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- TRENDING:
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The Economic Impact of
Coronavirus in the U.S. and Possible Economic Policy Responses
Byjobbagombeka , and Divya Vijay Posted on Jan 6,
2021, 9:00 am
Getty/David
Dee DelgadoA traveler wears a medical mask at Grand Central Terminal, March
2020.
An
epidemiological threat such as the new coronavirus, which causes the disease
COVID-19, can have disruptive effects on the economy. It can disrupt the global
supply of goods, making it harder for U.S. firms to fill orders. It can also
waylay workers in affected areas, reducing labor supply on one end and on the
other slow the demand for U.S. products and services.
International
Monetary Fund Managing Director Kristalina Georgieva says the outbreak is the
world’s “most pressing uncertainty.” The economic
disruptions caused by the virus and the increased uncertainty are being
reflected in lower valuations and increased volatility in the financial
markets. While the exact effect of the coronavirus on the U.S. economy is
unknown and unknowable, it is clear that it poses tremendous risks.
Policymakers
should therefore immediately undertake a number of steps to address any
economic fallout from the virus. The burden of meeting this challenge falls
squarely on Congress and the Trump administration. To its credit, the Federal
Reserve has aggressively cut interest rates, but monetary policy will likely
have a very limited effect since interest rates are already low and have been
so for some time. To put the U.S. economy on steady footing, CAP recommends
that Congress and the Trump administration engage in fiscal stimulus and
embrace five key principles for economic policy action in response to the
coronavirus:
1.
Do no harm
2.
Put more, not fewer, resources in public
health efforts
3.
Assure businesses that things will be fine if
the virus hits their sector and remediate harm when necessary
4.
Calm financial markets
5.
Ease the risks for households and vulnerable
populations
The
risks to the economy from the spread of the virus can be contained—even if the
virus cannot. Congress and the Trump administration, however, will need to act
quickly and communicate their actions clearly to ensure that the U.S. economy
faces a more certain future.
Assessing the economic impact of COVID-19
In
order to assess the possible impact of the coronavirus on the economy, it is
important not only to focus on the epidemiological profile of the virus but
also on the ways that consumers, businesses, and governments may respond to it.
COVID-19 will most directly shape economic losses through supply chains,
demand, and financial markets, affecting business investment, household
consumption, and international trade. And it will do so both in traditional,
textbook supply-and-demand ways and through the introduction of potentially
large levels of uncertainty.
Economists
have been using the SARS epidemic to put the coronavirus outbreak in context.
The 2003 SARS epidemic is estimated to have shaved 0.5 percent to 1
percent off of
China’s growth that year and cost the global economy about $40 billion (or 0.1
percent of global GDP).The coronavirus epidemic, which like SARS originated in
China, differs in a few key ways. China’s economy accounted for roughly 4 percent of the
world’s GDP in 2003; it now commands 16.3 percent. If the coronavirus has a
similar effect on China as SARS, the impact on global growth will be worse.
Moreover, China’s growth is weaker than it was in 2003—after years of rapid
economic development, China’s growth stands at 6 percent, the lowest it’s been
since 1990. Its confidence had been shaken by the dual effects of general
economic deceleration and the U.S.-China trade war escalation. Even before the
epidemic, China’s Purchasing Managers’ Index was already showing signs of
contraction. The February reading slowed from 50 to 35.7, a level in line with
that of November 2008 during the global financial crisis. The economic fallout
from the coronavirus could rattle China’s economy further and dampen global
growth.
The
coronavirus spreads more quickly than SARS, but, so far, seems to have a lower mortality rate. For its part, China
responded more quickly to the coronavirus outbreak than it did with SARS,
employing unprecedented confinement measures in areas such as Wuhan. These
measures, while prudent, have created short-term economic pain on the
supply-and-demand side.
Outside
China, the outbreak has also affected global supply chains, as other
governments have also taken immediate steps to slow the spread of the virus.
