The CARES Act Explained

With more than half of the country under stay-at-home orders due to the coronavirus pandemic, the federal government on Friday passed an historic $2.2 trillion package that will provide economic relief for Americans, businesses and the health care industry. In this episode of The Workplace podcast, CalChamber President and CEO Allan Zaremberg discusses the newly passed Coronavirus Aid, Relief, and Economic Security (CARES) Act with economist Christopher Thornberg, going over what it means for businesses, employees and the broader economy.

Short-Term Disruption

The country is facing a truly historic economic lockdown due to public health government mandates that will have consequences, Thornberg, founding partner at Beacon Economics LLC, tells Zaremberg. Already this week, the country saw an initial 3 million Americans file for unemployment—a jarring statistic, he points out.

However, this crisis is not the Great Recession, where millions of people permanently lost their jobs.

“This is a short-term disruption in economic flows,” Thornberg says.

The economic impact is expected to be seen in the second quarter, but the exact percentage hit on gross domestic product (GDP) is unknown. If public health government mandates are removed by the third quarter, it can be expected that people will quickly return to work and eagerly return to restaurants with pent-up demand, Thornberg explains.

“We expect a very strong third quarter, which will make up for much of the damage that happens in the second quarter,” he says.

However, he cautions, the longer the pandemic stretches out and public health mandates are in place, the more dramatic the long-term consequences will be.

Bridge to a Better Economy?

Aspects of the CARES Act can help society get ahead of the current economic problem, Thornberg tells Zaremberg, but there are things that have unknown consequences and other aspects that are not good at all.

Among the things the CARES Act gets right are the dramatic expansion of unemployment insurance programs for laid-off workers, availability of small business loans, and direct aid to hospitals and airlines, Thornberg explains.

A problematic aspect of the relief package is the direct payment of $1,200 to every American, which can reach up to $2,400 for married couples and provides an additional $500 for each child. The provision completely misses the mark, Thornberg says, because even Americans who are working and don’t need the money still will receive payments, while the neediest populations—such as the homeless—likely won’t receive any money because they don’t file taxes.

A unique aspect of the small business loans provision of the CARES Act is that loans are forgiven, essentially becoming grants, for those businesses that are able to maintain workers on payroll, Zaremberg points out.

Thornberg says that the program should encourage businesses to make the right decision to keep their employees on the payroll, and try to muscle through the crisis. The real question, he posits, is whether businesses will figure out and navigate through the conditions set forth by the program fast enough before resorting to laying off workers.

“Execution by the government is going to be very important to make all these things work,” Zaremberg comments.

Thornberg suggests that businesses refer to their lenders, bankers and certified public accountants for guidance on how to apply.

Overall, the CARES Act contains many things to help the country progress into a better economy, Thornberg tells Zaremberg. However, the price tag will come out to $1 trillion to $2 trillion, and it will be something that will need to be addressed.

“At some point in time there is going to be a reckoning,” he says.