CARES 2: The Perils of Half Measures

It’s hard to believe, but back in July I wrote in NPQ about what was being called “CARES 2.” At the time, Republicans were touting a $1 trillion bill while the Democrats sought over $3 trillion. The final legislation came in at $908 billion—even less than $1 trillion, which gives a clue as to who prevailed—and the bill itself did not limp across the finish line until December 26^th. As it did, the message from Washington was clear: a half measure of relief, sure, but with no vision of universal support for Americans. Indeed, the goal appeared to be to keep benefits as modest and limited as possible.

Last month, NPQ reviewed a draft relief bill crafted by a bipartisan group of US Senate “moderates.” The final bill ended up looking similar, but with a few changes; notably, $600-a-person payments were added, while the extension of unemployment insurance and $300 weekly supplemental payments was reduced from 16 weeks to 11 weeks. There were also self-serving provisions introduced, including an unseemly addition that enables businesses to deduct 100 percent of the cost of restaurant meals instead of 50 percent, a measure widely derided as the “three-martini lunch” provision.

The 5,593-page bill that ultimately became law combines the $908 billion in relief with $1.4 trillion in broader omnibus funding for a total of $2.3 trillion. Importantly, the legislation stopped 14 million unemployed Americans from losing their unemployment insurance support, although the late date of the bill’s signing could delay payments. It also averted another disaster by extending the rent moratorium, keeping millions of families in their homes for at least one more month and providing $25 billion toward missing rent—maybe a third of what is owed. Many observers hope and expect that President-Elect Joe Biden, once inaugurated, will extend the rent moratorium again through executive order, which would buy more time, but doing that would still fail to address the growing structural gap between rent owed and the ability of renters to pay. The unemployment provisions also only extend until March 14^th. There are, in short, many more crisis points to come. As Ruth McCambridge aptly noted last month, “All in all, the bill reflects a painful level of compromise rather than any kind of bold move to set the economy on a different course.”

Of course, there was also a bit of end-of-the-year drama. A last-minute effort to bump up check payments to $2,000 prevailed by a two-thirds majority in the US House of Representatives, only to be blocked in the US Senate by Mitch McConnell (R-KY). Democrats say they’ll push for $2,000 if they win the two runoff election Senate seats in Georgia, but, for now, $600 it is.

It was, sadly, a fitting end to 2020: Welcome to America, home of the brave—and the half measure.

The Impact on Nonprofits

Appropriately, the main focus of the relief bill is on money for families, small businesses, schools, transportation, food, and health. But as NPQ has often noted, nonprofits are at the heart of many parts of our economy, so nonprofits are affected throughout. Prior to the pandemic, nonprofits employed 12.5 million people out of 160 million-plus in the labor force nationwide. At the peak of the shutdown, 1.6 million nonprofit workers were laid off, with 900,000 still laid off as of October. The National Council of Nonprofits summarizes the key provisions that impact nonprofits here. I won’t repeat every item, but here are some important provisions to be aware of:

• Unemployment Self-Insurance: As NPQ covered last April, many nonprofits opt to self-insure and make payments for unemployment insurance as they owe money. The pandemic shutdowns meant these nonprofits faced an unexpectedly large insurance bill. The CARES Act covered 50 percent of these expenditures. “CARES 2” extends this provision until March 14, 2021.
• Universal Charitable Deduction: The 2017 Republican tax bill greatly limited access to the charitable deduction. In response, in 2018, NPQ advocated for charitable deductions to be universally available “above the line,” so that people who do not itemize (which includes all but 5.7 percent of Americans who earn $100,000 or less) can still deduct charitable contributions from their taxes. The CARES Act created a limited universal charitable deduction of up to $300 per taxpayer for 2020. “CARES 2” extends this provision for 2021.
• Paycheck Protection Program (PPP) rule changes: Trade associations (501c6 groups) were made PPP-eligible. A one-page forgiveness “EZ” form is to be made available for all loans up to $150,000. Forgivable expenses now include personal protective equipment and other COVID-related expenditures.
• Paycheck Protection Program, round 2: This is one of the “big ticket” items and is available to small businesses and nonprofits that employ 300 or fewer employees, but only if they demonstrate a 25-percent reduction in gross revenues. The maximum amount is $2 million. You’ll recall that the original PPP allowed loans up to $10 million and didn’t require demonstration of need.
• Support for childcare: There is $10 billion set aside for states to distribute to support childcare, a sector that has seen its revenues hit hard due to facility occupancy restrictions, as well as remote schooling.
• Save Our Stages: This $15-billion program could be hugely important for nonprofits in the arts, especially museums and theaters. Venues with fewer than 500 employees that have been shut down by the pandemic and have seen gross revenues fall by more than 25 percent are eligible for grants of up to 45 percent of 2019 gross revenues, capped at $10 million.

In terms of nonprofits, there is one provision of the omnibus bill—you know, the other $1.4 trillion in expenditures authorized by the bill—that is worth calling attention to. Specifically, this is Division T of the bill (pages 2803-2843), which authorizes the creation of two new Smithsonian museums—the Smithsonian American Women’s History Museum and the National Museum of the American Latino. A couple of years ago, NPQ covered the ongoing efforts to create a museum dedicated to the nation’s growing Latinx community, efforts that date back to 1994. Both museums, writes Sarah Bahr in the New York Times, will likely require a decade of work before they open, but she adds, they are “finally on their way to becoming reality in Washington.”

