Two years into COVID, was the $800 billion payroll relief plan worth it?
WASHINGTON | President Donald Trump rolled out the Paycheck Protection Program to catapult the US economy into a rapid recovery from the coronavirus pandemic by helping small businesses stay open and their employees working. President Joe Biden changed it to try to direct more of the money to poorer communities and minority-owned businesses.
Today, nearly two years after the program was launched, the question is what taxpayers got for the $800 billion. The Biden administration says its version of the program helped prevent deepening racial inequality, while leading academic research suggests the overall price was high per job saved and most of the benefits accrued to the wealthy.
Nearly a year after implementing its $1.9 trillion coronavirus relief package, the Biden administration argues it has made critical adjustments to the repayable loan program, pointing to internal numbers showing that more benefits have gone to poorer communities, racial minorities and smaller businesses — those whose owner is the sole employee.
“The administration entered office with a focus on racial and social equity, and small businesses are an important part of that,” said Michael Negron, senior White House adviser on small business. “For our equity goals, entrepreneurship matters because it helps build generational wealth.”
However, an outside study suggests that the program – commonly known as PPP – was a troubling cost per job saved and that payments mainly benefited business owners who were best prepared to weather the pandemic. Overall, the study implies that only 23% to 34% of PPP dollars went to workers who would have lost their jobs, at a cost of up to $258,000 per job retained.
The conflicting views on PPPs are part of a larger debate about how to help an economy in crisis. There are pressures to get the right amount of money as quickly as possible without increasing inequality or triggering other forms of backfire such as high inflation.
During two presidencies, Congress approved an unprecedented $5.8 trillion in relief spending that included new interventions such as forgivable loans, direct payments and an expanded child tax credit that was filed. monthly to people’s bank accounts.
When MIT economist David Autor analyzed PPP with other economists, he saw too blunt a tool. The United States never developed data systems to monitor what was happening to individual company payrolls, unlike Canada, the Scandinavian region, Portugal and Brazil. These systems would have facilitated the allocation of funds according to real needs in times of downturn. The United States did not invest in its own data resources and therefore could not target aid.
“The United States has rather ‘starved the beast,'” Autor said. “The result is not less government. It is simply less efficient government.
By changing the PPP program guidelines, the Biden administration was trying to prevent the pandemic from further widening the nation’s racial wealth gap.
Black Americans make up about 12% of the US population, but they control only 2% of private business assets that are often essential to climbing the economic ladder, according to the Federal Reserve. Only 4.3% of total US household wealth belongs to Black Americans and 2.5% to Hispanic Americans, significantly lower than their share of the total US population.
When the Trump administration unveiled the PPP in 2020, the full effects of the pandemic were just beginning to be felt in the economy. There was a race to get cash as quickly as possible due to the unpredictability of the situation, so loans went through large banks which often had existing relationships with eligible businesses for speed reasons. .
The program enjoyed bipartisan support, and then-Treasury Secretary Steven Mnuchin told a congressional committee in September 2020 that the payments supported 50 million jobs. Still, as he lobbied for more help, Mnuchin said the most important thing during the pandemic was to deliver aid “quickly”.
The need for speed has also made it more difficult for historically disadvantaged groups to access money. That’s why the Biden administration changed guidelines and rules after taking office.
It introduced a 14-day period in February 2021 during which only businesses with fewer than 20 employees could apply for PPP loans. It changed the way PPP loans were calculated so that sole proprietors, independent contractors and the self-employed could receive funding equal to their needs. A greater portion of the loans went through community and minority-owned financial institutions.
As a result of these changes, PPP issued around 2 million loans last year to businesses in low-to-moderate income communities, a 67% increase over the previous year, according to figures provided by the administrative officials. There were 6 million businesses with fewer than 20 employees that got loans, a 35% increase from the program under the Trump administration.
Because the administration was targeting more businesses — including those whose owner was the sole employee — the average PPP loan size went down. It averaged $42,500 last year, down dramatically from $101,500 in 2020.
“We inherited a program from the previous administration that was plagued with inequities,” said Juan Guzman, the head of the Small Business Administration.
Yet analysis by Autor and other economists indicates that distributions under the Biden administration “have had no discernible effect on employment.” That’s likely because the job market started to recover in May 2020 despite waves of infections dampening momentum. Because there were fewer jobs at risk, there were fewer jobs to save.
Autor estimates that the richest 20% of households captured about 85% of the benefits of the program. Biden’s changes may have made the PPP fairer, but proof will only come when the tax revenue arrives over the next few years, he said.
“They tried to be better stewards of the program, which they had the luxury of doing because the crisis wasn’t as urgent,” Autor said. “It’s not that PPP didn’t do anything; it was a lifeline for some small businesses and their creditors. It was also a surprisingly large handout from future generations of American taxpayers” to certain profitable businesses.