The CARES Act provided a $600 weekly federal benefit supplement, known as Federal Pandemic Unemployment Compensation (FPUC). Allowing FPUC to expire as scheduled on July 31st not only would damage the well-being of American families, but it also would strike a severe blow to businesses and the economy. Data from April show that FPUC alone offset roughly 30 percent of the loss in private-sector wages and salaries.
Most public health experts believe that it is too soon to begin reopening the economy. Few states meet the guidelines for reopening; and there are far too few effective tests to determine how widely the disease has spread. Although some other industrialized countries have developed sophisticated contact tracing programs to contain the virus, in the United States there is no system in place.
The rate of growth of confirmed cases has slowed overall, but it is rising in some parts of the country. Epidemiologists widely believe that the number of actual infections is much higher because the lack of testing means that even many of those who have symptoms aren’t counted in the official figures. The rate of growth of deaths also has slowed, but not much from the recent peaks. Experts believe that the death rate from COVID-19 also is substantially understated.
Nevertheless, President Trump has advocated relaxing social distancing mandates since late March—even before the number of confirmed cases exploded, causing what likely will exceed 100,000 American deaths by Memorial Day. Although he now claims that he leaves such decisions to the states, he has applied tremendous pressure and even has threatened governors who oppose him.
Leading economists have long advocated for using “automatic stabilizers” to help counteract the destructive impact of recessions and to hasten recovery. Such mechanisms, like unemployment insurance, automatically expand when the economy worsens and shrink when it recovers. This prevents consumer demand—and the economy—from falling into a downward spiral.
Congress has acted forcefully to counteract the economic fallout of coronavirus with a dramatic expansion of unemployment insurance, aid to state and local governments and more. But that aid is temporary and, unlike enhanced automatic stabilizers, will begin to expire this summer while we likely remain in the middle of dual public health and economic emergencies.
Providing economic support to Americans during the public health emergency is critical to beating the virus. The goal in every other economic downturn has been to get people back to work quickly, but the current objective is to allow them to stay home or practice social distancing for as long as it takes to get the virus under control. Public health experts predict that
Americans will not cooperate with these measures if they can’t support their families.
Economic assistance should continue even after the end of the public health emergency, given how deep the current economic downturn is and how long it may last. We already have seen more than 24 million Americans lose their jobs in just five weeks and images of food lines have proliferated across the country, evoking the depths of the Great Depression. This will likely not end quickly: the Congressional Budget Office notes that its forecast is highly uncertain, but estimates that, without additional economic support by Congress, unemployment at the end of 2021 will be 9.5%, only slightly better than the very worst (10%) of the Great Recession.
The most sensible way for Congress to guarantee that economic assistance will continue as long as it is needed is by directly linking it to the state of the economy instead of picking arbitrary expiration dates. This would mimic the automatic stabilizer approach that economists have long urged, provide certainty to families that they will get the aid they need, ensure that support does not depend on politics and automatically turn off support when it is no longer needed. Neither economists nor epidemiologists can predict the length of this recession—some believe the economy will begin to rebound quickly while others say it will remain depressed for years. Linking aid to economic conditions accounts for either possibility.
A discretionary approach to economic support risks cutting off aid to families as they comply with public health guidelines that essentially require unemployment or wait for the economy to recover. These consequences would be especially grave for low-income Americans and people of color. This risk—in an election year with divided partisan control of Congress—is too grave.
Linking support to economic conditions, on the other hand, avoids that unnecessary risk.
Washington, D.C. —Today, Congressman Don Beyer (D-VA), the Vice Chair of the U.S. Congress Joint Economic Committee, released a report arguing that federal aid to state and local governments is crucial for containing the coronavirus and preventing economic disaster and should be a major focus of Congress’s fourth legislative response to the public health crisis.