The Harvard Business Review predicts that the peak of
the impact will occur in mid-March, “forcing thousands of companies to throttle
down or temporarily shut assembly and manufacturing plants in the U.S. and
Europe.” This again will disrupt global supply chains as well as demand for
goods and services in the affected economies. These disruptions make it more
difficult for companies in the U.S. and elsewhere to bring their goods to
customers, and these companies will reduce exports from the U.S. to the rest of
the world in the coming months.
Furthermore, households, companies, and governments alike are deeper in
debt now than they were when SARS hit. For example, the U.S. nonfinancial
corporate debt of large companies is currently around $10 trillion, up from around $4.8 trillion in 2003. Deutsche Bank released analysis showing the world’s
major economies harboring the highest debt levels of the past 150 years, with
World War II as an exception. They all still need to continue repaying that
debt, even if jobs, customers, and tax revenues decline in a weakening economy.
These fixed costs then will leave less money to spend on other things. Large
amounts of debt often exacerbate an economic slowdown, especially if central
banks can do little to ease that burden by cutting interest rates.
The
world looks different from the last global virus outbreak in 2003. Global
growth is already slow, and financial markets already have very low interest
rates, which means that central banks in almost every major country have little
ammunition with which to mitigate any potential economic fallout. This puts
greater pressure on governments to use the power of their purse to counter the
economic fallout from the coronavirus. While the fallout from the coronavirus
will disrupt supply chains and global demand that could also affect the U.S.
economy, the current situation also creates a lot of uncertainty over the
longer term. Congress and the Trump administration can do a lot to counter the
risks associated with the spread of the virus by engaging in fiscal policies
(deficit spending) that will provide relief to affected populations and
mitigate disruptions to U.S firms.
Supply chain disruptions make it difficult for U.S. firms to
finish their products
Disruptions
to global supply chains are one of the clearest effects of the coronavirus.
Looking more closely at global supply chains, there have already been significant
disruptions, with the list of manufacturers outside of China forced to decrease
production in their plants growing longer every day.
As
noted earlier, China has shut down factories in areas affected by the virus as
a preventive measure, causing supply chain disruptions and affecting the
mobility and near-term employment prospects of migrant workers.
These
disruptions could further spread. As the virus has moved outside of China along
with the efforts to contain it, it is possible that many workers around the
world may not be able or willing to show up at work, further reducing economic
activity. The viral outbreak in northern Italy, for instance, has shut
down a firm that is the supplier of electronic parts to automakers
across the European Union, meaning auto
plants in several countries may need to close. This kind of widening of
supply chain disruptions to suppliers of intermediate goods outside of China
will make it increasingly difficult for U.S. firms to substitute products from
other countries for the missing inputs from China.
How
much this affects U.S. firms will depend on how tightly they manage their supply
chains. Many firms manage the time between needing new supplies from China and
putting them into their own production with very short lead times—often weeks
and not months. These companies will feel the effect of factory shutdowns in
China relatively quickly. These challenges affect not just traditional
industries such as car manufacturing but also increasingly high-tech industries
such as smart phones and computers. As a consequence of these supply chain
disruptions, U.S. firms cannot finish their own production and thus cannot
bring their products to customers. The result is reduced economic activity and
growth.
Consumers are buying
fewer things as they worry about the virus and its spread
The
virus will not only affect supply, but some sectors of the U.S.
economy may also experience declines in demand—and big reductions in
revenue—because of the overall effects on the economy. There are two
separate effects to consider. First, people will buy less of some goods and
services because they are afraid of potential exposure to the virus. For
example, they may be less willing to travel or go out to eat. The result is
that air travel and hotels could feel a real pinch. Already lessened
demand on food and beverage industries seems to be occurring. As Americans feel
increasingly uneasy about the spread of the virus in the country, it is
foreseeable that they will further cut back on some goods and increase their
emergency savings instead.
