US economy hurtles toward ‘COVID cliff’ with programs set to expire
A slew of expiring emergency programs are setting up an economic “COVID cliff” come 2021, which could see millions of people lose unemployment insurance and get evictions, while a growing wave of small businesses close shop.
March’s CARES Act set up myriad programs to give people economic relief in the earliest days of the COVID-19 pandemic, many of which are set to expire on Dec. 31.
Unless a divided Congress can reach a deal to extend the programs, the country’s economic suffering could skyrocket.
“It’s a lot of risk to be putting on the economy at a time when so many other pressures are already underway,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center.
The prospects of a deal are dim.
House Speaker Nancy Pelosi (D-Calif.), who is pushing for a $2.2 trillion package, and Senate Majority Leader Mitch McConnell (R-Ky.), who endorses a more limited $500 billion approach, have yet to hold a meeting on the subject. Their staffs have not discussed the matter either.
“The situation could not be more dire, the need for action could not be more urgent, real meaningful relief is desperately needed,” Pelosi said Friday, accusing Republicans of refusing to accept meaningful levels of stimulus and a plan to defeat the novel coronavirus.
Republicans are quick to point the finger back at Pelosi, noting that Treasury Secretary Steve Mnuchin offered $1.8 trillion before the election, though Senate Republicans opposed that level of aid.
On Friday, McConnell said that Congress should repurpose $455 billion of funds Mnuchin sought to withdraw from emergency lending facilities at the Federal Reserve, a move that itself was controversial.
“Congress should repurpose this money toward the kinds of urgent, important, and targeted relief measures that Republicans have been trying to pass for months, but which Democrats have repeatedly blocked with all-or-nothing demands,” McConnell said.
If Congress allows the variety of ropes that weave the emergency safety net to snap, struggling Americans are sure to fall through, starting with the millions of people who have lost their jobs and rely on expanded unemployment programs to stay afloat.
“The unemployment insurance is certainly at the top of the list, because that’s going to mean that millions of people who are out of work and relying on a fairly modest unemployment income are going to be entirely without income, and that’s going to be a devastating hit,” said Akabas.
Come New Years, one program that extended traditional unemployment benefits from the standard 26 weeks by another 13 weeks, and another program that made self-employed and gig economy workers eligible, will expire.
A study from the progressive Century Foundation estimated that 12 million people will lose their benefits, though 2.9 million could turn to extended benefit programs in some states. Another 4.5 million will have already worn through those programs’ timelines.
Unemployment insurance varies from state to state but tends to only cover a fraction of previous income. A $600 weekly supplement, which Republicans criticized as overly generous and a disincentive for the unemployed to go back to lower-paying work, expired at the end of July.
Economists credit the supplement with helping keep the economic recovery strong into the autumn, as people continued to spend the extra cash they’d saved up as a cushion. But more recently, as those funds have run dry, the recovery has faltered, with job growth and consumer spending slowing. Allowing the remaining benefits to dissipate, economists say, would be disastrous.
“It will be a crippling end to one of our darkest years,” said the study’s co-author Andrew Stettner, saying it would cut “one of the last lifelines available to millions of Americans in desperate need.”
At the same time, provisions meant to shore up tax benefits for low-income earners, such as the Earned Income Tax Credit and Child Credit, are scheduled to go up in smoke, potentially pulling money out of the paychecks of the poorest people who are still working.
On top of it all, an evictions moratorium from the CDC is set to expire, teeing up a wave of evictions and homelessness.
“We know that eviction filings have been able to continue during this period even with maraotira in place, so certainly the cases are there and ready to be processed and adjudicated,” said Samantha Batko, an expert on housing insecurity at the Urban Institute.
“When people get evicted, they don’t have a ton of options of where to go.”
The most recent data from the Census Household Pulse Survey, covering the last days of October and early November, painted a grim picture.
Nearly a third of all households (32.9 percent) said they were behind on housing payments and rated the chances of eviction or foreclosure within two months as somewhat or very likely. Some 25.9 percent expected a household earner to lose employer income in the coming month, and 12 percent said they didn’t have enough to eat.
An analysis by Stout found that absent a moratorium, as many as 6.4 million evictions filed in recent months could take effect on Jan. 1.
“If those things end and there’s no moratorium, it’s plain as day what’s going to happen. We’re going to see a ton of evictions,” said John Pollock, coordinator of the National Coalition for a Civil Right to Counsel, a group focusing on housing rights.
“It’s unconscionable. It’s like seeing a truck drive at people at 100 miles an hour and deciding not to do anything,” he added.
The CDC on its own could extend the moratorium without legislation, but housing advocates say it only applies to a limited slice of renters anyway and requires too much legal heavy lifting on the part of renters.
Pollock points to stronger protections, as well as a fund to help people pay off months of arrears for missed rent, that are included in the Democratic relief bill.
There are other expiring provisions as well.
Forbearance on student loan debt, which has allowed borrowers to channel funds toward other expenses without accruing further interest costs or penalties, will also end when the ball drops in Times Square.
While people with student debt tend to be more financially well off than average, the loans can be crippling for some, particularly those who didn’t graduate or went to for-profit colleges. Even so, an end to forbearance ends will force borrowers to redirect their spending toward the loans instead of spending it on goods and services.
“I hear from working people and small business owners every day about the hardship they are facing, particularly as new measures are put in place to curb the spread of the coronavirus,” said House Appropriations Chair Nita Lowey (D-N.Y.).
“It is obvious that the federal government must do more .”
A key point of contention in relief negotiations has been state and local government aid, which studies show provide the best economic bang for stimulus buck spent.
Without aid, governments suffering from massive losses of sales and income tax revenues will be forced to pull back spending, meaning reduced services and firing public employees such as teachers. They may also have trouble funding homeless shelters and their alternatives, which have reduced capacity due to the pandemic.
Small businesses face a cliff of their own, as a slew of tax provisions, credits for providing sick leave, and debt easements are set to expire.
Business groups are calling for a renewal of the expired Payment Protection Program, which Congress says helped save 50 million jobs by providing forgivable loans to businesses that had to shutter or scale back due to the pandemic.
“We’re in the ‘it should be enacted now’ camp,” said Josh Bolten, President of the Business Roundtable.
“What we’re talking about here is important economic relief for people who are hurting, and a lot of economic damage can be done in the next two or three months before the next Congress can get going.”
An analysis from JPMorgan assumed a $1 trillion stimulus wouldn’t pass until January, and that rising rates of COVID-19 would push the first quarter back into a contraction.
Between January and March, the economy would lose an annualized 1 percent of GDP.
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