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Outside the Box: Handing money to small businesses isn’t enough to get Americans back to work quickly

Federal PPP money is just a first step to strengthen the backbone of America’s workforce, writes Sam Taussig. Read More...

Millions of small businesses in the U.S. now face a problem as simple as it is insurmountable: lack of money. Shelter-at-home orders, forced closures, and other responses to COVID-19 mean no customers coming through the door and no cash in the coffers.

The situation is dire. Close to 1 million workers a day are losing their jobs. An estimated 29% of our economy has suddenly been shuttered, and without adequate help, many small businesses will never reopen.

Amid partisan wrangling and COVID-19 recovery efforts, Congress authorized a $349 billion Paycheck Protection Program (PPP) to support small businesses that retained or rehired employees during the crisis. The PPP’s launch was rocky, slow, and fraught with confusion — and the program is now depleted. Roughly 5% of the nation’s small businesses made it through (overwhelmingly the largest-qualified businesses, which already had relationships with preferred lending banks) and demand remains extremely high even as the initial allocations have been completely drained. Still, some in Washington, D.C. are enjoying a leisurely victory lap.

Read:  Coronavirus small-business aid program could ultimately need $1.8 trillion in funding

Actions to take now

PPP allows for effectively eight weeks of federally guaranteed funds for payroll, but current forecasts indicate forced closures to “flatten the curve” of the coronavirus pandemic might stretch well into summer. Small businesses, which (in a normal year) employ half of American workers and generate half of non-farm GDP, will need a much longer, more robust financial bridge. Here are the steps needed to keep this backbone of the American economy afloat:

1. Upsize the PPP: Congress must immediately replenish the money available through the existing PPP and allow the millions of small-business applicants access to the second round of funding. Giving targeted relief to small businesses that have had difficulty accessing the program during its first phase (customers of credit unions, or other non-bank lenders) can accelerate results. 

At a bare minimum, small businesses will need another $350 billion, with a significant portion earmarked for businesses seeking less than $100,000. This will ensure that new funds flow to smaller businesses, including sole proprietors and independent contractors.  

Even then, Congress, as well as state governors and municipal leaders, must do more to stabilize the U.S. economy once the allocated eight weeks of PPP assistance is done.

2. Conserve cash: People in power naturally resist giving up control of resources they’ve come to think of as rightly theirs, but we must restore small businesses hurt by social distancing and other virus-containment measures. One equitable action is to reimburse businesses for some of the money they’ve paid into the system. Governors and mayors must waive fixed business taxes such as sidewalk fees, stop charging for property fees, liquor licenses, and service taxes that create ongoing fixed costs for small businesses that are taking in no revenue. In the current conditions, such measures could make the difference between a small firm’s survival and bankruptcy.

Political leaders also should support and encourage the most vulnerable workers: Stop taxing tips and wages for restaurant workers, stylists, delivery drivers, and other front-line industries that closed early and likely will remain closed longer. Waive restaurant delivery taxes or rebate the taxes to the brave gig-economy workers delivering food and household goods. State and local governments can rethink spending priorities, cutting non-essential activities to balance and preserve the small-business tax base, while investing in infrastructure projects that put construction workers to work and invest in America’s ability to conduct commerce.  

3: Build consumer demand: Economic stagnation isn’t only a consequences of closures, but a reflection of the uncertainty people feel about their economic future and their health and safety. Substantial stimulus checks (not just the $1,200 disbursed under the recent CARES Act) give people the confidence to spend, but consumers will never eat an extra meal out or go to a movie to compensate for a lack of previous spending. We will need to consider longer-term policy solutions such as small business sales-tax holidays to ease the pain through the recovery and also to encourage people to go out and do things, more importantly, buy things and experiences, and help small businesses ramp up as soon as it’s safe to do so. 

4. Take a page from other countries’ playbooks: It’s easy to dismiss the examples of other countries’ small-business relief as un-American, or too difficult to scale, but U.S. leaders should not be afraid to copy successful strategies from abroad.

For example, Australia is subsidizing employers for each worker they retain — $1,500 every two weeks. Iceland has refunded 100% of VAT collected from the most essential economic sectors. South Korea reduced corporate income taxes for small- and medium-sized businesses. France has suspended not only tax payments, but water, gas, electricity, and rent bills for small businesses. Sweden is covering the full cost of sick pay for employees in both April and May. It’s unclear which of these programs would best address the unique challenges of U.S. small businesses, but all options should be on the table.

Even if the public health crisis were miraculously resolved today, the U.S. economy will face huge and lasting impacts for years. The hardest hit and slowest to recover will be small businesses. The PPP was a necessary step, and a tricky one. It cannot be the last.

Sam Taussig is head of policy at small-business lender Kabbage.

Read: These Americans were left out of the stimulus package and still need help to weather the coronavirus pandemic

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