The CARES Act was vital, historic legislation that is expiring before its time.
The CARES Act, the $2 trillion economic rescue legislation signed by President Trump on March 27 and scheduled to end on July 31, was perhaps the most pleasant legislative surprise I’ve seen in my decade of covering American politics.
The bill authorized hundreds of billions in spending on expanded unemployment benefits and stimulus checks to support the millions of workers who lost their jobs once pandemic lockdowns began. The result was that the poorest Americans barely saw their spending fall once federal support kicked in. Despite the crisis, poverty did not increase, and might even have fallen.
The legislation passed at the end of a decade that was marked by congressional stalemate and ineptitude. My basic model of federal politics going into the Covid-19 calamity was that presidents typically get two years to try to implement their agenda, which the opposition tries to block at every turn; once the opposition wins back Congress in the midterms, the bulk of domestic affairs is handled in a series of bare-knuckle budget fights for the rest of the president’s term or terms in office.
That model fit the Obama administration and early Trump administration well — but the passage of the CARES Act blew it to pieces. It is a transformative piece of social legislation passed during the fourth year of a presidency, by a divided Congress. It is a massive expansion of the safety net that passed by voice vote in the House and unanimously in the Senate. It is a bipartisan measure that emerged not out of years of careful coalition building (like so many bipartisan efforts at immigration reform) or heated and bitter negotiations (like so many bipartisan deficit-reduction deals) but out of a couple weeks of frenzied bill-writing with minimal conflict.
The individual provisions of the CARES Act are widely known, but it’s worth dwelling a bit on the bill itself, its historic importance, and what it means that Congress was able to pass it.
“Congress has increasingly stalemated on most of the big public problems of the day: immigration reform, global warming, future of entitlements, pensions, and so on,” said Sarah Binder, a professor of political science at George Washington University and an expert on Congress. “And in that context, your surprise about CARES Act seems quite reasonable. How did a polarized and divided Congress — that can’t solve most public problems — manage to legislate nearly $3 trillion (plus more before and after CARES) in a mere few weeks?”
“Honestly, it was just what I needed, maybe even better,” Sarah Gordon, a musician and actor in New York City who has relied on the federal $600 unemployment benefit boost since losing her job in fitness, told me. She said it took weeks to get through to the New York State unemployment agency on the phone, but once she did, the money kept her afloat. “After NYC rent (mine is a little below average for living by myself) plus bills and other expenses, it put me just even.”
However, Congress has left town and does not appear ready to pass any legislation at all to extend the $600 bonus unemployment payments — or any other aspect of the CARES Act. Now Gordon and millions like her are facing a sudden collapse in support from the federal government even as unemployment remains at its highest point since the Great Depression. “It would be great if it would continue, but even better for those who have additional expenses, like house payments, car payments, or even another mouth to feed,” Gordon said.
The CARES Act is a bigger fiscal stimulus than the New Deal or the 2008-09 packages
The Covid-19 crisis is the biggest economic disaster, at least in terms of measured unemployment, since the Great Depression, so it’s perhaps appropriate that the main measure enacted to fight it was historically enormous too. But its scale has been, if anything, underappreciated.
I asked Marc Goldwein, senior vice president at the Committee for a Responsible Federal Budget (CRFB), to determine how the CARES Act and accompanying legislation compared to the bills passed in the wake of the 2008-2009 recession. Goldwein and his team have been documenting Covid-19 economic relief spending through their COVID Money Tracker.
CRFB’s analysis found that the Covid-19 response has to date totaled $2.5 trillion, or about 2.3 percent of GDP over the next five years. The Great Recession Response cost $1.8 trillion over five years, or 2.4 percent of five-year GDP. The two are, as a share of the economy, roughly equivalent, despite the Great Recession measures being gradually passed from February 2008 to December 2010.
Jason Furman, an economics professor at Harvard and former top adviser to President Obama who was involved in crafting the 2009/2010 stimulus policies, has put together his own similar estimates that even further underline the magnitude of the Covid-19 response.
