Consequences of Inaction on COVID Tax Legislation

WM Special Revenue, Consequences of Inaction on COVID Tax Legislation, September 11, 2020

While you were away, insanity seems to have become even more deeply rooted in the West Wing.

During the first two rounds, deals were made quickly and aid moved out the door – almost too quickly given the declining supply of labor used to produce goods and services. While there were instances of food price inflation, enough stored labor was in the pipleline in the form of goods to prevent what could have been a perfect economic storm of stagnation and hyperinflation.

The new White House Chief of Staff seems more attached to making a conservative political statement than governing. He is likely the one person who executive privilege is sure to cover and the least likely one to be swayed by this hearing. 

Hopefully, the Office of the Vice President will intervene on this matter before the situation for many families becomes dire. I am equally hopeful that Secretary Mnuchin and the Speaker can come to some agreement prior to the start of this hearing. Members have likely had enough of an earful to spur fast action.

My friends and associates who have been sidelined by this pandemic report that $1000 a week in assistance is probably too generous, but no additional entitlement creates scarcity. Such scarcity is cruel in an economy that has not fully reopened yet. Luckily for the economy, many people have been hoarding cash for a situation such as this. I am not sure if this is a good thing or a vote of no-confidence by the people of the United States in their government.

Reports are that the Speaker could agree with a total package in the middle of the House and Senate positions (although the other chamber’s majority could not reach consensus to pass a bill), but Mr. Meadows is blocking action. The unilateral action by the Administration is both unwise and unsustainable, but it is currently the game in town. Now that Congress has returned, the damage caused by such unilateral action can be easily repaired, provided that certain parties are left out of the next round of negotiations.

It is urgent that this occur. While the Centers for Disease Control now includes nasal symptoms on their approved list, this has not led to its use in active disease screening, nor has it impacted estimates of the time between exposure to serious SARS and fatigue symptoms from the current two-week model to the four weeks experienced by patients who recovered without hospitalization. 

As a result, some regions of the country opened up just as the virus arrived and others are blaming Memorial Day outings for exposures that likely occurred two weeks before through peer-to-peer rather than public transmission. Because nasal symptoms were not recognized as part of the virus, many transmissions were written off as seasonal allergies. This is still the case.

The Midwest is or soon will be reporting a vast increase in illness (not merely positive testing). This spike has nothing to do with Fraternity parties. 

The nation has unwittingly adopted the Sweden model for fighting the virus, while nations that did close down are reporting significant second waves.  The pandemic is still out of control, except in areas like New York where almost everyone who was vulnerable to infection and serious illness was exposed and either died or recovered. Until the CDC begins listening to patient, rather than provider, experience, control will not be achieved. A second shutdown is almost inevitable. 

Areas like New York, who have already seen the worst, should likely not be included in the next set of closures. With luck, such regions will provide the labor for goods and services to areas that have no choice but to shut down for real this time.

Transmission in the Sun Belt has slowed considerably, but higher death rates will be with them for a while. Much of the nation has no idea what is in store for them and is sure to react badly when they realize how bad this pandemic can be. The estimates that the number of deaths experienced to date will likely double is not far off, but is not conditional on mask wearing. It is too late to stop this pandemic from running its course. 

The current model for the virus is inadequate to dictate the necessary medical measures to prevent the worst-case scenario from occurring. Bureaucratic inertia in the CDC and medical establishment will not be overcome in time.

The task of the Congress, especially this Committee, is providing enough money to workers and their families who almost certainly will not be able to work, while not providing so much that others will resist going back, even though their region of the country has gotten through the worst of the pandemic and will likely not experience a second wave. 

The defacto $300 a week addition to benefits is close to what would be the sweet spot, but its uncertain execution complicates its usefulness. A $400 benefit temporary addition, along with higher long-term increases to the minimum wage, would provide both a stop gap and a high enough permanent benefit to close and reopen the economy on a better footing, as would a higher child tax credit, made refundable and paid with benefits.

A better long-term solution to the problems of unemployment (along with no-fault procedures) will make the system more robust for the next medical and/or economic crisis. As I commented to the Budget Committee at the beginning of the year, the fundamentals of the investment economy are not sound. 

There is too much leverage and speculation – some of which has worsened in the interim. Housing finance, especially for long-term single-family rental units, is a time bomb and the current crisis will ignite it without aid to families who rent these units. Combined with the yet unexploded crypto-currency bubble (which will only grow given current uncertainties), the underlying system needs permanent maintenance. 

Getting a short-term deal is the least of our worries.