Second,
when firms are forced to close, workers likely will receive less money than
they otherwise would have expected and, in some instances, will receive no pay.
As a result, these workers will have less to spend, again cutting overall
demand. A fall in demand that follows a supply shock constitutes a one-two
punch that will further contract economic activity, although the size of these
effects is largely unknown.
Mass
flight cancellations to and from China—which has been designated as a “do not
travel” destination in the United States—means almost no one is traveling to
China and, more importantly for U.S. firms, Chinese tourists are not traveling
overseas. A consulting firm
estimates that
the United States will lose 1.6 million visitors from mainland China, with an
associated decrease in spending of $10.3 billion dollars. Multinational
companies and luxury goods makers who rely on Chinese consumers have already
suffered and had to close stores. As such effects proliferate around the world,
U.S. exporters will find it harder to sell their wares around their globe,
which will have negative repercussions for U.S. growth and jobs.
Meanwhile,
the U.S. anticipates lower imports from China. The last quarter of 2019 saw low
imports, exports, and international trade. There is a risk of a sizeable
negative demand shock if the public overreacts to the coronavirus outbreak.
Uncertainty over the virus and its economic effects can damage
the economy
As much
as economists think about risk-taking as a key driver of the economy, an
economy only works if risks are largely known. But unknown risks, or
uncertainties, can have a larger, more paralyzing effect.
The
current U.S. domestic economy—with its strong labor market and consumption
levels but concerningly low inflation and investment—already exhibits a
heightened sense of uncertainty. Political polarization and conflicting policies on regulation
have led to firms thinking twice before investing or expanding. Both a global
and U.S. economic uncertainty index, developed by economists from Northwestern,
Stanford, and the University of Chicago note an all-time high in August 2019.
In
addition to the already high level of policy uncertainty, the effects of the
coronavirus outbreak have a commonality with the 2008 financial crisis,
specifically, its unknown magnitude. There are uncertainties about the scale of
the virus, contagion rate, mortality rates, risk of incidence, and more. On top
of the usual online disinformation and swirl of conspiracy theories, there are
questions about the accuracy of the health statistics coming from China, in
part because of China’s history of providing
less-than-credible numbers related to its economy. Federal Reserve Chairman
Jerome Powell remarked that it’s “very
hard” to understand China’s economy. That issue of credibility has only become
more challenging during this crisis and it makes assessing the impact of the
virus on the global economy that much more difficult.
How may
a heightened sense of uncertainty affect the economy? It could affect
businesses, households, and financial market participants. Businesses may hold
off on investments because they don’t know what happens to supply chains as
well as their domestic and international customers. Internationally, it is
not known where and how far the virus will spread. This makes it hard or even
impossible to assess the effects on supply chain and demand disruptions
discussed above. But if these effects are difficult to evaluate, businesses
will not know whether they should continue with planned or even new
investments. Yet, any slowdown of business investment in the United States
would come after investment spending by U.S. firms has already fallen from
March to December 2019.
Businesses
are not the only ones that could pull back amid uncertainty. Households,
worried about contracting the virus, could cut spending on some items such as
traveling and going out. Moreover, this health risk poses a real economic risk,
as many households have inadequate health insurance, which could leave them
with large doctors’ bills when they get sick. And, most Americans do not have
paid sick leave, meaning if they get sick from the virus and need to stay home,
they will not get paid. In light of the risks, many people will view it as good
economic precaution to avoid activities that increase exposure to others. On an
economywide scale, though, this means less spending and thus less growth.
Banks
and other financial institutions may restrict and reprice credit because they
cannot properly assess short-term risks to particular borrowers, sectors, or
countries. Less credit availability could make it harder for businesses,
especially smaller ones, to invest and grow. And, some potential home buyers
could find it harder to get a mortgage. Credit market uncertainty could then
exacerbate the demand fallout from the coronavirus.
