For much of 2020, the American worker has been tested like never before. Panic and uncertainty tied to the coronavirus disease 2019 (COVID-19) led most governors to shut down essential businesses in their respective states for weeks or months at a time, pushing the unemployment rate from a 50-year low of 3.5% in February to one of its highest readings since the Great Depression, 13.3%, as of June 2020.
With little clarity as to when economic activity will return to normal, lawmakers on Capitol Hill passed, and the president signed, the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law on March 27.
The CARES Act hasn't done nearly enough for most working Americans
At $2.2 trillion, the CARES Act is the single biggest piece of relief legislation to ever come out of Washington, D.C. Aside from providing $100 billion to hospitals to help combat COVID-19, the CARES Act set aside $500 billion for distressed industries, close to $350 billion for small business loans, and $260 billion for the expansion of the unemployment benefits program. This expansion entails approved beneficiaries receiving an extra $600 a week, through July 31, 2020, or until they have a new job.
But there's little question that the CARES Act will be best remembered for putting money directly into the pockets of at least 159 million Americans, including senior citizens receiving Social Security benefits. According to the Internal Revenue Service, at least $267 billion has been dispersed via direct deposit, paper checks, and prepaid debit cards.
At maximum, these Economic Impact Payments, as they're officially known, can total $1,200 per individual or $2,400 for a couple filing jointly. Additionally, an extra $500 can be added to what a household or parent receives for each qualifying dependent under the age of 17.
Although throwing a lot of money at the coronavirus pandemic seemed like the prudent thing to do at the time, in hindsight these stimulus payments did very little for most Americans. An April 22 Money/Morning Consult survey found that almost three-quarters of respondents had spent, or planned to spend, their entire stimulus payout in four weeks or less. Considering that lockdowns in certain states lasted for months, and close to 21 million people remain on unemployment benefits through May (up from 1.7 million at the beginning of March), there's a clear need for additional stimulus.
The question is, will America get it?
The House passed the HEROES Act, but it's dead on arrival in the Senate
During April and May, approximately one dozen second stimulus proposals emerged on Capitol Hill, or gained steam through social media after being proposed by highly influential people. The only one to actually reach any level of congressional vote was the Health and Economic Recovery Omnibus Emergency Solutions Act, or HEROES Act for short.
On May 15, the Democrat-led House passed the 1,815-page HEROES Act by an almost perfect party-line vote (217 to 189). At $3 trillion, the HEROES Act would supplant the CARES Act as the costliest piece of financial relief legislation to ever come out of Washington, if signed into law.
Without getting too far into the weeds, the HEROES Act provides $1 trillion to aid states in paying frontline workers, establishes a $200 billion hazard pay fund for frontline workers, and expands the $600 a week given to unemployed beneficiaries through January 2021. It also provides a direct payment to working Americans and seniors, with individuals and couples qualifying for a maximum of $1,200 and $2,400, respectively, once again. The difference being that dependents (limit three) are worth as much as $1,200 each this time around, with no age-limit restrictions.
However, there's a lot about the HEROES Act that the Republican-led Senate simply won't agree to, including handing over $1 trillion to states and extending the unemployment benefits kicker of $600 for an additional six months. In fact, I'd argue that the biggest hurdle Democrats and Republicans will need to overcome on Capitol Hill is this extra $600 given to unemployed persons. Democrats view it as necessary given still-high unemployment rates, whereas the GOP views it as a disincentive to get back to work.
These off-the-cuff solutions could take the place of a direct second stimulus check
With the understanding that the HEROES Act is dead in the water, here are three off-the-cuff proposals currently being considered by the Senate and/or White House that might replace the traditional check in hand that most folks are probably looking for.
1. Payroll tax holiday
The first idea being considered is a payroll tax holiday. Most working Americans pay 12.4% of their earned income, up to $137,700 in 2020, into the Social Security program (or 6.2% if employed by a company or someone else). Reducing or eliminating this payroll tax for a period of months or years would lead to larger take-home pay for working Americans.
However, this idea, which has been touted repeatedly by President Trump, has two shortcomings. First, it does nothing for those folks who are out of work. Second, but more important, it substantially reduces the primary revenue source for the Social Security program. In 2019, the payroll tax was responsible for 89% of the $1.06 trillion collected. With little or no payroll tax revenue coming in, Trump's plan would sacrifice short-term economic gain for long-term pain for the Social Security program.
2. Back-to-work bonus
A second unique proposal making the rounds is one that pays a back-to-work bonus. Since the GOP has a huge objection to extending the $600 a week unemployment benefits kicker, Rep. Kevin Brady (R-Texas) introduced the Reopening America by Supporting Workers and Businesses Act of 2020 on June 1, This bill would pay up to a $1,200 "hiring bonus" to unemployed workers who land a job. According to Brady's bill, newly hired workers would qualify for two additional weeks of the $600 kicker, equating to the $1,200 bonus. Keep in mind, though, that this $600 added payout would end July 31, 2020, so Brady's bill is very limited in regard to the period it would be in effect.
As you might have gathered, the biggest concern with this proposal is that it does nothing to help essential workers who've been employed this entire time, but who may have suffered financial constraints due to COVID-19.
3. Explore America tax credit
Maybe the wildest idea of all, which wouldn't put money directly into the hands of workers and seniors, is the "Explore America" tax credit. A May 18 roundtable that included President Trump produced the possibility of providing up to $4,000 in tax credits to Americans who take a vacation in the U.S. by the end of 2021. This credit would allow Americans to write off their transportation expenses, hotel costs, and even their dining expenses.
The concern with this proposal is that it doesn't do anything for workers who need money now and don't have the finances to travel.
Suffice it to say that nothing remains set in stone when it comes to a second stimulus proposal. About the only thing that's close to a certainty is that a second stimulus proposal remains very much on the table.