Question

The recent outbreak of COVID-19 has caused a severe public health crisis as well as substantial economic disruption for every American. Policymakers have been considering legislation to help manage the pandemic and mitigate the economic burden on families and businesses.

So far, lawmakers have enacted four separate pieces of legislation, costing approximately $2.4 trillion. Below is a quick recap of that legislation.

Coronavirus-Related Legislative Actions to Date

As an initial response, policymakers enacted legislation in early March that provided $8.3 billion in emergency funding for public health agencies and coronavirus vaccine research. That bill appropriated $7.8 billion in discretionary funding to federal, state, and local health agencies and authorized $500 million in mandatory spending through a change in Medicare.

On March 18, the Families First Coronavirus Response Act was enacted to provide economic support to those in need. That legislation, totaling $192 billion, included a number of key components, including:

• Enhancing unemployment insurance benefits
• Increasing federal Medicaid and food-security spending
• Requiring certain employers to provide paid sick leave as well as family and medical leave (and expanding tax credits for those employers to offset the cost of providing such leave)
• Providing free coverage for coronavirus testing under government health programs

As a follow-up, lawmakers enacted the CARES Act, a relief package of around $2 trillion, on March 27 to address the near-term economic impact the virus is having on families and businesses. Some of the key items in the legislation include:

• Financial Assistance to Large Companies and Governments. Approximately $500 billion will be used to assist companies that are critical to national security and distressed sectors of the economy. Of that sum, about $450 billion will support loans to businesses, states, and municipalities through a new Federal Reserve lending facility. That support is not expected to increase federal deficits.
• Economic support for small businesses. Totaling about $380 billion, that support is largely for the creation of the Paycheck Protection Program (PPP), which allocated $349 billion in funding through the CARES Act to offer as loans to small businesses to help them avoid laying off their workers. Additionally, portions of the loans spent on payroll, rent, or utilities are eligible for forgiveness.
• Direct payments to taxpayers. Taxpayers with annual incomes up to $75,000 (or $150,000 for married couples) will receive payments of $1,200; that payment amount will gradually phase out for higher income earners with a cap at an annual salary of $99,000 (or $198,000 for married couples). Families would also receive an additional $500 per qualifying child. The Joint Committee on Taxation estimates that this provision would require about $290 billion in funding.
• Further expansion of unemployment benefits. Such benefits would be significantly expanded under the legislation — extending unemployment insurance by 13 weeks, boosting benefits by up to $600 per week for four months, and expanding eligibility requirements to include more categories of workers. The Congressional Budget Office estimates that such an expansion would cost about $270 billion.
• Federal aid to hospital and healthcare providers. About $150 billion would be provided to help hospitals, community health centers, and other healthcare providers prepare for and respond to the pandemic.
• Various tax incentives. Businesses would be allowed to defer payroll taxes, which fund Social Security and Medicare. A number of other tax benefits would also be provided; the largest effect would stem from the ability of individual taxpayers to use business losses in recent years to offset nonbusiness income.

On April 24, policymakers enacted the Paycheck Protection Program and Healthcare Enhancement Act. That bill, totaling $483 billion, will provide an additional $383 billion in economic support for small businesses ($321 billion to replenish the PPP, $60 billion for emergency lending for small businesses, and $2 billion for salaries and expenses to administer such programs), another $75 billion in funding for hospitals, and about $25 billion to fund more testing for the pandemic.

Will More Support be Needed?

While the legislation enacted thus far may help mitigate the economic burden from COVID-19, many analysts believe that further support may be needed.

As the Brookings Institution notes, fiscal policy can be used now to cushion the economic downturn as much as possible. However, they suggest it should also aim to set the appropriate conditions for the economy to recover once the restrictions on economic activity are removed. As such, multiple fiscal packages may be needed. Brookings notes that after an initial stimulus is enacted, the United States could allow subsequent payments to those in need to vary with health and economic conditions over time.

If major economic disruptions continue in the coming months and further support is needed, the Progressive Policy Institute (PPI) notes that future legislation should be structured in a way that is directly tied to the health of the U.S. economy. That structure, according to PPI, should include expanding automatic stabilizers — features of the tax code and social safety net that offset fluctuations in economic activity, causing taxes to fall or federal spending to rise during an economic downturn — as those features are more quickly responsive to changes in economic conditions.

Furthermore, scholars at the American Enterprise Institute (AEI) note that providing support to businesses, especially small- and mid-size businesses, will continue to be crucial. AEI suggests that while the PPP is a bold new program to preserve business and employment relations, it can be made more effective. They suggest revising the program to fund non-payroll costs, assure lenders they will not be held responsible if borrowers misrepresent themselves, and increase funding for the program at a level commensurate with demand so that borrowers are not discouraged from applying.

The Center for American Progress suggests that the United States can learn from the economic measures taken by other countries to inform current and future responses. Specifically, such responses should involve prioritizing support to those who cannot work, providing relief to keep small- and mid-size businesses intact, suspending or reducing tax and housing payment obligations to avoid defaults, and providing direct support to crucial sectors in need such as healthcare.

Whether a future response is needed will be an ongoing conversation; such plans are yet to be developed and the policy landscape remains highly fluid. There is a critical role for the federal government in responding to this unprecedented situation, which includes complex and unique threats to our economy and public health.

Questions:

1. Describe some of the fiscal policy measures enacted by congress and how they might help stabilize the economy.
2. What were the total expenses of those policies at the time that his article was published?

Answer 1

Since oil prices go negative, the US wTi crude oil prices remain unattractive as storage costs get higher and supply remains higher because oil plants cannot be closed and thus US economy receives almost zero prices on selling in short run and economic growth deepdives as unemployment toonrises because of low revenues and low forex reserves.

Coronavirus has had huge impact on economic growth due to lockdown and shutdowns and social welfare losses.

The economic growth remains subdued as Aggregate demand and consumption both fall simultaneously also leading to fall in prices and inflation.

Investment is pumped out due to falling interest rate regime and lower economic outlook of companies.

Government spending is ramped up due to an expansionary fiscal policy by reducing taxes and spending. Also net exports go negative as imports surge due to supply shocks.

Negative growth in GDP causes high unemployment and lower inflation based on Philips curve movement.

Thus in short run, aggregate supply is high but aggregate demand is low and real GDP falls. However in long run the economy stabilises.

The US has been great in fiscal stimulus of 484 billion dollars and US Fed unlimited bonds buying programmes worth 2 trillion dollars with rate cuts, CRR and SLR and liquidity coverage ratio cuts. Triggering automotic stabilizers and combined above policy will help alleviates financial distress and grow economic growth throufh higher consumption and disposable incomes.

The supplyvof credit availability rises causing its demand to go down considerably.

Sijce the interest rates are cut, the banks shall transmit easier loans availability at lower rates and thus loan markets will grow enormously.

However the cases has risen to 1 million approximately and states have been relaxed and thus caused havoc.

To avert this crisis, US must impose lockdown and gradually open economy using partial lockdown only after 2 months of complete lockdown. Major boost towards creating vaccination and healthcare for curing patients is required

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