There
is also an international wrinkle to growing uncertainty. International
financial investors could become worried about the unknown risks to the global
economy from the coronavirus. They could look for the comfort of a safe
investment. Traditionally, U.S. treasuries are seen as very safe investment.
However, more money coming into the United States from abroad typically
strengthens the U.S. dollar, and a stronger U.S. dollar will eventually make
U.S. exports costlier, making it more difficult for U.S. firms to compete globally.
Supply
chain disruptions, demand contractions, and global economic uncertainty happen
against the backdrop of many firms and households straining under large amounts
of debt. This debt has to be repaid even if the economy slows. This continued
debt service then leaves less money for businesses and households to spend when
their incomes drop. High debt levels will exacerbate the economic fallout from
the virus.
Interest rates and stock price decline as economic uncertainty
takes hold
U.S.
interest rates have recently fallen to historic lows in a sign of increasing
economic uncertainty. The 10-year Treasury yield fell from 1.69 percent to 1.50
percent in the last week of January after remaining steadily around 1.7 percent
to 1.8 percent throughout 2019 and early 2020. The decline continued through
February, and for the first time in 150 years, the yield rate dipped below 1
percent on March 3.
The
abnormal decline has increased calls for action from Wall Street, demanding
that the White House and Congress to do something. The 10-year yield rate—often
looked to as a fear index of the economy—clearly reflects the uncertainty and
instability caused by the coronavirus and lack of appropriate response.
Prices
on bonds with a range of maturities reflect an increasing possibility of a
recession. In technical parlance, the yield curve has become inverted.
Shorter-term interest rates are now higher than longer-term interest rates—the
opposite of what happens in normal economic times. Such inversions are typically
taken as a sign that financial markets worry about the longer-term outlook for
the economy. Financial markets now see a growing risk of a recession. In the
same vein, lower long-term interest rates mean that financial markets expect
the Fed to cut interest rates, which are already low, to reduce the risk of a
recession.
Financial
markets, however, clearly worry that Federal Reserve action on interest rates
may not be enough. The federal funds rate—the main interest rate that the
Federal Reserve seeks to influence—has already been low. Moreover, longer-term
interest rates—such as mortgage rates that matter for economic activity,
including people buying houses—have fallen even without the Fed cutting rates.
In addition, households hold a lot of consumer debt—student debt, car loans,
and credit cards—where interest rates do not appear to react much to what the
Fed is doing. That said, the effect of Federal Reserve bank interest rate cuts
will be limited.
All
these factors worry the stock market as the future outlook for the economy—and
thus the outlook for profits—becomes murkier. The Dow Jones Industrial Average,
S&P 500, and the Nasdaq composite all fell into correction
territory at
the end of February, representing their worst weekly skids since 2008. Stock
market conditions are expected to remain volatile as measured by the Volatility
Index (VIX).
Data
from the Federal Reserve Bank of St. Louis shows volatility spiking abnormally
in mid-February, as global panic surrounding the outbreak starts to set in. The
index jumped from around 15 to almost 40 within a month. Such volatility has
led corporate borrowers, who were looking to take advantage of favorable credit
conditions to refinance loans, to withdraw their loans from the market and wait
for stabilization. According to the Harvard Business Review,
volatility “has signaled the greatest
strain” on
the valuation of risk assets, setting up volatility levels on par with the most
major economic disruptions of the last three decades—barring the 2008 financial
crisis.
5 core economic principles to inform policy in response to the
coronavirus
The
coronavirus puts the spotlight on policymakers to counter the risks of the
virus in a quick, constructive, and effective way. It is imperative for
policymakers to keep cool heads and take steps to ensure that the disruptions
to workers, individual businesses, and sectors—which will cascade through the
economy because of interconnectedness—are minimized while not interfering with
efforts to deal with the epidemic. To that end CAP recommends five principles
for economic policy action.
Do no harm
The
Trump administration must find one voice and stop adding to the confusion.
