$2 trillion COVID stimulus package offers money to most Americans; rescues small businesses and troubled corporations

With Treasury Secretary Steve Mnuchin leading negotiations with top Senate Republican and Democratic lawmakers, Congress is set to approve a nearly $2 trillion COVID-19 rescue package the Trump administration hopes will keep the U.S. economy from collapsing in the coming weeks.

That legislation, known as Coronavirus Aid, Relief, and Economic Security Act or the CARES Act, has been tied up in the U.S. Senate for several days with debate over a $500 billion discretionary fund to be overseen by the U.S. Treasury that some fear will be used to bailout the airline and aviation industry and other selected sectors.

The bill, sponsored by U.S. Senate Majority Leader Mitch McConnell, R-Ky., would send a $1,200 check to most Americans in early April, based on their filing status. It would also bolster the unemployment insurance system now under siege by massive “social distancing” job losses, and disburse a broad range of emergency funds to help reinforce hospitals and other areas. Another $350 billion is also targeted for small businesses to prevent more layoffs by offering forgivable bridge loans and additional funding for grants and technical assistance.

An agreement on “Phase 3” of an omnibus coronavirus stimulus package was reached on Wednesday after a week of fighting over several provisions in the bill ranging from direct payments or rebates to citizens to a $55 billion aid package to the healthcare sector. McConnell said the CARES Act will swiftly bring direct assistance to American taxpayers, small businesses, and corporations nearly 65 days after the first positive coronavirus case in the U.S.

‘The Senate will act to help the people of this country weather this storm. … When our nation comes through this and takes flight again on the other side, it will be because American heroes won this fight,” said McConnell. “All the Senate can do is give them the resources to do it. So that’s exactly what we are going to do today.”

Senate Minority Leader Chuck Schumer, D-New York, said passage of the “Coronavirus 3” emergency legislation puts American families and workers first, not Wall Street corporations.

“This is not a moment of celebration but rather one of necessity,” said Schumer. “Like all compromise legislation, this bill is far from perfect—but it now does much more for this country, its people and its future than what we began with.”

Although an agreement by McConnell and Schumer has been reached, the bill still must be approved by the entire chamber before it goes to the U.S. House of Representatives, which is controlled by Democrats. Mnuchin and the Trump administration still need to whip enough votes to pass the measure and get much-needed relief to American workers and families, small businesses, and distressed industries that have been hammered by the faltering economy.

University of Arkansas at Little Rock economist Michael Pakko said in a research note that as the impact of the novel coronavirus disease works its way through the economy, national economic forecasts are showing an increasingly grim outlook.

“The impact of social distancing on employment is concentrated in service-providing sectors. For example, from the first quarter through the fourth quarter, employment in the Retail Trade sector is expected to decline 16%,” said Pakko. “Employment in Arts, Entertainment and Recreation is expected to fall 20%. In contrast, jobs in Health Care and Social Assistance are expected to increase by 2%. Overall, the decline in payroll employment is expected to total more than 77,000, a drop of 6%.”

Below is a snapshot of the key provisions of the Coronavirus Aid, Relief, and Economic Security Act or the CARES Act.

Relief for individuals, families and businesses
• Provides up to $1,200 recovery checks to individuals, $2,400 married filing jointly, and an additional $500 per child. Phases out after individual and married filing jointly taxpayers reach $75,000 and $150,000, respectively, and completely phases out at $99,000 and $198,000.
The minimum rebate check is $600 and $1,200 to married couples filing jointly if the taxpayer meets the requirements of qualifying income of at least $2,500 or net income tax liability of more than zero with gross income greater than the basic standard deduction.
• Allows greater access to cash without penalties by waiving early withdrawal penalties (10%) for distributions up to $100,000 for those impacted by coronavirus. The taxpayer may also recontribute the funds to an eligible retirement plan within three years.
• Encourages contributions to churches and charitable organizations by permitting a deduction up to $300 of cash contributions. Available to taxpayers whether they itemize or not. Also, increases the limitations on deductions for charitable contributions to 50% of adjusted gross income. The 10% limitation is increased to 25% of taxable income for corporations, and the limitation on deductions for contributions of food inventory rises from 15% to 25%.