Where Are We Now? Comparing CARES 2 with the HEROES Act

The bill Congress passed is better than not passing a bill. But it is also clearly a half measure. To see what was not done, one can compare the $908-billion bill that passed with the $3.4-trillion HEROES bill last spring. A few provisions of CARES 2, like the $15-billion Save Our Stages program, are new. The business support is more generous and in the form of forgivable loans, not tax credits, but much of the “new” PPP money is recycled unused CARES dollars. The bottom line though is clear: spending $2.5 trillion less leaves major holes, as the simplified chart below illustrates.

 The lack of support for state and local governments will surely harm nonprofits. As was noted in NPQ last June, in a typical year, nonprofits earn $187 billion in state and local government contract revenue, more than four times the $44 billion they receive from foundations. Ironically, for all of the talk of profligate “blue states,” the odd stock market boom that has accompanied the nation’s “K-shaped recovery” has meant that states like California with high-income taxes on the wealthy are benefitting from higher-than-expected income tax collections from wealthy residents. By contrast, states like Texas and Florida that lack this revenue source are suffering extreme shortfalls.

All across the board, however, shortfalls are obvious. Above, we noted that the $25 billion in rent relief was inadequate. The $10 billion for childcare is another area where the relief provided is welcome but insufficient. Alycia Hardy and Katherine Gallagher Robbins of the Center for Law and Social Policy point out that $10 billion falls far short of the estimated $50 billion needed for the sector to survive the pandemic.

The pattern is clear throughout: $600 checks instead of last spring’s $1,200, $300 a week extra for unemployment instead of last spring’s $600. While $908 billion sounds like a lot, given the enormity of the crisis, this is really pandemic relief on the cheap.

The Lure of Efficiency in a World Where Effectiveness Is Key

The bill Congress passed is likely more efficient than HEROES was. In particular, the HEROES bill contained tax breaks of dubious value, including repealing the cap on state and local income tax deductibility. As noted above, only 5.7 percent of households with incomes under $100,000 itemize deductions. While there is plenty of pork in the attached omnibus bill, and CARES 2 itself has a number of corporate tax loopholes, most provisions are reasonably related to the bill’s relief goals.

That said, the HEROES bill would have been more effective. Efficiency tells you whether dollars are spent well. Effectiveness tells you whether the dollars spent make a difference—you know, are people kept out of poverty or not? If the cost of meeting the nation’s childcare needs is $50 billion and we spend $10 billion, it only matters so much how efficiently you spend the inadequate resources.

Another problem with CARES 2 is the delay itself. Since July, the nation has seen 7.8 million people pushed into poverty. As Heather Long writes in the Washington Post, “The increase in poverty this year has been swift. It is the biggest jump in a single year since the government began tracking poverty 60 years ago. It is nearly double the next-largest rise, which occurred in 1979–1980 during the oil crisis.”

This distinction between efficiency and effectiveness might seem of arcane academic interest, except that it is having real-world effects. Around Christmas, because of Donald Trump’s late discovery of the value of checks to families, we were treated to an absurd debate as to whether the nation could “afford” to top up the $600 checks to $2,000. The House passed a $464 billion bill to do so on a 275-134 vote. McConnell and other Republican leaders blocked voting in the Senate. The Washington Post editorial board opposed the bill because “the resources would be far better spent, in terms of both economic equity and economic growth, on longer extension of unemployment benefits, aid to state and local governments, and vaccines”—never mind that this alternative was hardly on offer.

The Need for a Universal Vision

But do universal payments reduce poverty? A research team ran the numbers on the CARES Act checks. Ben Zipperer of the Economic Policy Institute summarizes the results: Despite limited targeting, the $1,200 checks kept nearly 8.2 million Americans from poverty independent of unemployment insurance (another 7.2 million were kept from poverty because of unemployment insurance alone; combined, the two kept 13.2 million more out of poverty).

This tells us that poverty can be kept low during a pandemic. But if we need more evidence, Germany is guaranteeing workers up to 87 percent of their wages through December 2021. The title of the overall program—A stimulus package for everyone in Germany—speaks to its universal vision.

Indeed, a key point often missed is the critical value of universality. Programs like Social Security, which are universal—even seniors who are billionaires get paid—have staying power. In a 1998 paper, political scientists Walter Korpi and Joakim Palme observed, using comparative international data, that, “The more we target benefits at the poor only…the less likely we are to reduce poverty and inequality.” They called this tendency the “paradox of redistribution,” and it is one reason why programs that set a common floor, like universal basic income, often outperform those that don’t.

We saw this dynamic at play in December. Universal benefits are popular because everyone has a stake in them—that’s the point. They also help create a sense of mutuality that’s essential when health depends on everyone’s behavior. And, yes, checks alone aren’t sufficient. An adequate response requires measures the Post editorial writers wanted, too: support for the unemployed, the vaccine, state and local governments. In the midst of a pandemic emergency, the goal is to flood the zone.

This misplaced focus on efficiency can be found elsewhere. Take the vaccine rollout. Efficiency would call for leveraging existing vaccine distribution infrastructure to minimize the cost per shot. But perhaps you opt for less efficiency. Maybe you train soldiers to be part of your vaccine delivery team. They surely aren’t as efficient but might help more people to receive vaccinations in less time. Ironically, the vaccine development process itself intentionally broke every efficiency rule. The method, such as it was, was to throw as much money at the problem as possible to speed vaccine development. That worked. The vaccines now exist, even though multiple distribution problems remain.

One lesson 2020 has taught us is the importance of government in times of social crisis, as Paul Krugman in the New York Times observes. Perhaps in 2021 we can also learn that the logic of markets and governments are not the same—and that with government, being effective is often more important than being efficient.