As the report shows, states are being simultaneously strained by skyrocketing spending to combat the coronavirus and large losses in revenue (i.e. sales tax, income tax, tourism). Furthermore, since almost every state is required by law to balance its budget, this may force many to cut spending in areas like education.
Budget cuts at the state level will in turn force budget cuts at the local level, creating a downward spiral that will slow response and recovery nationwide.
“State and local governments are crying out for assistance, and our health and economy depend on Congress helping them,” Beyer said. “If Congress does not respond with aggressive aid, we risk repeating the mistakes of the Great Recession, which lasted years longer for state and local governments because the federal government left them to fend for themselves.”
Beyer continued, “No one should think that this is someone else’s problem. While the fire is hottest in New York right now, it soon will burn from state to state, especially if Congress does not do enough to help state and local governments. As a result, every town in America will be crushed by the coronavirus and our economy will fall a lot further than it has already fallen.”
As the report shows, Medicaid will account for much of states’ increased spending since individuals who lose their jobs (and employer-sponsored health insurance) will need to enroll and many current enrollees will contract the coronavirus and need to be cared for. While the second coronavirus response package includes a 6.2 percentage point increase in the federal government’s share of Medicaid funding (known as the Federal Medical Assistance Percentage or FMAP), the increase was about 3.8 percentage points less than the average increase in the American Recovery and Reinvestment Act. On average, states cover about 40 percent of the cost of Medicaid with the federal government paying the rest.
“One of the most important things Congress’s fourth legislative response must do is increase the federal government’s share of Medicaid funding—the current increase is less than what was given to states during the Great Recession and should be much higher, especially when you consider that the joint federal-state health insurance program is states’ second biggest cost and 10 million people have filed for unemployment over the last two weeks,” Beyer said. “The last thing we want states to do is reduce Medicaid eligibility in the middle of a public health crisis.”
Beyer continued, “Congress’s fourth legislative response must increase aid to state and local governments and allow the Federal Reserve to purchase long-term state and local debt.”
As the report shows, states are being simultaneously strained by skyrocketing spending to combat the coronavirus and large losses in revenue (i.e. sales tax, income tax, tourism). Furthermore, since almost every state is required by law to balance its budget, this may force many to cut spending in areas like education.
Budget cuts at the state level will in turn force budget cuts at the local level, creating a downward spiral that will slow response and recovery nationwide.
“State and local governments are crying out for assistance, and our health and economy depend on Congress helping them,” Beyer said. “If Congress does not respond with aggressive aid, we risk repeating the mistakes of the Great Recession, which lasted years longer for state and local governments because the federal government left them to fend for themselves.”
Beyer continued, “No one should think that this is someone else’s problem. While the fire is hottest in New York right now, it soon will burn from state to state, especially if Congress does not do enough to help state and local governments. As a result, every town in America will be crushed by the coronavirus and our economy will fall a lot further than it has already fallen.”
As the report shows, Medicaid will account for much of states’ increased spending since individuals who lose their jobs (and employer-sponsored health insurance) will need to enroll and many current enrollees will contract the coronavirus and need to be cared for. While the second coronavirus response package includes a 6.2 percentage point increase in the federal government’s share of Medicaid funding (known as the Federal Medical Assistance Percentage or FMAP), the increase was about 3.8 percentage points less than the average increase in the American Recovery and Reinvestment Act. On average, states cover about 40 percent of the cost of Medicaid with the federal government paying the rest.
“One of the most important things Congress’s fourth legislative response must do is increase the federal government’s share of Medicaid funding—the current increase is less than what was given to states during the Great Recession and should be much higher, especially when you consider that the joint federal-state health insurance program is states’ second biggest cost and 10 million people have filed for unemployment over the last two weeks,” Beyer said. “The last thing we want states to do is reduce Medicaid eligibility in the middle of a public health crisis.”
Beyer continued, “Congress’s fourth legislative response must increase aid to state and local governments and allow the Federal Reserve to purchase long-term state and local debt.”