The two measures total to about the same amount of spending, he finds, but the Covid-19 response was condensed into just one year. As a result, the biggest year for fiscal stimulus during the Great Recession (2010) saw stimulus only amount to 4.7 percent of GDP. In 2020 so far, stimulus has amounted to 11.4 percent of GDP.
Not only was the Covid-19 response larger than the stimulus policies enacted in 2008-2010, it was larger than the New Deal, at least from a fiscal perspective.
The 1930s era New Deal was much more than just a fiscal stimulus initiative. It included far-reaching labor law reforms, the creation of Social Security, and a variety of new regulations of the housing and securities industries (and new agencies to govern them). But it also entailed new deficit spending and fiscal measures meant to boost employment through programs like the Civil Works Administration, Public Works Administration, and Works Progress Administration.
In a 2015 paper, economists Price Fishback and Valentina Kachanovskaya tallied the fiscal stimulus undertaken between 1930 and 1940 (the vast majority of which was initiated by Franklin D. Roosevelt after taking office in 1933) at $41.7 billion, or about $653 billion in 2009 dollars — less than the $840 billion cost of the 2009 stimulus bill, as the St. Louis Fed’s Bill Dupor notes. Dupor also finds that, between 1931 and 1939, the federal debt grew by 30.3 percent of the economy; between 2008 and 2011, it grew by 32 percent of the economy. Again, the Great Recession response was larger.
Since the CARES Act is, at least relative to one year, larger than the 2008-2010 stimulus measure, this data suggests that it is bigger than the New Deal as a purely fiscal matter as well.
CARES has been a huge humanitarian boon
The importance of CARES is perhaps better seen in the actual outcomes among the American people during an unprecedented lockdown.
Perhaps most notable is the $600 per-week increase to unemployment insurance (UI) benefits it included. That produced a strong, positive incentive for people to leave work if it was deleterious to their health, even as they kept their heads above water financially. This aspect of the legislation was criticized by some Republicans in Congress for deterring work, but deterring work in this circumstance was a feature, not a bug. A recent paper by economists Peter Ganong, Pascal Noel, and Joseph Vavra found that the average UI recipient is getting 134 percent of their previous salary; “two-thirds of UI eligible workers can receive benefits which exceed lost earnings and one-fifth can receive benefits at least double lost earnings.”
The program, which is set to expire at the end of July, seems to have had a tremendous impact. In April, personal income (defined as the money Americans receive from wages, government benefits, investments, and so on) grew by 10.5 percent, by far the highest monthly growth rate in the metric’s 60-year history, even as unemployment shot up from 4.4 percent to 14.7 percent that same month. That’s largely attributable to the $600 UI boost and the one-off stimulus checks upping unemployed people’s incomes even as jobs disappeared.
You can see this as well in real-time economic data collected by Raj Chetty, John Friedman, Nathaniel Hendren, Michael Stepner, and other economists at Harvard’s Opportunity Insights research group. The research group is able to see what effect the stimulus checks specifically had because data from Earnin, a private company that tracks wages and offers payday loan-like products, indicates that the large majority of people (over 70 percent) got their $1,200 from the IRS on April 15, exactly; a small minority got theirs on April 14.
That allowed the researchers to test how the stimulus affected households by comparing spending on April 13 to April 15 and the days immediately after. This is a variant on what’s called a “regression discontinuity” approach in social sciences, and it’s one of the higher-quality tools we have for testing what effects a policy actually caused as opposed to what happened around the same time.
Sure enough, spending jumped modestly for high-income households (by 9 percentage points; the green line below) and enormously for low-income households (by 26 percentage points; the blue line below) over the two days that the stimulus package was implemented:
By the beginning of June, spending by the poorest Americans had almost entirely returned to its pre-crisis state.
Two research groups have also put some hard numbers on CARES’s humanitarian impact by measuring how it affected poverty rates
Zachary Parolin, Megan A. Curran, and Christopher Wimer of the Center on Poverty and Social Policy, based at Columbia, found that poverty rose an almost imperceptible amount, from 12.5 percent of the population to 12.7 percent, between 2019 and 2020. But without CARES, it would have risen to 16.3 percent, resulting in almost 12 million more people being in poverty. The reductions were concentrated disproportionately among Hispanic and Black households.