Moreover, the administration must to stop attacking the very programs Americans
need right now: paid leave, public health insurance, SNAP, and other social
programs. In its early 2020 budget proposal, the Trump administration sought
to cut Centers for Disease
Control and Prevention (CDC) funding by 16 percent; cut $85 million from the Emerging and
Zoonotic Infectious Diseases program; and had the U.S. Department of Health and
Human Services (HHS) cut $25 million from the Office of Public Health Preparedness
and Response along with another $18 million from the department’s Hospital
Preparedness Program. The latest budget proposal, modified to address the
coronavirus outbreak, asks for $1.25 billion in new emergency
funds for preparation and response efforts and to divert another $1.25 billion
from other federal programs. It is imperative to change the message from
cutting funding for public health, planning, and preparedness and instead
articulate clear and decisive support of public efforts to contain the
outbreak, minimize harms, and ensure investments in public health and emergency
preparedness.
Put more, not fewer, resources in public health efforts
Potentially
massive externalities related to epidemics alter conventional economic
thinking. For example, many medical services that providers would normally
charge for should be highly subsidized and delivered free (or close to free)
and at a minimum of inconvenience to users. The Trump administration should
consider immediate efforts to subsidize detection, treatment, and eventually
immunization. Reimbursements could be a way of accomplishing this.
Specifically, in terms of lowering barriers to testing, the government should
make it clear that testing will be free (or at least not too expensive) and
that people should not fear hospitalization (as undocumented people sometimes
do).
The
federal government needs to identify crucial medical supplies to deal with the
outbreak and make sure that production will meet demand. Production and
stockpiling of facemasks and protective gear for medical workers, and saline
bags to treat patients, must be organized with government financial support. In
addition, since many of the active ingredients in generic pharmaceuticals are
made throughout the world—in places such as India, China, and the Czech
Republic—the federal government needs to coordinate with domestic drug
manufacturers to make sure the supply of many lifesaving drugs is not
disrupted.
Policymakers
should consider providing relief to hospitals and health care providers. It is
unrealistic to think that health care providers won’t face financial strain in
the event of a major outbreak or pandemic. Moreover, pandemics affect everyone,
and many of the patients in need of acute care may be uninsured. Failure to
treat these patients would produce large, negative health and economic
externalities. Thus, pandemic preparedness cannot be approached by relying on
standard health care business models. The spending necessary to expand capacity
during such a public health crisis should come from the federal government,
principally through the U.S. Department of Homeland Security, and, ideally,
informed by a robust interagency working group with HHS, CDC, and other
relevant executive agencies.
Assure
businesses that they will be fine if their sector is hit by the virus and remediate
harm when necessary
Beyond
the health sector, other industries necessary for the well-being of U.S.
citizens may also need direct federal support. For example, a common response
to natural disasters is panic buying in food stores, reflecting fear that
supplies may not last. If the effects of the outbreak on food processors and
retailers are severe, that sort of heightened anxiety will reappear—and perhaps
for good reason. The government needs to consult with major food retailers and
their suppliers to plan for possible disruptions in deliveries all along the
food supply network and provide direct financial support to ensure that food
supply does not become a serious problem.
Congress
and the administration should consider measures that would provide immediate
and direct relief where it is needed most. For example, in areas where the
local, state, or federal government has mandated quarantines, the federal
government could provide low-interest loans to small businesses for their
associated costs and loss of profits. This will ensure that small businesses
stay in business and that they do not have to let employees go or cut their
pay. If the Trump administration can do three rounds of farm bailouts due to
the trade wars, the government can certainly offer some better-designed
insurance program to sectors and firms affected by the fallout from the virus.
Targeted
relief to sectors heavily affected in a direct way serves both to ensure
minimum service levels, minimize supply chain disruptions, and avoid credit
events that could spread across the economy.
