An economic recovery starts by lifting small businesses back up

An economic recovery starts by lifting small businesses back up
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The financial devastation caused by the coronavirus pandemic has left many Americans wondering what is ahead if our federal, state, and local officials do not start taking necessary steps to reopen the economy soon. Businesses of all sizes have already taken drastic measures. Unfortunately, many have made tough decisions to furlough or layoff workers.

The economy was strong a month ago with low unemployment, but in the past three weeks, jobless claims have soared by almost 17 million. Sadly, the hemorrhaging is not over. Undoubtedly, we are already in a recession, but we may soon be teetering toward the edge of depression if we are not already. This is not because of some moral hazard in the economy, such as financial institutions making risky mortgage loans. The damage has been in response to the pandemic, and we were all caught off guard.

Congress has responded with three separate bills, including the $2 trillion Cares Act. Among its provisions are direct payments to Americans below certain income thresholds, guaranteed loans with critically generous debt forgiveness provisions to small businesses, and loans to large businesses. But Congress can and should take other steps to help businesses that do not involve the spending of such incredible amounts of money.

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Two steps come to mind. The first is a liability shield to protect businesses taking reasonable steps to ensure the safety of employees. Following 9/11, Congress passed the Safety Act, which was included within the Homeland Security Act of 2002. The Safety Act lets the Homeland Security secretary grant immunity from lawsuits to those creating antiterrorism technology. While this process is too bureaucratic for the circumstances that we face today, the Safety Act is a precedent for a recovery after a crisis.

Congress should lean on this precedent now. Business owners who will hopefully be reopening their establishments soon will need a measure of protection. This could be a liability shield for businesses that take certain protective measures, to the extent practicable, for their employees. This could include several reasonable safety measures taken by businesses to qualify for the liability shield, such as sanitizing the workplace, practicing social distancing, and using temperature checks for employees.

Lawsuits can have crippling effects on business owners struggling to pick up the pieces when they resume their operations. Businesses, particularly small ones, do not have massive profit margins. “The typical median firm has a profit margin of only 6.5 percent,” economist Mark Perry explains. “If they are not operating efficiently and watching costs very carefully, then it is pretty easy for businesses to go from a 6.5 percent profit margin down to a 0 percent break even situation, then losses and bankruptcy.”

Just like politicians who, in the words of former White House chief of staff Rahm Emanuel, will never let a crisis go to waste, there are some folks in society who will use the coronavirus as cover to try to litigate large sums from business owners who are desperately trying to survive. Protecting businesses through a liability shield will be crucial in a recovery.

The second step here is providing a capital gains tax holiday. Retirement accounts have taken a major hit in recent weeks. This is also not because of moral hazard in the economy. The pandemic of course caused massive selloffs. While the stock market has rebounded, Congress must encourage more investment. A capital gains tax holiday for stocks purchased during the crisis and in its immediate aftermath will incentivize more investment and, in turn, help retirement accounts recover from the recent losses and supply many businesses with the necessary capital to expand.

Congress has to provide a stable path for businesses to help the economy recover quickly. These ideas may sound unpopular to those who thrive on demonizing businesses and investment, but continuing to spend money we do not have only increases the likelihood of stagnation and even less opportunity for Americans in the future. If we hope to right the financial ship and begin to recover from this crisis, we must reopen the economy and encourage businesses to put all the pieces back together.

Jason Pye is the vice president for legislative affairs with FreedomWorks.