate them. If their employers will not pay for their time off, then the government should pay. We don't want people avoiding tests because of the costs or the fear of lost income.

3) Sick people should not go to work.  If the company does not pay for sick leave, the Government could have a program of sharing part of the sick leave (say 50% with the company).   This is important for part time workers.  Companies like Trader Joe's have already announced that part time employees can take sick leave.

4) We need to proactively expand unemployment insurance. (Note: There would be triggers for this program, so if we get lucky, and COVID-19 is seasonal, then this program would have minimal fiscal impact.) The idea is to increase the amount paid (based on various triggers) and to include parents with school closures (to help with child care).

4a) Based on certain triggers, the Federal Government would pay an additional 60% of whatever the state is paying for unemployment insurance (if the state is paying $300 per week, the Federal government would add $180 per week). (Note: The 60% is just an arbitrary number).   The requirement that people are looking for work would be waived (this is not a financial issue - it is a health issue)

Triggers could be based on an increase in the 4-week average of unemployment claims above a certain threshold (like 250K), or industry triggers (workers in leisure industries such as airlines, hotels, etc. could qualify), or there could be geographical triggers based on a serious regional outbreak of the virus.  So this wouldn't go into effect until certain triggers happen.

4b) On school closures, the Federal Government would pay a parent both the state share and the 60% extra.   School closures are easy to verify.   There should be a "reduction in hours" clause, so a person can keep working during a school closure, and still receive some benefits.

4c) There should be a provision to extend the benefits (entirely paid by the Federal government) if the crisis is still ongoing.

This type of program is targeted and builds confidence.   One of the concerns during a downturn is that people will slow their spending because they become worried about their financial situation if they lose their job.   This will alleviate that fear somewhat.

5) Based on economic data, the Federal Government should be prepared to get money to everyone.  One suggestion is to significantly lower payroll tax withholding, from former Fed economist Claudia Sahm:
The easiest way is to cut federal tax withholding for the next two months. In 1992, George H. W. Bush issued an executive order, employers used the new withholding tables, and within weeks people got a bump in their paychecks. It worked, people spent the money.
It is important to be proactive on fiscal policy so that we are prepared if the situation deteriorates quickly.