Senate GOP Coronavirus Bailout Bill Has Serious Flaws, Heritage Warns

Senate Majority Leader Mitch McConnell

On Wednesday, Senate Republicans unveiled the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which would be the third major piece of legislation to help Americans amid the coronavirus crisis. The Heritage Foundation analyzed this byzantine labyrinth of proposals and raised important alarms about many provisions while acknowledging the bill's many positive reforms.

American businesses are struggling due to the coronavirus, and the Heritage Foundation report published Friday admits that the government should provide some aid — since the government encouraged Americans toward social isolation and against supporting many businesses. Yet "any policy response by Congress to address the adverse economic consequences of the coronavirus epidemic should be targeted, temporary, and directed at aiding public health efforts." Sadly, the CARES Act is ripe for abuse.

The bill includes $208 billion in loans and loan guarantees for passenger air carriers ($50 billion), cargo air carriers ($8 billion), and other businesses ($150 billion). "Overnight, the bill would make the U.S. Treasury Department one of the largest investment banks in the country authorized to make loans to, guarantee loans to, and take equity positions in businesses of all types," the report explains.

"A bailout of this magnitude of large firms and with so few taxpayer protections is unwarranted. Furthermore, turning the Treasury Department into a large investment bank with almost unlimited discretion is a recipe for cronyism, favoritism, poor results, and taxpayer losses," the Heritage Foundation warns. "At the very least, firms should be able to secure loans only in amounts that are demonstrated to be directly related to their crisis-related losses."

The Heritage Foundation proposes two alternate approaches to help big businesses. First, the report encourages Congress to apply "the same paid sick and family leave provisions" granted to small business employees to workers at large employers. Such an expansion "could reduce or eliminate the need for separate, selective bailouts to big businesses."

Second, Congress can "pre-purchase expected goods and services to supply businesses with liquidity," instead of providing bailouts. Pre-purchasing predictable goods and services can inject necessary funds into the businesses while avoiding the kind of adverse effects caused by a bailout.

It may seem odd for the Heritage Foundation to support government intrusions into the economy at all, but the report explains why a free-market think tank would nonetheless support limited involvement.

"Ordinarily, a program anything like the program described above would constitute unwarranted government subsidy of business, harming the taxpayer and impeding the ordinary functioning of the market. However, in the current circumstances, local and state government orders have often made it unlawful for these businesses even to operate," the report explains. "Moreover, the federal government is instructing (although not ordering) the public not to patronize these businesses. The businesses must still pay their rent and mortgages and have millions of employees who rely on them for their livelihood."

The circumstances arguably justify a limited intrusion into the economy, but there are serious problems with the CARES Act as it currently stands.

The act would provide for "recovery checks" through advanced tax refunds of up to $1,200 (single) or $2,400 (married filing jointly) and an additional $500 per child. "Millions of Americans at this time are in need because of the widespread business closures. However, broad based relief is not a well-targeted prescription for this crisis. Despite major dislocations, most Americans do not need direct government aid," the report explains.

"Government supports should be targeted toward keeping people employed and supporting those who do lose their jobs due to the coronavirus crisis," the Heritage Foundation argues. "At the same time, sending checks to Americans (including those who have not lost their jobs) runs the risk of jeopardizing public health efforts if the intention is to encourage social distancing rather than going out into the economy to spend extra money."

While the Heritage report credits the bill for smoothing the transition to telemedicine, it faults the bill for providing grants to telehealth for the next five years, long past the duration of the crisis.

The report credits the bill's temporary 3-month suspension of student loan payments, with no accrual of interest during that period. "This is smart emergency policy that avoids blanket student loan forgiveness. Large-scale student loan forgiveness would be inappropriate and would place an additional burden on those who did not take out loans (which represents the vast majority of taxpayers)," the Heritage Foundation notes.

The report praises many facets of the bill, including its delaying of tax filing deadlines and estimated tax payments and its paid leave provisions for rehired employees who had been fired during the crisis.

Yet the Heritage Foundation insists on many other reforms that did not make it into the bill. Its report suggests the bill could waive "required minimum distribution" rules. Americans age 72 and older must remove a percentage from their retirement accounts, a percentage that increases with age. "Given significant declines in the stock market in recent weeks, rules that require individuals to take large percentages out of their retirement accounts when they have suffered a significant loss can hurt retirees’ future finances. We should let them ride it out if they so choose," the report suggests.

The Heritage Foundation is standing up for limited reforms that preserve America's free-market economy while also addressing the economic dislocation caused by the coronavirus crisis. The Senate would do well to study this report and alter its proposal. Meanwhile, Democrats are trying to smuggle in as many wishlist items as they can into coronavirus legislation that is certain to pass. Republicans must remain on their guard and hold Democrats accountable.

Tyler O'Neil is the author of Making Hate Pay: The Corruption of the Southern Poverty Law Center. Follow him on Twitter at @Tyler2ONeil.