In Depth Analysis: CalculatedRisk Newsletter on Real Estate (Ad Free) Read it here.

Tuesday, July 21, 2020

Thoughts on CARES II: Additional Disaster Relief

by Calculated Risk on 7/21/2020 10:10:00 AM

A month ago I outlined a few key items for additional disaster relief.  Time is running short.

This morning, the WaPo had an article on some proposals: GOP coronavirus bill likely to include payroll tax cut and tie school money to reopening plans

The emerging GOP coronavirus relief bill appears likely to embrace some of President Trump’s key priorities, despite opposition from within his own party, including a payroll tax cut, very little aid to state and local governments, and measures tying school funding to the reopening of classrooms.
The proposed payroll tax deferral is inane (using a "deferral" as opposed to a cut is an accounting gimmick).  This proposal targets money for people with a low marginal propensity to consume (MPC).

Compare that to the current Federal Pandemic Unemployment Compensation (FPUC) that targets unemployed people with a high MPC, and helps them pay their bills (grocery, rent, mortgage, etc).

Other people's spending is our income, so during this crisis, we want to provide disaster relief to the people that are most impacted by the crisis (the unemployed), and those with a high MPC.

A few suggestions:

First, we need to address the health crisis.

This means additional money for hospitals, testing, trace-and-isolate programs, and personal protection equipment (PPE).   Test results are taking far too long, and that isn't useful.   We need to significantly improve our testing (and turnaround).  Also, it appears PPE is running low again for our healthcare workers.  This puts these frontline workers at risk.

Addressing the healthcare crisis remains the first priority.

Second, we need to provide additional disaster relief to the unemployed.

I discussed this last month, and this includes an extension of the Extension of Federal Pandemic Unemployment Compensation (FPUC), even if the amount is reduced. This is critical, or we will see a significant slump in spending in August, and a sharp increase in delinquencies (rents, mortgages, credit cards, etc).

We will also need to extend the term of the Paycheck Protection Program (PPP). This program has kept many small businesses alive, and millions of employees employed. There will have to be additional disaster relief for these companies, or millions of people will be let go soon.

Third, we need to provide State government relief.

It is time for a substantial state relief package. Without relief, the states and local governments will have to start laying off a significant number of employees.

These are some key areas, and it seems very likely there will be a "CARES II" act.  But it has to be sized and structured appropriately.