As of May 28, 2021, the Paycheck Protection Program has run out of funding. You can learn more about the PPP with our COVID-19 resource hub.
The Cares Act, the economic stimulus package passed by the United States House and Senate is the largest stimulus package since The American Recovery and Reinvestment Act (ARRA), the fiscal stimulus program passed by Congress and signed into law by President Obama in 2009.
It’s purpose: Prevent an economic collapse due to the coronavirus pandemic.
ARRA was the stimulus bill response to the Great Recession, which was precipitated by the mortgage crisis and near collapse of the United States financial system.
The Cares Act is a $2 trillion economic recovery program for individuals, corporations, small businesses, healthcare institutions and local governments.
The $831 billion ARRA was more limited. It provided support to families and small businesses. Corporations, especially big banks, received economic recovery aid through the Troubled Asset Recovery Program (TARP).
Here are overviews of ARRA and the Cares Act, along with bottom line (BL) commentaries on each.
The American Recovery and Reinvestment Act of 2009
ARRA included seven components.
1. Individuals and families
ARRA stimulated economic activity by encouraging consumer spending. It provided $260 billion in tax cuts, along with expanded unemployment benefits.
- Individual tax withholding reductions of $400 ($800 for families)
- An expanded earned-income tax credit for families with three or more children
- Increased access to child tax credits
- $250 payments to people receiving retirement benefits
- A $70 billion extension of the Alternative Minimum Tax
- A two-year $2,500 college tuition tax credit
- A limited $8,000 tax credit for first-time homebuyers
- A limited new car sales tax deduction
- A 33 week extension of unemployment insurance benefits
- A limited tax suspension of the first $2,400 of unemployment benefits.
Bottom line (BL): ARRA tax relief wasn‘t as effective as it might have been. It would‘ve been better if people received cash. Many were unaware of the tax cuts. Some felt unemployment benefit expansion was ineffective.
However, tax credits for homebuyers and new car sales tax deductions helped boost industries impacted by the Great Recession.
ARRA provided public works funding.
- $46 billion: Transportation
- $31 billion: Federal building improvements
- $6 billion: Water projects.
BL: Data shows infrastructure spending created jobs.
3. Alternative energy
The stimulus package included $17 billion in renewable energy tax cuts and $5 billion to weather-proof homes.
BL: These incentives created new jobs in an emerging sector.
4. Health care
ARRA provided funding for health care.
- $24 billion: Subsidize health care insurance for laid-off workers
- $87 billion: Matching funds for recession-related Medicaid needs
- $10 billion: National Institute for Health
- $17 billion: Health information technology.
BL: ARRA laid the foundation for the Affordable Care Act. It addressed recession-related health care issues.
The relief program included money for education.
- $54 billion: Teacher salaries and educational programs
- $21 billion: School improvements
- $17 billion: Pell Grants
- $13 billion: Head Start
- $12 billion: Special education.
BL: Data shows ARRA created jobs in education.
The assistance program included money for science and technology.
- $10 billion: Disease research
- $4 billion: Expanded broadband
- $4 billion: Scientific research.
BL: The funds created science industry jobs.
7. Small businesses
ARRA allocated $54 billion for small businesses.
- Increased equipment tax deductions
- Cut capital gains taxes for small businesses investors, with limits
- Provided tax credits to small businesses for hiring unemployed veterans or students
- Increased the SBA 7(a) loan guarantee to 90 percent
- Eliminated SBA 504 loan fees.
BL: Most business owners felt loan guarantees and tax rebates didn’t do enough. Most never saw a business increase from consumer stimulus initiatives.
ARRA: Bottom line
ARRA might have tried to do too much, which watered down its effectiveness.
However, ARRA was successful overall. The Great Recession ended in July 2009, five months after it was signed into law by President Barack Obama. The economy grew by 1.5 percent in 3Q2009 after contracting by 4.4 percent in 1Q2009. In the 18 months after ARRA was passed, the economy added 4.1 million jobs. Compare that to the millions of unemployment insurance claims made during the Great Recession.
ARRA set the foundation for a decade of economic growth.
The Cares Act
The act also has seven components.
1. Individuals and families
The bill includes aid to give people economic security.
- Cash payments estimated at $300 billion
- Added unemployment benefits worth $260 billion or more.
Bottom line (BL):
- Cash payments: Individuals earning less than $75,000 can expect a single $1,200 payment (based on 2018 or 2019 income tax filings). Married couples will receive $2,400. Families get an additional $500 per child. Payments are reduced or eliminated for higher income individuals and couples.
Payments from the Cares Act should have a bigger impact than ARRA’s reduced tax withholdings and credits. People are more likely to spend actual cash. Is it enough to make them feel secure?
- Unemployment: The Cares Act increases unemployment benefits and eligibility by adding $600 to the base weekly payment for four months; extending benefits by 13 weeks; and covering the self-employed and contractors through year end.
Enhancements to unemployment benefits will help workers survive a historic period of job loss.
2. Small businesses
The Cares Act supports small businesses.
- Emergency grants: $10 billion for grants up to $10,000 to cover operating expenses
- Payroll Protection Program (PPP): Almost $350 billion for the Small Business Administration (SBA) to provide loans of up to $10 million for businesses with fewer than 500 employees (with some exceptions). Loan money used for payroll or to pay rent, mortgage interest and existing debt will be forgiven if businesses maintain employee headcount and payroll.
- Debt relief: $17 billion to cover six months of SBA loan payments.
BL: Small businesses are heavily impacted by COVID-19. Coronavirus aid will help them keep their employees and reopen when the pandemic is over.
The act allocates $500 billion in loans and other federal government aid for corporations. They must pay loans back and are subject to disclosure, oversight and other requirements.
Airlines, devastated by travel restrictions, will receive $58 billion to cover employee wages and benefits.
The Cares Act also includes a tax credit for closed or distressed businesses to keep workers employed.
BL: The federal government is providing coronavirus aid to corporations. It avoids TARP issues by placing restrictions on fund use.
4. Public health
America’s health care system is strained. Coronavirus aid eases the burden.
- Hospitals: $100 billion
- Community health centers: $1.32 billion
- Drug access: $11 billion
- Centers for Disease Control and Prevention: $4.3 billion
- Veterans’ health care: $20 billion
- Medicine and supplies: $16 billion.
BL: Congress and the White House are allocating a significant amount to fight the health care battle. More may be needed.
The Cares Act funds meal programs for low-income people.
- Child nutrition: $8.8 billion
- Supplemental Nutrition Assistance Program: $15.5 billion
- Food banks: $450 million.
BL: Access to nutritious food will help people stay healthy during the coronavirus pandemic.
6. Local governments
Local governments are hard hit by COVID-19. The Cares Act allocates almost $340 billion to help.
BL: Governors, including New York’s, believe support from Washington, D.C. is inadequate and must be increased.
The bill includes support for students and people with loan debt.
- Student loans: Loan and interest payments are deferred through September 30, 2020
- Work-study: Schools can use work-study funds to pay student wages
- Drop outs: Dropping out because of the pandemic won’t affect limits on subsidized loans and Pell Grant eligibility.
BL: Assistance programs allow students to stay focused on their educations.
The Cares Act: Bottom line
Policy makers learned from ARRA and TARP. The Cares Act provides relief to people and small businesses that need it. It limits how corporations can use it to prevent abuse.
The Cares Act is a first step toward helping the United States survive the coronavirus pandemic. Expect more to come.