A Business Fiscal Response to a COVID-19 Recession (American Enterprise Institute)

Summary

A March 20, 2020 American Enterprise Institute report page by R. Glenn Hubbard and Michael R. Strain arguing that the federal government should offer significant assistance to small- and mid-sized service sector businesses so they can keep paying their workers during the coronavirus shutdowns. The authors say the aim should be to replace a large portion of the revenue, not just the payroll expenses, those businesses would have earned, and that many small businesses would rather shut down or lay off workers than take a loan, even at a zero interest rate. They estimate the cost of replacing 80 percent of the revenue for three months of private-sector firms with fewer than 500 employees, excluding manufacturing, health, education and finance, at $1.2 trillion. The page is the report's web summary with a link to the full PDF and related commentary.

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Full text

Report Economics

A Business Fiscal Response to a COVID-19 Recession

by R. Glenn Hubbard , Michael R. Strain

March 20, 2020

American Enterprise Institute

The federal government should offer significant assistance to small- and mid-sized service sector businesses so that they can retain their workers. Financial assistance to small business is financial support to workers, allowing workers to continue being paid by their employers during the coronavirus crisis. The goal should be to replace a large portion of the revenue (not just the payroll expenses) those businesses would have generated in the absence of being shut down due to the coronavirus. Low-margin businesses will face great financial difficulty losing multiple months of revenue, and many if not most small businesses would rather shut down or lay off a significant fraction of their workforce than take out a loan, even with a favorable or zero interest rate. The number of potential layoffs the U.S. economy is facing is deeply troubling, and an aggressive policy response is urgently needed. We estimate the cost of replacing 80 percent of the revenue for three months of private-sector firms with fewer than 500 employees, excluding the manufacturing, health, education, and finance industries, to be $1.2 trillion.

Read the full PDF.

Report Economics

A Business Fiscal Response to a COVID-19 Recession

R. Glenn Hubbard, Nonresident Senior Fellow

Michael R. Strain, Senior Fellow; Paul F. Oreffice Chair in Political Economy; Director, Economic Policy Studies

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