The second group, longtime poverty research duo Bruce Meyer of the University of Chicago and James X. Sullivan of Notre Dame, collaborating with UChicago scholar Jeehoon Han, found that in April and May, the estimated poverty rate covering the previous 12 months was 8.6 percent compared to 10.9 percent in January and February, suggesting that poverty actually fell after the Covid-19 pandemic hit, almost certainly due to the overwhelming federal response.
The two studies use slightly different methodologies. The Columbia researchers use monthly survey data for April from the census and project the annual poverty rate for 2020 based on that one month; they also model how poverty would look under different policy schemes.
Han, Meyer, and Sullivan use both April and May survey results, specifically a rarely used question about annual family income that’s asked in the monthly census surveys. To assess the cumulative impact of the coronavirus and CARES Act, they compare January and February data to April and May data.
The two studies also emphasize different aspects of the recovery package in explaining the CARES Act’s effect on poverty.
The Columbia study in particular highlights the role of the $600-a-week boost to unemployment benefits. Among individuals who lost their jobs and did not receive UI benefits, the other measures in the CARES Act (principally the $1,200 checks) reduced poverty from 35.1 percent to 30.2 percent, the paper finds.
But among jobless individuals who did get UI benefits, the CARES Act reduced the poverty rate from 19.5 percent to 6.4 percent, less than the rate among employed individuals. (The higher pre-CARES poverty rate in the former group reflects that many of those not eligible for UI benefits were undocumented immigrants, who are poorer in general.)
The Han, Meyer, and Sullivan paper finds that both stimulus checks and UI benefits were important, and is slightly more positive on the former. If you exclude the $1,200 checks, the poverty rate in May is 1.3 points higher, they find, while if you exclude UI benefits, it’s only 0.7 points higher.
Overall, though, they’re similar papers with similar conclusions: The stimulus checks and UI benefits helped tremendously in keeping low-income people afloat during the pandemic.
This is not to say that the CARES Act was perfect. No economic research I’m aware of has found positive results from the $500 billion the bill included in bailout money for large corporations. Chetty et al. found that the Paycheck Protection Program offering forgivable loans to small businesses produced no real effects on employment.
But it’s unreasonable to expect every single provision of a bill this large to be effective. The stimulus checks and UI payments appear to have worked extraordinarily well at preventing a humanitarian calamity, and that’s a strong endorsement for any legislation.
What made its passage possible
So how could a bill this sweeping, and this helpful to poor people, pass during divided government?
Frances Lee, a professor of political science at Princeton who studies congressional conflict, notes that in some ways the bipartisan passage of the bill should be unsurprising: It’s easier for legislation supported by bipartisan majorities to make it through in general, even outside of emergencies.
“There’s very little legislation that passes on party-line votes,” Lee explains. “All of the rise in congressional polarization is on other types of votes than enactments: amendments, procedural votes, message bills. But when measures actually succeed in getting through the legislative process, large majorities are the overwhelming norm.” This is true of both routine legislation like post office renamings and major bills. The Children’s Health Insurance Program was enacted by a large bipartisan majority in 1997.
More recently, the Frank R. Lautenberg Chemical Safety for the 21st Century Act, a bill expanding the EPA’s ability to regulate chemicals, passed nearly unanimously in 2016, despite Republican control of Congress and a Democratic presidency and despite historically unprecedented levels of inter-party conflict (there’s a whole book on how this happened).
But the scale of CARES is still notable. Lee argues that you have to understand it by analogy to war measures, perhaps even going back to World War II as the closest historical analogue. “The government is effectively putting a lot of people out of work. It’s putting whole sectors of the economy out of business [by imposing lockdowns]. So it’s easier ideologically to accept the idea that some compensation would be acceptable even to hardliners,” Lee says. “Clearly, the behavior of the Federal Reserve and federal government after the pandemic is comparable to war. All of that is comparable to policymaking in wartime more than anything else.”
Lee adds that the sheer speed with which the bill was passed helped enable its bipartisan support, as there was no time for a countermobilization.
Binder, the professor of political science at George Washington University, notes that individual political self-interest helps explain the bill’s success, a point Lee concurs on.
