Senate GOP Coronavirus Bill Has Some Good Provisions but Needs Serious Work

COMMENTARY Budget and Spending

Senate GOP Coronavirus Bill Has Some Good Provisions but Needs Serious Work

Jul 30th, 2020 11 min read

Commentary By

Adam Michel

Senior Policy Analyst, Grover M. Hermann Center

Rachel Greszler

Research Fellow in Economics, Budget and Entitlements

Lindsey M. Burke, Ph.D. @lindseymburke

Director, Center for Education Policy

Brian E. Finch

Visiting Legal Fellow

A man wearing a mask crosses the road in Times Square on May 29, 2020. Alexi Rosenfeld / Contributor / Getty Images

Key Takeaways

Congress has already authorized more than $3.7 trillion of immediate coronavirus relief spending, going to individuals, businesses, and state governments.

The response should continue to be targeted at the health crisis and provide necessary protections for the coming economic recovery.

Congress should focus on doing only what is absolutely necessary and appropriate in response to the pandemic.

Congress has already authorized more than $3.7 trillion of immediate coronavirus relief spending, going to individuals, businesses, and state governments. The response should continue to be targeted at the health crisis and provide necessary protections for the coming economic recovery.

The Senate GOP coronavirus bill, entitled the Health, Economic Assistance, Liability Protection, and Schools Act, includes important liability protections for businesses and schools as they reopen and works toward a more equitable and targeted federal boost to unemployment benefits.

However, the Senate’s bill spends another $1 trillion of future taxpayer’s money—the equivalent of $7,750 per household. The bill includes new subsides and doubles down on past programs that will create more complexity and confusion rather than the simplicity and certainty taxpayers need. 

The Senate GOP coronavirus bill proposes additional checks to most Americans, which is misguided economic policy. It also proposes $105 billion to schools and universities, which—combined with past coronavirus federal education bailout money—would nearly double the Department of Education’s annual discretionary budget.

Now five months into the pandemic, this bill is tied to neither immediate safety nor further economic collapse. There is no deadline or need that forces Congress to act in such a sweeping and hasty manner.

Congress should instead focus on doing only what is absolutely necessary and appropriate in response to the pandemic.

Here are some of the most important provisions:

Extended, Smaller Unemployment Bonus

To address the sudden loss of jobs and wages following fear of the pandemic and wide-ranging business closure orders, Congress significantly expanded unemployment insurance benefits.

Lawmakers extended the duration of benefits to 39 weeks; made them available to tens of millions of previously ineligible, self-employed, and gig workers; and added a $600 per week benefit on top of existing state benefits. The $600 bonus payments expire on July 31.

The $600 bonus never made sense, because unemployment is supposed to be proportional to workers’ previous wages. Usually, it replaces between 40% and 50% of workers’ previous wages, but now, almost 7 out of 10 unemployed workers are getting more from unemployment than from their previous paychecks.

The Senate GOP coronavirus bill would provide a federal bonus to bring benefits up to 70% of workers’ previous wages (up to an extra $500 above state benefits), but because many state systems apparently cannot handle a 70% benefit, the bill provides two months for states to update their systems.

Thus, in August and September, the federal government will provide a $200 bonus benefit before the 70% replacement begins in October. In the short-term, as states adapt their systems, a partial federal matchcould provide better-targeted relief to unemployed Americans than a flat benefit.

Proportional benefits are the right policy to support unemployed workers without reducing employment or making it harder for businesses to recover.

To avoid addressing a sharp cut-off of federal unemployment supports in December, policymakers should gradually reduce federal supports—for example, reducing the 70% replacement rate to 60% in November and 50% in December—and return to state-funded and operated unemployment insurance systems in 2021 and beyond.

Liability Protections

The Senate GOP coronavirus bill includes the much-anticipated Safeguarding America’s Frontline Employees to Offer Work Opportunities Required to Kickstart the Economy, or SAFE TO WORK Act. That act represents months of work by Republican senators committed to offering strong liability protections to businesses that put in place reasonable anti-pandemic measures designed to limit the spread of the coronavirus.

Under the SAFE TO WORK Act, entities ranging from businesses to local governments and even school districts will only face liability for coronavirus-related lawsuits if the plaintiffs can show by clear and convincing evidence that:

  1. The defendant “was not making reasonable efforts … to comply with the applicable government standards and guidance” related to the coronavirus.
  2. The defendant’s gross negligence or willful misconduct caused the actual exposure to coronavirus.
  3. The actual exposure to the coronavirus caused the injury allegedly suffered by the plaintiff.

