Senate Majority Leader Mitch McConnell wants the Senate to take quick action on a stimulus plan to write checks to Americans to help with needed expenses due to the Coronavirus pandemic.
Fox News did a good job laying out the details based on a draft version of the bill. They’d calculate an amount, starting $600 for individuals or $1,200 for a couple. Then they’d add $500 for each child. Then they’d look at your adjusted gross income–for 2018 (!). For every $100 over a threshold of $75,000 for an individual or $150,000 for a couple, they’d shave $5 off the amount of the check.
An example: Let’s look at a couple with an AGI of $160,000 (in 2018) with two children. That would be:
- $1,200 for a couple ($1000 x 2)
- $1,000 for two children ($500 x 2)
- Less $500 ($160,000 – $150,000 = $10,000 / 100 x 5)
- Total: $1,700
This is a totally ridiculous exercise in jumping through government red-tape hoops to obtain a useless result. Let’s look at what’s wrong with this awful mess.
It’s two years too late
Everything in this plan is based on 2018 AGI. In 2018, everything was different. First, our couple might have been employed and now they’re not.
Second, what if the couple sold a business, or sold a house? What if they weren’t married in 2018 but are now? Given that President Trump just extended the filing period for 2019 to July, there’s simply no basis for going back two years to do income testing.
It’s virtue signalling for budget hawks
Come on, “let’s be real,” as the sainted Anthony Fauci would say. Writing a check to every adult in America is spending a crap ton of the people’s tax money. It’s not fiscally sound policy from a cost-cutting point of view.
But it’s necessary to buttress the enormous blow of our hot-on-fire economy immediately cooling to sub-zero in one fell swoop. And if we are going to “go big” as the president said to do, we need to go all the way big.
If we’re going to spend $140 billion writing checks to taxpayers, let’s just do it, and maybe go even bigger. Why make these distinctions over the top 5% of wage earners? Just to say “look, we didn’t give millionaires a few grand each” is nothing but air kissing budget hawks and Sandersnista billionaire haters.
Many of the people who need this money are running small businesses or side gigs and need the money so they don’t draw a salary and can have groceries and pay their one or two employees versus closing their doors. This is why it needs to be done quickly.
But arbitrarily shaving the top 5% and adding money for kids as if this is a needs-based welfare program is nothing but virtue signalling.
It’s not enough
Two things are really needed. First, we need to put money into the pockets of Americans–just enough to get through a rough patch. I’m good with $1,000 per person, or $2,000 per couple, regardless of kids.
If they don’t need the money, they can donate it to someone who does. Let people be human for a chance, and not directed by the government. We don’t need a thousand pallets of water sitting on a runway somewhere. People are pretty good at figuring out where charity should go, and the skinflints who keep their money when they don’t need it will have their reward (spiritually speaking).
But that’s not enough.
No interest payroll loans to all small businesses
Small businesses need available cash too. I was on a conference call today dealing with the new Family First Coronavirus Response Act (FFCRA). Some businesses are going to be stuck with some terrible choices: pay everyone 80 hours of lost work time because they’ve been shut down, or lay those people off and close the doors.
If a restaurant or caterer, or interior designer can’t pay their people for time lost under FFCRA, then they will have to potentially close their doors, and some forever. These businesses don’t need a tax rebate six months from now. They need cash this instant to get them through.
It’s always better to give businesses money to pay employees, then to give the employees a one time check and no job to return to. I think if we’re going to go big we need to do both.
If you’re a budget hawk this is a terrible conundrum, but a depression means we won’t ever be seeing the end of our national debt. We’re looking at massive unemployment.
We need to open a credit window to small businesses, of up to 200% of the last 941 report of payroll, available immediately from the SBA, without a credit check. The money would be owed back to the government but on generous terms, with no interest. It’s the taxpayers’ money and we should loan it to small businesses, not just Delta Air Lines.
The current SBA Coronavirus “Economic Injury Disaster Loan” process is awful. It’s a horror show of red tape and excuses. If we rely on this, we will end up where Georgia farmers waiting on Hurricane Michael assistance had to wait over a year for political football-playing to end.
These businesses need cash. Now.
Put back the 401(k) penalty
McConnell’s bill is nearly criminal in its removal of the 401(k) early withdrawal penalty. What a terrible policy! Just as people are desperate, without a paycheck, their previously good income destroyed and their relief check shaved for no reason than 2018 was a good year, they are being incentivized to draw on their only useful asset: a depleted 401(k) devastated by market losses.
If you want to send this nation into a long, terrible recession that lasts a decade, that’s the way to do it. Take people who have an asset that could recover and get them to cash it out when it’s worth the least it can be. This is the stupid act of a political “solution” with no foresight.
Don’t do it. If it were me, I’d double the penalty to keep the money where it is, in people’s retirement accounts.
If you’re going to test for the incentive check amount, do it by cost of living
I’m not strictly against some test to properly distribute the incentive money. But doing it by income is not useful. If we’re going to do it, let’s do it by cost of living.
The government (GSA) has a full table of what it costs to live in every city in America. They use this to establish their per diem rates and location specific salary adjustments on the GS pay scale for federal employees.
For example, GS-12 step 1 in Colorado Springs pays $77,931, while in New York City it’s $88,651, and in Huntsville, Alabama it’s $79,301. I have no problem giving people in New York City 35% more, so if in Central Georgia people got a $1,000 check they’d get $1,350. That’s fair.
The data is available and we could certainly figure it out by zip code. Easy and done.
It’s either that or just give everyone the same. But don’t do the stupid dance they’re doing on Capitol Hill.
Back to the drawing board
The Senate needs to go back to the drawing board with this stimulus and do it over again. It’s just too broken to go forward. I hope they kill this bill and do something sensible.
If McConnell goes forward and forces this one through, we will all regret it.