Included in this post is information on a proposed solution to the COVID-19 pandemic – called the C19 Victory Solution. We encourage our clients, partners, vendors and friends to reach out to their elected officials to make sure they are aware of this option.
March 20, 2020
The current approach that Congress is using to solve the COVID-19 pandemic is headed in the wrong direction. The plan does not solve the massive unemployment problem that we are going to face in the coming weeks, is harmful to the balance sheet of the Federal Reserve, and will do nothing to allay the fears the American people have for their personal safety.
A Novel Approach is called for to address the C19 problem
Keynesian Economics will not work. Traditionally, the Treasury’s approach (rooted in Keynesian economics) has been to put cash in the hands of Americans. The centerpiece of the current plan is to send Americans a check, cut payroll taxes, and provide assistance to companies in order to smooth the rough spots. This does not address the basic problem of the velocity of money. People will hoard this money like it is toilet paper. Checks will not keep people employed. Payroll tax relief will not work if there is no payroll. There is no assurance the bulk of this assistance will go to the American people.
The C19 Solution is simple enough to implement quickly through existing government infrastructure and provide the emotional and financial security that the American people need to weather this crisis.(1) We must isolate the costs of this crisis to minimize the long-term impact to our financial system.
A Different Solution
Every American business has a unique tax-identification number that matches the tax return they file on an annual basis. That return reconciles income and expenses. Occupancy costs, utilities, and payroll are expenses clearly identified on that form. The solution is to have the Federal Government and the American people become a customer while we have mandated the shutdown of business. This relief uses the existing tax format to provide small business direct assistance to maintain the payroll and occupancy during the crisis. This is in addition to the cash payments already proposed for working class Americans. At the end of 2020, the Treasury will issue a 1099 income statement to those businesses. They will recognize the income from the C19 distributions from 2021-2026 through a special line item on their tax return. That income will be recovered on a prorated basis at a special tax rate of 40%.(2) The money must be used for payroll and occupancy costs. This maintains the velocity of the money in the economy unlike handing people a check. It provides the only real solution to the mitigation of the problem. And while the Treasury will only recognize 40% of the C19 assistance, the multiplier effect will generate additional tax revenue that will shadow the assistance provided to small business.(3)
It is interesting to note that during these unprecedented times of crisis more businesses are being forced to confront company-wide issues than ever before. This is particularly true in the case of handling the payroll. No matter what type of business you own, from small, local businesses to global corporations, there is one common challenge that everyone faces – managing the payroll. Although large numbers of businesses handle their payroll systems internally, stretched companies are now looking to outsource their payroll to specialists like CloudPay with expertise in payroll processing. Consequently, if other processes are slowing down due to a disproportionate amount of time and energy being dedicated to managing the payroll, this can lead to employees losing sight of core competencies. Needless to say, if your business is falling short, it might be time to consider outsourcing your payroll. For further payroll support and guidance, check out https://www.cloudpay.net/resources/understanding-payroll-in-the-united-kingdom-what-global-companies-need-to-know-about-uk-payroll.
C19 Bonds- The victory Bonds of 2020(4)
To finance this massive undertaking, the United States Treasury should issue special purpose bonds identified as C19 Victory Bonds. Backed by the full faith and credit of the Federal Government, these bonds should carry an above market interest rate of 2.5% and be issued over a 50-year term and be callable by the Treasury after 5 years.
No plan is perfect. This idea has been purposefully limited to a conceptual format to catch the eye of the reader. Every contingency can be accounted for by drilling deeper into the C19 Solution to this problem. Because of its simplicity, this proposal can be put in legislative form in 48 hours and implemented by the United States Treasury in less than 30 days. In 30 days, the first relief checks can be sent to struggling businesses. The application can be a downloaded form that references the specific line items of the business asking for assistance.(5)
(1) The psychological obsession with hoarding will stop when people are comfortable this crisis can be solved. Until then, the underlying fear and greed that has been created through the shutdown will continue to multiply.
(2) The impact to the federal balance sheet is partially offset by the recovery of these payments.
(3) The multiplier impact of having people employed diminishes the impact on unemployment insurance and other reductions in revenue at the federal, state and local level.
(4) There are additional benefits from issuing these bonds at an attractive rate. Relief is given to pension funds and savers who are struggling to get a return on their money. The above market rate will attract investment from all over the world and be easily absorbed. This will diminish the need for Fed open market operations in monetizing the current crisis.
(5) This form could be created in a matter of hours. The existing structure of the Treasury could easily accommodate the process of these forms with assistance from personnel at FEMA and other government agencies.