If a plaintiff can demonstrate that a defendant is liable, the SAFE TO WORK Act provides another safeguard to defendants in that the proposal only allows punitive damages in the event that there has been “willful misconduct” by the defendant.

Even then, the punitive damages cannot exceed the compensatory damages allowed by the bill (which are generally limited to the amount of economic injuries suffered by the plaintiff). 

A similar set of liability protections and requirements for establishing liability are also created in the SAFE TO WORK Act for medical injuries caused by health care professionals or facilities. Similar to other sections of the SAFE TO WORK Act, claims for medical liability can only succeed when the plaintiff demonstrates that the injuries were caused by the gross negligence or willful misconduct by the health care professional or facility.

While the SAFE TO WORK Act does not act as a bar to most administrative or regulatory actions, it does prohibit employers from being subject to certain federal employment enforcement proceedings or liability. Employers can defeat such labor or employment claims when they can demonstrate that they relied on and attempted to follow government standards and guidance on coronavirus prevention or mitigation. 

The SAFE TO WORK liability protections should offer a welcome relief to businesses worried that unscrupulous lawyers will be able to profit off of any and every alleged coronavirus infection that occurs.

At the same time, coronavirus victims can rest assured that businesses and local governments alike can be held accountable if their infection was indeed caused by grossly negligent behavior.

The Senate might consider expanding the scope of the SAFE TO WORK Act, however, by making it applicable to future pandemics, in addition to the current COVID-19 event. By creating liability protections for future pandemic planning, Senate Republicans would incentivize entities to develop their own plans for managing future pandemics.

Aid to Schools  

The Senate proposal would authorize $70 billion in additional bailout money to be spent on K-12 schools, two-thirds of which would be reserved for schools that plan to reopen for in-person instruction this fall and private K-12 schools would be eligible for a portion of the funding. The proposal would allocate an additional $30 billion to higher education, and $5 billion for governors to spend on education as they see fit.

Congress already authorized $31 billion for schools in the March Coronavirus Aid, Relief, and Economic Security Act, of which the most recent data show just 1% has been spent.

Instead of spending more than $100 billion on another education package, Congress should provide states with flexibility over how existing federal education dollars are spent and districts need to reprioritize spending, focusing on unnecessary growth in nonteaching staff, administrative bloat, and unfunded pension liabilities that have been squeezing taxpayers for years.

A Second Round of Checks

The bill once again sends $1,200 checks that most Americans received from the Coronavirus Aid, Relief, and Economic Security Act two months ago. The $500 child payments are more widely available to all dependents and the income eligibility thresholds remain the same (payments are phased down for single filers who earn over $99,000).

The first round of so-called stimulus checks were not a good use of taxpayer dollars and a second round would be similarly wasteful. One problem with sending checks to most Americans is that the funds are inadequate for those who have lost their jobs and unnecessary for the 140 million workers who are still employed.

The fact that the savings rate surged from a typical 8% to 32% in April and 23% in May suggests that many households do not face income shortfalls and will not spend additional stimulus checks immediately.

The stimulus checks are also not actually stimulative because governments can’t spend their way back to economic recovery. In the past, stimulus checks and rebates did not change broad measures of consumer demand and government stimulus spending tends to actually shrink the private sector rather than grow it.

Return to Work Subsidies and New Safety Credits

The bill proposes a newly expanded tax credit for businesses who hire COVID-19 unemployment recipients and an additional credit to cover the costs of employee protection expenses. A $5,000 credit for rehiring unemployed workers would be made available through an expansion of the existing work opportunity tax credit

While it’s understandable to want to help get people back to work, additional business payroll subsidies would complicate the hodgepodge of previously-enacted subsidies. And they wouldn’t be an effective use of future taxpayers’ money because a lot of back-to-work subsidies would provide windfall benefits to individuals and employers who were already going to find employment or hire back workers.

The bill also includes a new payroll tax credit to cover half the costs of broadly defined “qualified employee protection expenses,” such as purchasing personal protective equipment, testing for COVID-19, and cleaning expenses. The credit can be claimed for up to $1,000 per employee for the business’ first 500 workers and becomes less generous for the remainder of employees.

These new tax credit programs are unlikely to help the most vulnerable and smallest businesses amid mounting complexity in the existing coronavirus response. Individuals and employers need to spend their time and money maintaining their livelihoods, regaining their customers, and adjusting their operations to new COVID-19 realities.

Instead, the existing pandemic programs force employers to spend their time figuring out complicated interactions and ambiguous enforcement. This bill expands that complexity, changes the rules yet again, and creates a new maze of programs to navigate.

