WASHINGTON— Experts from the Progressive Policy Institute are calling on lawmakers to enact an aggressive stimulus package focused on strengthening automatic stabilizers and other measures that will not only help manage the coronavirus crisis, but also better prepare the United States for recessions that come after it.
“Congress must swiftly pass a stimulus package that is aggressive and fast-acting enough to prevent an economic contagion that spirals into another financial crisis, or worse, a second great depression,” said Ben Ritz, Director of PPI’s Center for Funding America’s Future. “Any action that experts reasonably conclude would materially help contain the virus or its economic damage should be undertaken swiftly no matter the price.”
“The automatic stabilizers detailed in our report offer the perfect tools for continually injecting stimulus into the economy so long as it is needed without being hamstrung by the political process. Strong automatic stabilizers will help avoid the mistakes Washington made following the 2008 financial crisis, when a misguided focus by Congressional Republicans on immediate rather than long-term deficit reduction undercut the recovery.
When the economy fully recovers and it comes time to get budget deficits back under control, these same policies will then drain any excess stimulus from our economy and use it to pay down our elevated debts, effectively removing fiscal concerns as an impediment to necessary borrowing today.”
Policy Options in PPI’s Emergency Economics Framework
Expand Unemployment Insurance
- Permanently increase the number of weeks that states may pay out extended benefits during the most severe recessions.
- Increase the share of lost income replaced by UI benefits during recessions.
- Expand work-share programs, which compensate workers for reduced wages when their employers choose to cut back hours instead of laying off employees.
Support Vulnerable Americans
- Automatically relax SNAP and TANF work requirements and increase funding during recessions.
- Increase funding for programs that serve disadvantaged communities, such as AmeriCorps.
- Send direct cash aid to all Americans when key indicators show the economy entering a recession.
- Structure direct cash aid as a refundable tax credit so it can be reclaimed from high income households and/or those that experience no significant income loss.
- Increase the progressivity of federal income taxes.
- Enhance the Earned Income Tax Credit.
Provide Liquidity to Cash-Strapped People and Businesses
- Offer low- or no-interest loans that enable otherwise financially healthy businesses to continue meeting their obligations for the duration of the crisis.
- Allow borrowers to delay payment on federal student loans and federally insured or guaranteed mortgages for six months without accruing additional interest costs.
- Encourage forbearance for residential rent and rent owed by small- and medium-sized businesses.
- Allow businesses and individuals to claim stimulus-related tax incentives on their 2019 tax returns.
- Delay the 2019 tax filing deadline and the collection of both employer-side payroll taxes and quarterly tax payments until the coronavirus outbreak has been contained.
- Allow workers who qualified for refundable tax credits such as the EITC in 2019 to receive an advance rebate on their 2020 benefit.
Relieve Pressure on State and Local Governments
- Automatically increase the federal share of Medicaid and other matching grants when a state enters a recession.
- Create permanent accountability standards that enable states to better prepare for reporting requirements that created heavy compliance burdens during previous recessions.
Make Long-Term Investments in Recovery
- Take advantage of low borrowing costs to invest in long-lasting public investments that would already be needed whether or not the economy is in recession.
- Fund green infrastructure and energy research to help tackle climate change.
- Automatically increase federal matching rates on infrastructure grants to states, particularly for maintenance and repair projects, when the state’s economy contracts.
- Establish state-managed lists of “shovel ready” projects and fund them through reforms to the existing BUILD Program.
Cut Taxes on Consumption, Not Payrolls
- Promote commerce by encouraging state and local government to temporarily cut or eliminate sales taxes, having the federal government replace lost revenue.
- Allow states that don’t have sales taxes to create refundable tax credits for purchases made during the crisis, also funded by the federal government.
- Suspend additional consumption taxes applied to industries most affected by the coronavirus, including airline ticket fees, hotel taxes, and taxes on prepared meals.
- Reduce tariffs, which are consumption taxes on imported goods primarily consumed by low-income people.
- Reject temporary payroll tax cuts, unless limited to the first $15,000 of a worker’s earnings or the earnings of workers whose production capabilities have been idled by the coronavirus.
- Permanently replace payroll taxes with a dynamic value-added tax that has a rate which automatically falls during recessions and rises during expansions.
Embrace Fiscally Responsible Borrowing
- Fund all interventions that experts reasonably conclude would materially help contain the coronavirus or its economic damage, no matter the cost.
- Strengthen automatic stabilizers that provide needed stimulus in recessions and reduce budget deficits during expansions without being influenced by politics.
- Implement structural fiscal reforms, such as those proposed in PPI’s Progressive Budget for Equitable Growth, to reduce long-term budget deficits after the economy has fully recovered.