Small Business Interruption Loans
• Provides $300 billion for small business interruption loans administered through the SBA 7(a) loan program. Loans would be capped at $10 million. Eligibility for loans would be expanded to nonprofits and companies of 500 employees or less, in addition to small business concerns. Loans would provide relief for COVID-19 pandemic-related costs incurred from March 1, 2020 to Dec. 31, 2020.
• Small business interruption loans would cover payroll support that includes paid sick, medical, or family leave, and the continuation of group health care benefits. It would also cover employee salaries, mortgage payments, rent, utilities, and any other debt obligations incurred before March 1, 2020. These loans would be optimized, with waived fees and 100% federal guarantees. Under the program, loan deferral for up to one year would also be available.
• Loan forgiveness would be available, but loan forgiveness would be reduced for employers who lay-off workers or make changes in compensation, except where employers pay additional wages to tipped workers.
• The legislation would encourage entrepreneurial development by providing $250 billion in financial assistance in the form of grants to resource partners to provide education, training, and advice to covered small business concerns for the COVID-19 response.
• Resource partners and small business development concerns would receive 80% of grants, and women’s business centers the other 20%. The “Phase Three” legislation also makes loan forgiveness for employers who lay-off workers or make changes in compensation, except where employers pay additional wages to tipped workers.

Direct Appropriations
• Provides another $300 billion for the small business interruption loan program, $265 billion programs at small business development and women business centers, and $10 million for minority business technical assistance with no matching funds required.

Severely Distressed Economic Sectors
• Authorizes the U.S. Treasury to make loans or loan guarantees of $208 billion to the airline and aviation industry. The law dictates that to be eligible for a loan, the business must have incurred direct or incremental losses that jeopardizes ongoing business operations as a result of coronavirus.
• Loans will be available to industry businesses that do not have access to reasonable credit and there was no excessive compensation. The Treasury also has the right to dictate the terms of the loan agreements and may require the federal government participate in the gains of the company seeking loans through stock options, common or preferred stock, or other equity instruments.
• Businesses seeking loans must enter in a binding agreement with the secretary of the Treasury to limit officer and employee compensation through 2022. Under that agreement, each officer or employee whose total compensation is greater than $425,000 in 2019 cannot receive more than his or her 2019 compensation in any 12-month rolling period ending March 1, 2022.
• Also, executives at companies receiving coronavirus loans from the Treasury cannot receive twice his or her 2019 compensation in severance or other benefits upon termination of employment. This executive compensation limitation will also prohibit those same businesses giving executives raises until March 2022.

Health Care Response
• Provides clarification to the Families First Coronavirus Response Act passed on March 6 by stating that paid leave under the extension of the Family and Medical Leave Act may not exceed $200 per day and $10,000 in the aggregate for each employee. The bill previously did not state “each employee,” though this was implied.
• Provides clarification to the Families First Coronavirus Response Act by stating that sick leave under the emergency paid sick leave may not exceed $511 per day and $5,110 in the aggregate for sick leave or more than $200 per day and $2,000 in the aggregate to care for a quarantined individual or child for each employee under this section.
• Expands the authority of the Labor Secretary to regulate and exempt small businesses with fewer than 50 employees from paid leave provisions in the section. Small businesses now may be exempted from providing sick leave to employees if the reason for leave includes an employee must care for a child due to a school or daycare closure, or the employee is caring for an individual who is subject to COVID-19 quarantine order or an individual who has been advised to self-quarantine due to COVID-19 concerns or symptoms; and the leave provisions would jeopardize the value of the business as a going concern.
• Expanded rules on applications for unemployment compensation and assistance to be accessible in person, by phone, or online.