Many of the smallest businesses cannot afford the tax and legal counsel necessary to comprehend and comply with these programs. Some have even thrown up their hands in frustration and given back the money.

Simple relief is effective relief. The congressional response should remain targeted at containing the virus and streamlining programs that already exist, rather than creating new complexity.

Additional Money for the Paycheck Protection Program and Employee Tax Credits  

The Coronavirus Aid, Relief, and Economic Security Act created the employee retention tax credit as a payroll tax credit to offset 50% of wages up to a $5,000 credit per worker. Small businesses with less than 100 employees could seek the credit on all wages, but larger businesses only received the subsidy on wages paid to employees who are not working.

The bill increases the credit to a max of $15,000 per worker and expands eligibility for the more generous credit to businesses with as many as 500 employees.

While this could help some businesses employ more workers without reducing compensation, it could also provide significant windfall benefits to employers who have already decided it was in their interest to retain workers.

Used by more than 70% of small businesses, the popular Paycheck Protection Program loans would be extended for businesses with 300 or fewer employees (down from 500) and requires businesses to certify a 50% decline in receipts, a welcome improvement.

The loans become grants if 60% of the funds are used on payroll. The bill would also expand federal loan guarantees and other subsidies to seasonal employers and other small businesses in low-income census tracks, adding additional programs and complexity to the federal relief.    

Assistance for Gig and Remote Workers

Amid COVID-19, some companies and platforms that work with contractors or gig workers want to be able to provide things like personal protective equipment, cleaning supplies, or payments for lost business to the individuals with whom they do business.

Under current law, providing these things risks triggering an employer–employee relationship that would include significant costs for businesses and deprive independent contractors of the flexibility and autonomy that they desire. 

The bill provides an important safe harbor so that platform companies, such as Uber and Instacart, can provide assistance without jeopardizing their legal status as contractors. If restaurants and stores can provide masks and hand sanitizer to their customers, and if households can continue paying a maid service during a period when the company does not actually clean their home, gig platforms and companies that do business with contractors should be able to do the same.

The bill also includes new protections for Americans who are now working in new locations following widespread office closures, stay-at-home orders, and front-line workers traveling to pandemic hot spots to help support the health care response.

Many states have not issued clear guidance, and New York Gov. Andrew Cuomo said that he will be sending income tax bills to health care workers who traveled from out-of-state to assist New York with the COVID-19 pandemic. This federal proposal would not allow that, but rather specify that income earned in a state that is not the taxpayer’s state of residence should not trigger any new tax bills during the crisis.

Flexible State Aid

Many governors and federal lawmakers have called for a nearly $1 trillion federal bailout for state and local governments in addition to the $150 billion in already provided direct grants for costs related to COVID-19.

Instead of aiding the recovery and encouraging responsible budgeting, sending additional unrestricted federal aid to the states would likely delay economic recovery, cause blatant inequities, and result in higher costs for everyone.

States’ budgets should be their own responsibilities. Shifting resources from taxpayers in responsible states that were better prepared for shortfalls and that have enacted budget cuts to irresponsible states that didn’t save and have refused to adjust their budgets would encourage fiscal recklessness in the future.

It certainly also doesn’t make sense for the federal government to assume state and local shortfalls when it already has about seven times as much debt per capita as state and local governments.

In a concession to those who want to bailout state budgets, the bill allows 25% of the already appropriated $150 billion to be used to cover revenue losses and states can use the funds over a longer period. If the choice is between providing additional federal bailouts to states versus allowing them to use already-appropriated COVID-19 funds for non-COVID-19 expenses, the latter is preferable.

Ideally, the added uses of those funds would preclude things like increasing public employees’ compensation (including pension benefits) or adding new spending programs. But because money is fungible—federal dollars provided for COVID-19 costs or lost revenues free up state dollars to use for anything else—it would be difficult to prohibit unintended uses of the funds.

The bill also provides $2 billion for states to modernize their unemployment insurance systems. It is absurd that many of these systems are so outdated that they cannot handle providing benefits proportional to workers’ wages, especially considering that the federal and state governments require businesses to adapt their payroll and tax withholding to ever-changing laws.

Considering the need to adjust systems quickly to target a 70% replacement rate starting in October, additional funds make sense. It would be helpful if states used these funds to also adapt partial-benefit or short-time compensation programs so that they provide unemployment insurance benefits to workers who have lost some, but not all, of their previous hours and incomes.

Instead of hastily passing a costly and sweeping bill, Congress should pare back the next coronavirus package so that only contains provisions that directly and effectively target the health pandemic and economic recovery.

This piece originally appeared in The Daily Signal