A Signature Worth 2 Trillion Dollars

by Prerak Arora


Trump signed a $2 trillion bill on March 28 to aid unemployed workers and to provide the much needed medical equipment. This bill came after another $100 billion, that focused on food assistance, extended unemployment benefits and increased funding for Medicaid programs, which was sent to President Trump last Wednesday.


As on April 6, there were 43,438 new cases of the virus (making it 374,329 cases in total) and 12,064 deaths, according to the CDC (Centres for Disease Control and Prevention).


The US is leaving no stone unturned with its bipartisanship to combat the Coronavirus.


Social distancing and self quarantining of employees brings a supply shock, skyrocketing the unemployment and insurance claims.


While the sanitizer, the toilet paper and the online streaming industries are booming, there remains a highly reduced demand for other goods outside of necessities. Local, small and medium sized businesses could shut down and investments in larger businesses could take a new turn.


But for now let’s focus on the bill. The chart below visualises where the money would go:



For individuals that are receiving the direct, one-time cash payments, the breakdown is as follows:




Based on the needs of the most desperate, the rebate amount is now reduced by $5 for each $100 that a taxpayer’s income exceeds the phase-out threshold of $75,000, eventually leading to no payments for individuals earning more.


The unemployed worker’s pay per week would also be boosted by $600, giving him a more comfortable life for the next 4 months. Freelancers and self-employed people, who couldn’t file for unemployment benefits before can now avail temporary assistance as well.


Out of the approximately $350 billion allocated to the PPP (Paycheck Protection Program), small businesses are eligible for up to $10 million in forgivable loans to pay employees, help keep operational costs, increase liquidity and pay their rent. These businesses could also repay the loan later with little interest. This, by some estimation, could keep these small businesses afloat until June and keep them from filing for unemployment.


There’s also $500 billion to Treasury's Exchange Stabilization Fund to provide loans, loan guarantees and other investments for big businesses impacted by the pandemic.

Being a conservative, Trump is a big believer in tax cuts and has provided refundable payroll tax credit for 50% of wages paid by employers to employees during the crisis.


Employers and self-employed individuals can also defer payment of the employer share of the Social Security tax, that they otherwise would be responsible for paying to the federal government with respect to their employees.


The CARES Act includes $150 billion for the Coronavirus Relief fund, which is designated for direct aid to state and local governments running out of cash, to combat the pandemic.


Apart from keeping citizens from starvation, this stimulus tries to cover the output gap by injecting money into the economy, increasing aggregate demand and reducing the effects of the slump by maintaining some sort of economic exchange.


By helping businesses maintain liquidity, the stimulus tries to prepare for an economic ‘bounce back’ in Q3 and Q4, provided the virus is contained. This is crucial, especially since inflation dropped from 2.5% to 2.3% just between the months of January and February this year. This is opposite to what generally happens in a supply shock where the general price levels increase, indicating greater demand-side effects. This brings us back to the elephant in the room. How much would we need to spend to contain the virus?


The first rule is to contain the virus.


Here’s another representation of the healthcare expenditure:


Part of the money from this bill is also going towards food stamps, food banks, airlines, education, and temporary student-loan relief programs, among many others.


This act brings a bit of stability, to Trump’s seriousness, price stability also benefits the mental health of several Americans. The below chart displays the amount received by each category as a share of the package:


Here’s a chart displaying the amount received by each category as a share of the package:



Trump, however, seems hesitant on imposing a strict lockdown. In an update on the CARES Act today, he said,

“We are planning to speak with banking and finance industries and strengthen relationships with small and medium sized businesses.”

Along with his government stimulus approach, he plans to push the private sector, which has been responsible for millions of dollars in donations over the past few weeks.


Most of all, the bipartisanship has come as a shock to many people. The Secretary of the Treasury, Steven Mnuchin, in the same address, said,

“I had the opportunity this morning to speak to Mitch McConnell, Chuck Schumer, Nancy Pelosi and Kevin McCarthy. I urged them to get another $250 billion dollars approved and we look forward to the Senate passing that on Thursday and the House passing that on Friday.”

Economists have still been working on Q3 and Q4 estimates and it is tough to say what might happen. Nevertheless, an achievement in itself to have passed a 2 trillion-dollar bill. This is the largest relief assistance program in American history.






References:

1) https://www.reuters.com/article/us-health-coronavirus-usa-congress-expla/explainer-whats-in-the-u-s-coronavirus-aid-bill-that-just-passed-congress-idUSKBN2153Q3


2) https://economictimes.indiatimes.com/news/international/business/us-senate-white-house-agree-on-usd-2-trillion-rescue-for-virus-hit-us-economy/articleshow/74807397.cms


3) https://www.cdc.gov/coronavirus/2019-ncov/cases-updates/cases-in-us.html


4) http://www.crfb.org/blogs/visualization-cares-act


5) https://www.usinflationcalculator.com/inflation/current-inflation-rates/


6) https://www.npr.org/2020/03/26/821457551/whats-inside-the-senate-s-2-trillion-coronavirus-aid-package#small-businesses


7) https://www.grantthornton.com/-/media/content-page-files/tax/pdfs/CARES-act-analysis.ashx


8) https://www.congress.gov/bill/116th-congress/house-bill/748/text?q=%7B%22search%22%3A%5B%22s+2135%22%5D%7D


9) https://www.visualcapitalist.com/the-anatomy-of-the-2-trillion-covid-19-stimulus-bill/



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