“I think we have a notion that in times of crisis, lawmakers and their leaders put aside partisan differences and ‘rise to the occasion,’” Binder wrote in an email. “But I think that idea of bipartisanship in a crisis misses the broader electoral dynamic that often motivates Congress to act: A crisis can motivate action, not so much because it’s the ‘right thing to do’ but because neither party wants to be blamed for failing to act. When the consequences of stalemate are too steep for both parties (an economy in a coma, millions already filing for unemployment, tens of thousands dying), we shouldn’t be surprised to see them go to the bargaining table and reach a deal.”
Binder also notes that the bill had a little something for each party: Republicans got large-scale support for major businesses, Democrats got a big UI expansion, Trump got checks he could put his signature on.
“The CARES Act wasn’t a zero-sum game of legislating. It’s more like a positive-sum game,” Binder wrote. “To a large extent, the parties have secured their most preferred outcomes and ceded a bit to the other party. … In that sense, the parties aren’t seeking out the ideological sweet spot between the parties (there might not be one …) and then agreeing to a least-common-denominator deal; instead, they’re each getting what they want the most. That’s often the case in polarized times, I would wager.”
Lee notes that this dynamic changes if Joe Biden enters the White House. Much as then-minority leader Mitch McConnell found it advantageous to try to sink the Obama administration’s stimulus measure in early 2009, both due to Republican ideological opposition to expanded spending and because it was not in his self-interest to hand Obama a legislative win, McConnell and his allies could find themselves blocking similar measures under Biden should he beat Trump in November.
“As a minority party, it should be easier for [Republicans] to resist,” Lee says. “It might inaugurate more austerity.”
Not extending the CARES Act could mean calamity
The CARES Act’s passage was a huge achievement that kept millions of people out of destitution during this crisis. But as big as the bill is, it’s not, on its own, equal to the task in front of us right now.
The expanded UI benefits are set to expire at the end of July. Senate Majority Leader Mitch McConnell has pledged not to renew the program in its present form. Meanwhile, some Senate Republicans are more sympathetic to extending it in a modified form, but the July congressional recess greatly limits the time Congress has to put together a replacement.
The Trump administration has voiced more openness to additional stimulus checks than to extending UI, but as of now the $1,200 per adult, $500 per child payments that landed on April 15 are the only unrestricted cash payments the administration has authorized.
There are any number of measures that could effectively extend the benefits of the CARES Act. The House-passed HEROES Act would extend the $600 per week UI benefit through the end of January 2021, at least, and execute another round of $1,200 per adult stimulus checks (this time with $1,200 per child on top, not just $500). It would also include $500 billion in state aid and $375 billion for local governments, both of which are facing severe budget crunches.
You could go further than HEROES, of course. Groups like the Economic Security Project, backed by congressional leaders like Sen. Kamala Harris (D-CA) and Alexandra Ocasio-Cortez (D-NY), have pushed for regular cash payments of $2,000 per month to all Americans for the duration of the crisis.
Another relief bill could include automatic stabilizer provisions so that benefits like the UI boost and stimulus measures continue indefinitely until some objective threshold (like unemployment falling below 5 percent) is reached. The UI provision could be converted into a “job losers’ allowance” that recipients are allowed to keep when they go back to work, as a way to encourage people to take jobs when the economy “reopens.”
Gordon, the NYC actor and musician, manages a Facebook group for other New Yorkers dealing with unemployment, and she says many are wrestling now with whether to try to return to work during the pandemic or wait it out. The UI money expiring could force their hands. But it’s not clear there’s even work available for those who want to return. “I have hope that I will have a job once we are called back,” Gordon said. “But I have also seen four people called back for a week and then laid off.”
As of now, the Trump administration and its allies in Congress appear set to follow up one of the most ambitious measures adopted in American history with absolutely nothing. The result of that will likely be that all the progress in terms of poverty and recovered spending among the poor enabled by the CARES Act will be undone. That will be a calamity, both for the American people and — ironically — for Republicans’ chances of holding on to the White House and the Senate.
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Author: Dylan Matthews