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Notes on 2020 CARES Act, in reading order

Summary:
Note that this law is just one of multiple new COVID-19 relief laws.  These are my notes on the labor market provisions in the law, which are all of Titles I and II, and parts of Title III. Title I KEEPING AMERICAN WORKERS PAID AND EMPLOYED ACT A.k.a., 7(a) loans "Loans" to small businesses that maintain their payrolls Payroll does not include any payments to employees making 0K+ annually The loan amount is capped by the prorated amount of payroll for the prior year The loans can be forgiven in whole or part The forgiveness is capped by the minimum of million; the sum of ongoing payroll, rent, utilities, interest; the loan amount (itself capped at 2.5 times average monthly in the prior year). The forgiveness is free from business tax. For this act, a small business is less than

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Note that this law is just one of multiple new COVID-19 relief laws.  These are my notes on the labor market provisions in the law, which are all of Titles I and II, and parts of Title III.

Title I KEEPING AMERICAN WORKERS PAID AND EMPLOYED ACT
  • A.k.a., 7(a) loans
  • "Loans" to small businesses that maintain their payrolls
    • Payroll does not include any payments to employees making $100K+ annually
  • The loan amount is capped by the prorated amount of payroll for the prior year
  • The loans can be forgiven in whole or part
    • The forgiveness is capped by the minimum of
      • $10 million;
      • the sum of ongoing payroll, rent, utilities, interest;
      • the loan amount (itself capped at 2.5 times average monthly in the prior year).
    • The forgiveness is free from business tax.
  • For this act, a small business is less than 500 employees.
    • The date of this determination is crucial.  If the SBA Administrator is not careful with its guidance, it could be interpreted as the date of the loan.
    • For businesses with more than 500 employees, this act would be a MASSIVE SUBSIDY TO FIRING enough people to be at 499 or less before making the loan application.
      • Firing employees making more than 100K is most advantageous under this title.
      • The SBA Administrator's definition will also affect expectations about how extensions of this Title will be implemented.
    • Another part of this law will pay the fired employees, perhaps more than they were making as workers.
    • Nonprofits are eligible too.
  • Ends June 30, 2020
    • Businesses with significantly less than 500 employees have a zero marginal cost of adding employees.  However, June 30 is too soon to make much profit from hiring.
Title II
  • Section 2102.  PANDEMIC UNEMPLOYMENT ASSISTANCE
    • A new program making payments to unemployed not covered by traditional unemployment assistance, such as someone who
      • quit their job, or
      • has no work experience.
    • This program expands the UI-eligible pool by a factor of at least six.
      • Normal pool is a subset of persons laid off from work, which should be less than 20 million.
      • With Section 2102, the pool is any adult not on a full time payroll, which is at least 128 million (259 million adults minus Feb 2020 full-time employment of 131 million). 
      • See Section 2104 below ("$1000 a week") and then calculate what the Treasury would spend on that section if, say, 80 million people were collecting $1000 per week.
    • Program lasts through Dec 31.
    • Weekly benefits last 39 weeks plus the duration of any extension of traditional UI.
    • If a state were to deny UI benefits to a person failing a drug test, this program would pay them full benefits at Federal expense!
  • Section 2103.  EMERGENCY UNEMPLOYMENT RELIEF FOR GOVERNMENTAL ENTITIES AND NONPROFIT ORGANIZATIONS.
    • The Federal government takes over the UI "contributions" of government and nonprofit employers through Dec 31.
      • Background: Normally, all employers make contributions that partially reflects their history of layoffs.  In effect, part of a UI benefit is paid by the employer who fired the person.  This is a normally a tax on making layoffs.
    • By eliminating such contributions, the new program is a SUBSIDY FOR LAYOFFS by government and nonprofit employers
  • Section 2104.  $1000 a week!
    • Not to be outdone by the 2009 "stimulus" law, which paid a $25 weekly bonus to UI recipients, the 2020 EUC program pays a $600 weekly bonus!
    • This bonus goes on top of the normal UI benefit, which averaged $378 per week at the end of 2019.  i.e., get paid $1000 per week for NOT WORKING!!
    • It lasts through the end of July.
    • $1000 per week is more than most full-time workers get paid for working.
    • This disincentive to work and subsidy for layoffs is massive and not even close to any historical precedent.
  • Section 2105.  Federal financing of the first week of unemployment.
    • As with Section 2103, this is a subsidy for layoffs but for all employers.
    • In contrast to Section 2103, this section only pays for one week.
  • Section 2106.  Clean up of the previous coronavirus law.
  • Section 2107.  Pandemic EUC
    • Like the 2009 EUC program, this EUC programs provides Federal money to continuing paying UI benefits after state benefits have been exhausted.  It is limited to 13 weeks, putting the total duration of UI benefits at 52 weeks.
    • Beneficiaries have to be actively seeking work.
      • This will means some VERY long lines to apply for jobs, because standing in such line is both (i) proof of actively seeking and (ii) pretty safe protection against a job offer that would end UI.
    • It lasts through the end of the year.
  • Sections 2108-2110.  Part-time UI (a.k.a., "work share")
    • Pays Federal benefits to part-time workers whose hours were reduced from full time.
    • It lasts through the end of the year.
    • Take a worker earning $800 per week full time.  With the CARES Act, the employer has two more options
      • Lay her off so she can get $1000 per week from UI.
      • Change her to half time so she can get $400 per week from the company plus another $500 week from UI, for a total of $900 per week.
  • Section 2301.  Employee retention tax credit.
    • Businesses with 0-100 full-time employees
      • Section 2301 is a 50 percent tax credit for wages paid to any employee.
    • Businesses with 101+ full-time employees
      • Section 2301 is a 50 percent tax credit for wages paid to employees on the payroll but not at work due to COVID-19.
      • For these employers, Section 2301 is a tax on work because employer has full payroll tax only when the employee works (as opposed to being on the payroll).
    • Regardless of size, the employer must have gross receipts that are sufficiently low compared to the previous year.
    • The credit applies to wages paid through the end of the calendar year, and cannot exceed $5000 per employee.
    • These credits are fully refundable and administered through the payroll tax.  Nonprofits can get them too.
    • Regardless of business size, Section 2301 is a step-function sales tax.  i.e., as soon as sales exceed a threshold, the payroll tax jumps discretely.
  • Sections 2303-4.  Symmetric treatment of business gains and losses.
    • Background: As an business' net income changes sign from year to year, so does her after-tax cost of payroll because the deduction of payroll from business income has tax value only in years with positive net income (subject to some complicated carry forward and backward provisions).  This normally gives employers an extra incentive to layoff workers, and restrain hiring, during a loss year.
    • These sections by themselves, increase the incentive to hire, and decrease the incentive to fire, during a year with negative net income, which 2020 will be for many businesses.
    • These sections also open the door to Treasury losses due to clever tax accounting, which is why gains and losses are historically treated asymmetrically.
Title III forthcoming



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