Calm financial markets
The
spread of COVID-19 has begun to affect financial markets, but it is uncertain
how severely the coronavirus will strain the broader financial system moving
forward. As financial markets become more volatile, and more economically
vulnerable actors suffer increased difficulties to meet financial contracts, it
will be important to act swiftly in order to avoid any disruptions in the chain
of payments and too much risk-averse behavior.
The
Federal Reserve cut its benchmark interest rate by half (.5) a percentage point
on March 3 in a move that was widely seen as a reaction to the coronavirus.
Other central banks have already lowered interest rates or are considering
doing so. The Federal Reserve should adopt an accommodative monetary policy
stance and should consider using all tools at its disposal, including its
emergency lending authorities. But as interest rates are close to zero in many
large markets, there is limited scope for further decreases, so more creative
instruments such as quantitative easing may be warranted. Inflating financial
asset prices (such as the stock market) should not be a main goal in this
context.
The
federal government and regulators should monitor financial markets closely and
prepare for possible market stress; credit events; or sudden drops in credit
supply or in liquidity in markets such as overnight repurchase agreements
(repos) and intervene where it is sensible to do so.
Moreover,
financial regulators should carefully monitor the ongoing impact of COVID-19 on
broader financial stability. If, for example, community banks in hard hit areas
are unable to meet commercially viable business loans because they are capital
constrained, a program to temporarily purchase preferred stock in these banks
would allow them to meet local needs and keep good businesses operating.
The
Financial Stability Oversight Council (FSOC)—a postcrisis body of financial
regulators—should immediately convene a meeting to discuss the risks COVID-19
may pose to the financial system. The FSOC should task its research arm—the
Office of Financial Research (OFR)—to assist with this monitoring and analysis.
If the COVID-19 outbreak leads to severe stress at financial institutions and
markets, financial regulators should stand ready to use the emergency
authorities under their respective jurisdictions. It is important to note that
the officials currently leading the financial regulatory agencies were not in
office during the 2007-2008 financial crisis and may not be intimately familiar
with the mechanics and protocols associated with their respective emergency
authorities. To that end, the FSOC could organize a wargaming exercise to
ensure financial regulators are not caught off guard if the health of the
financial system does deteriorate.
It is
important to emphasize that financial regulators should refrain from relaxing
critical regulatory and supervisory safeguards during this period. Weakening
financial stability rules for large banking institutions would undermine the
core resiliency of the financial system and increase risk to the real economy.
Finally,
as the coronavirus advances, it will be optimal to aim for international
cooperation on economic policy matters, including financial policy. Coordinated
responses will lower the likelihood of beggar-thy-neighbor policies and
accusations of currency manipulation. International cooperation and
coordination should also help address supply chain issues, especially in
crucial supplies such as medicines.
Ease the risks for households and vulnerable populations
It will
be important to reduce the impact that this outbreak with have on the financial
stability and prosperity of households, particularly those who are already
vulnerable. Many workers do not have health insurance, and roughly 27 percent of private-sector
workers did not have access to paid sick days in 2019. Given that this is
unlikely to be the last health crisis Americans will experience, the United
States should adopt a guaranteed paid sick leave policy as soon as possible,
just as virtually every other developed country has done. In the event of a
major health crisis that involves extended sick leave, the federal government
could support employers with the cost of providing paid sick time or help
workers by expanding benefits through the unemployment insurance system. This
would ensure that employees can recover from COVID-19 or care for a sick family
member without losing their job or pay while also benefitting the businesses
where they are employed.
