CBO projects a sharp economic downturn. The Congressional Budget Office expects the economy to contract by about 12 percent in the current quarter—an annualized rate of 40 percent. It expects unemployment to average close to 14 percent. For fiscal year 2020, it projects a federal budget deficit of $3.7 trillion, and a debt ratio of 101 percent of GDP.
What’s next for COVID-19 relief? No sooner had Congress approved nearly $500 billion in additional assistance, mostly for small businesses and hospitals, when the debate began on the next bill. Hill Democrats want $500 billion for state and local governments, more assistance for workers, and—perhaps—a big infrastructure bill. The Washington Post reports that Republicans are divided over what to do next. President Trump seems to like the infrastructure idea, and still is touting a payroll tax cut. Senate Majority Leader Mitch McConnell wants to tap the brakes on another bill.
Are states to blame for their COVID-19 budget shortfalls? McConnell said so last week, placing most of the blame on state employee pensions. TPC’s Richard Auxier argues that this “allegation is not only absurd, it’s incredibly dangerous. Because if Congress doesn’t step up and fiscally support the states now, the entire country will fall deeper into this unprecedented recession.”
And what about local governments? TPC’s Megan Randall describes how the Urban Institute’s interactive State and Local Finance Data: Exploring the Census of Governments provides important context for local governments facing the coronavirus crisis. After 40 years of significant declines in federal and state financial assistance, city and county budgets and service delivery systems are especially vulnerable to shocks such as COVID-19.
The CARES Act’s benefits for businesses facing losses skew toward the wealthy. TPC’s Steven Rosenthal and Aravind Boddupalli demonstrate how the wealthiest Americans will benefit from the Coronavirus Aid, Relief, and Economic Security (CARES) Act’s tax relief for business losses. Much of the benefit will go to investors in hedge funds and real estate developers, not owners of small businesses. Meanwhile, Rep. Lloyd Doggett (D-TX) and Sen. Sheldon Whitehouse (D-RI) have introduced a bill to retarget tax relief for business losses to smaller firms.
How will Congress eventually finance coronavirus relief? TPC’s Howard Gleckman considers the options to pay for relief, since the income tax alone probably can’t do it. The federal debt is so big that once-unthinkable options may now be on the table. “Consumption taxes such as value-added taxes or carbon taxes… may get a hard look. So will a wealth tax… And lawmakers may also look at new ways to tax assets of the wealthy at death.”
If demand and supply are low, how does an economy recover? TPC’s Gene Steuerle describes how Congress can jumpstart the economy. Just giving consumers money through tax rebates or tax cuts won’t boost supply and may not even enhance demand. What to do? “The short answer: Increase government purchases.”
IRS says SSI and VA beneficiaries have until May 5 to apply for COVID-19 payments for their children. People who receive Supplemental Security or Veterans Affairs benefits will get their payments soon, even if they have not filed a tax return for 2018 or 2019, according to the IRS. But if they want their children to get $500 payments as well, they must submit information on their dependents by May 5. If not, the IRS won’t make the payments until they file a return for tax year 2020—a year from now.
What should we call those recovery rebates? TPC’s Janet Holtzblatt reviews the half dozen names for those $1200 payments. To Janet, “the various names suggest different perspectives… and, as such, have distinct implications for who should benefit.” She likes the IRS’ name best: “economic impact payment,” since it implies that assistance should go to those most adversely affected by the pandemic, and that the amount should reflect the severity of the pandemic’s impact.
Remembering Paul O’Neill. TPC’s Howard Gleckman recalls President George W. Bush’s first Treasury Secretary, who passed away earlier this month. He was “a refreshing beacon of intellectual honesty and candor in Washington, where successful spinning often is more prized than good ideas. Government could use more people willing to push their bosses to rely on data. And more bosses who will listen.”
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