Even the most optimistic person wouldn’t have predicted that when Congress set about to spend trillions of dollars to rescue the U.S. economy, everything they did would work out great. But the most important piece of the rescue effort — the Paycheck Protection Program (PPP) — has turned out to be particularly troubled.
Which is why Congress should seriously consider getting rid of it and replacing it with something simpler and more effective.
With 20 million jobs lost in April alone and unemployment rising to its highest rate since the Great Depression, the government should just cover companies’ payroll. That’s what other countries are doing, and it seems to be working much better than our approach.
As you’ll recall, the PPP was established by the Cares Act, the largest rescue bill, which was signed into law on March 27. After the money was quickly exhausted, it was later given another infusion.
To keep workers paid, it allows small and medium-sized businesses to get loans from local banks they can use to keep paying their employees even if they aren’t working. Those loans flow through the Small Business Administration (SBA), and will eventually be forgivable (i.e., businesses won’t have to pay them back).
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The trouble was that this design held the seeds of disaster. As the bill was coming together, economists and budget experts told me that they worried the SBA was already a relatively small agency with a reputation for inefficiency and incompetence. Suddenly, it was being charged with sending out hundreds of billions of dollars, way beyond what it had ever managed before.
So when, right from the beginning, the PPP had enormous administrative problems, few were surprised. Many businesses found these layers of bureaucracy — finding a bank if they didn’t already have one; convincing that bank to give them a loan; then waiting while the bank coordinated with the SBA — to be impossible.
Even some business owners who have gotten loans are legitimately worried that they won’t be forgiven after all. While many companies have been saved by the loans they managed to secure, on the whole, it’s pretty much been a disaster.
So what’s the alternative? It’s simple: Government can just cover payrolls for all businesses that have suffered a loss of revenue. They’re doing this in Britain, in Germany, in Denmark and in France, and while each country has a slightly different program, so far, their increases in unemployment have been far less than ours.
Some members of Congress are now saying we ought to do the same thing. Rep. Pramila Jayapal (D-Wash.) has a proposal called the Paycheck Guarantee Act, under which the Treasury Department would cover payrolls for companies that have lost business (along with some extras such as rent and utilities), up to $100,000 per employee.
Since the IRS already knows how much everyone gets paid, in theory, it should be easier to administer than forcing that money to travel a circuitous route through the banks and the Small Business Administration. Speaker Nancy Pelosi (D-Calif.) has signaled openness to including it in the House’s next rescue bill.
One natural reaction is to dismiss this as a big-government socialist fantasy. But it isn’t. First of all, its goal is to do exactly what the PPP does — something Republicans and Democrats all agreed on — but to do it more efficiently.
Secondly, it’s not just liberals who support it. Among Senate Democrats, there’s another proposal from Sens. Bernie Sanders (I-Vt.), Mark R. Warner (Va.), Richard Blumenthal (Conn.), and Doug Jones (Ala.) — representing pretty much the entire Democratic spectrum — that would cover payrolls up to $90,000 per employee.
And Sen. Josh Hawley, a conservative Republican from Missouri, has a similar proposal he’s advocating (though he’d cover only 80 percent of payrolls for affected companies, which is what Britain is doing under the Conservative government led by Prime Minister Boris Johnson).
While Hawley doesn’t have a lot of GOP company yet, there’s no substantive reason that Republicans should oppose a proposal like this, unless they want to say the rolling catastrophe of the Paycheck Protection Program is just fine with them. To repeat, this would accomplish the same goal, which everyone agrees on: keeping people not just getting a paycheck but connected to their employers, so they can go right back to work once normal commerce resumes.
But the hardest part — other than getting Senate Majority Leader Mitch McConnell (R-Ky.) to agree to help the American economy — may be getting people to admit that while the PPP had the right goals, it was just poorly designed. It may have seemed the best option at the time, but it didn’t work out.
We’re far from being out of this economic and public-health crisis, and we don’t have to live with something that’s not working. All Congress has to do is decide to change it. It’s not too late.
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