Being
uninsured or underinsured, combined with limited or no paid sick time, makes
people particularly financially vulnerable. For instance, lower-wage frontline
workers who work in jobs where they interact with other people—such as health
aides, personal care workers, cooks and servers, and retail sales people—were
less likely to have health insurance and more likely to incur medical debt due
to an unexpected health event than other workers in 2018. Almost one-fourth of
these workers, 23.4 percent, did not have health insurance then, compared to
10.5 percent of other workers and 4.7 percent of health care workers, such as
doctors, nurses, and technicians. (see Table 1) Even though the share of
lower-wage frontline workers that had unexpected health expenses in 2018 was
less than that of other groups of workers (see Table 1), more than half of
those frontline workers with unexpected health expenses ended up with medical
debt compared to only 23.1 percent for other health care workers and 38.7
percent of all other workers. (see Table 2) Health care emergencies can quickly
translate into financial burdens when people lack health insurance and the
ability to take time off. The 14 states that have yet to adopt the Affordable
Care Act’s Medicaid expansion should do so immediately, which would result in
more than 2 million low-income people gaining comprehensive health care
coverage.
Congress
and the administration should also mitigate the economic harm to households.
This will also have the important effect of supporting consumption—the most
important pillar of the economy.
Congress
could take several steps to help vulnerable households. These would include
ensuring free—or affordable to the patient—access to testing and treatment for
the coronavirus and protecting patients from surprise bills. Other ideas for
temporary assistance could include getting cash into the hands of average
people. This could be done through a payroll tax holiday or through direct cash
payments. Providing financial assistance to vulnerable individuals in times of
hardship ensures that they can afford the basic everyday necessities; retain a
measure of control over their own lives; and avoid the dire consequences of
financial disaster. Putting cash in the pockets of households increases
consumption and can motivate businesses to invest more. Increased consumption
and business investment have a direct positive effect on economic activity and
can ignite a virtuous circle of economic growth. Consumption and investment are
the cornerstone of a full economic recovery.
Conclusion
With
the spread of the coronavirus, the United States is facing a potential “black swan event”—an extremely rare and
unpredictable incident that has potentially severe consequences. Therefore, it
is important to act swiftly and in meaningful ways to minimize the fallout from
this shock. Now is precisely the time for deficit spending: Low interest rates
make it cheap and easy for the government to finance itself while limiting the
potency of further monetary stimuli from the Federal Reserve. Therefore, it is
incumbent upon the federal government to provide fiscal stimulus to ignite
economic activity. In other words, the government needs to engage in sizeable
spending and investment in key areas of the economy in order to increase
economic activity; minimize disruption to the health and prosperity of the
population; and to limit the effects on supply chains and the business sector.
The five principles for economic policy action outlined in this report provide
a roadmap for meaningful and decisive fiscal action that will help the economy
regain its footing.
It is
important to note a policy prescription that is clearly not included in the
list of recommended actions outlined above: a broad-based tax cut that favors
corporations and the wealthy. There is evidence that the Tax Cuts and Jobs Act
(TCJA) constituted a large corporate-tax
windfall that
went mostly to already wealthy individuals with little evidence that it well to
middle- and working-class families. It did not spur large
levels of investment or growth and ballooned the fiscal deficit. The tax cuts recently
proposed by the Trump administration will be very costly and will not directly
or efficiently address the economic fallouts from a potential widespread
coronavirus outbreak in the United States. Such proposals, including further
cuts to the corporate income tax, would provide a windfall to many large and
profitable corporations and other businesses—regardless of whether or not they
have been meaningfully impacted. Most of these firms are already benefitting
from enormous tax cuts enacted in the 2017 tax law. Redoubling this mistake
will distract from other efforts and waste resources that are urgently needed
for the purposes outlined in this report.
A
potential sudden stop in activity, coupled with heightened uncertainty, may
expose structural vulnerabilities in certain households and markets. A decisive
and rational response along the lines of the five principles outlined here will
minimize economic risks and contribute to a speedy recovery.
Andres
Vinelli is the vice president for Economic Policy at American Progress.
Christian E. Weller is a senior fellow at American Progress and a professor of
public policy at the McCormack Graduate School of Policy and Global Studies at
the University of Massachusetts, Boston. Divya Vijay is a special assistant for
the Economic Policy team at American Progress.
To find
the latest CAP resources on the coronavirus, visit our coronavirus resource page.
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