Now that the spread of COVID-19 has slowed and the curve has “flattened” it’s time for policymakers to come up with ways to bring the economy back to where it was before the lockdowns imposed by so many of the nation’s governors knocked it flat on its back.
There are a lot of ideas being bandied about. Most of them, regrettably, are bad. The politicians in Washington still have not gotten over the idea there’s no such thing as “stimulus.” There’s just spending. Problematically, House Speaker Nancy Pelosi and some senators from both parties are eager to do a lot more of it — some $4 trillion worth, according to most reports.
The folks who see the world through the eyes of John Maynard Keynes think this sort of infusion of cash will create jobs and boost the markets, but they couldn’t be more wrong. We know from experience, from the actions taken by presidents of both parties, that the best way to spark growth in the U.S. economy is to leave private capital in private hands.
What Mrs. Pelosi and others want to do isn’t an infusion so much as it is a transfusion that takes the lifeblood from a patient, runs it through Washington and then puts it back into that same patient. Rather than take a detour through D.C., why not leave it where it is?
We’re already on the way there. In a series of rulings made after the COVID-19 lockdown crisis became apparent, the U.S. Internal Revenue Service postponed most tax filing and payment deadlines, including the one for the federal income tax from April 15 to July 15, 2020. That was a good start that left struggling businesses and the self-employed with more cash than they might otherwise have had to keep going as they temporarily lost customers or had to close.
This was bold thinking. Even excise tax payments were delayed, put off until July 1, 2020. But the piper must be paid as the bill is coming due — this time just as the American economy is beginning to roll once again. According to estimates based on fiscal 2019 data, that would draw $300 billion alone in federal estimated income tax payments for individuals and small businesses and nearly $150 billion in estimated payments from corporations. Add to that the $50 billion expected from excise taxes and about $170 billion in balances due on tax returns and you’re talking about almost as much money coming back in as was spent in a single counter-COVID-19 lockdown spending bill.
If the deadlines remain where they are, the economy may suffer another blow that pushes more businesses into bankruptcy and, given the way the politicians look at everything, another excuse for another spending bill.
The National Bureau of Economic Research certified the U.S. economy plunged into recession in February 2020 because of the lockdown associated with COVID-19 panic. It believes nonetheless that the recession was steep but short-lived, meaning that July 2020 will be a month of economic recovery. Taking $1 trillion, more or less, out of the economy just as the recovery is beginning to take hold, risks a double-dip recession and that would be dangerous not just to job creation but to the health and well-being of the American people.
The COVID-19 lockdown created a serious case of cabin fever brought on by business and school closures and shelter-in-place rules that led to prolonged periods of isolation. A survey by the Kelton Global firm found just how bad it was, with 72 percent of the 1,900 people surveyed saying they expected to reach a “breaking point” by mid-June if the lockdown orders were still in place. And every person in the survey said they’d snap if it all lasted longer than six months. The “breaking point drivers,” in case you were wondering, included loneliness, arguments with one’s spouse or family, constant anxiety and depression.
A double-dip recession could put us in the same place, with people who have never been without a job wondering if they’ll ever be gainfully employed again. One way to prevent that would be for Treasury Secretary Steve Mnuchin to be as bold now as he was earlier this year and move the deadline for all 2019 tax payments from July 2020 to early 2021.
If the government needs the money, let it sell the long-term bonds some economists have been promoting at low rates of interest over 50 or 100 years to bridge the gap. The institutional investor class would probably grab them up as fast as they could be issued. Meanwhile, the ordinary working Joe’s and Jane’s around the country gain a little more time to get their financial affairs in order before rendering unto Caesar that which is his. Mr. Mnuchin has the authority to do all of this — and he should.