Finance & Markets / April 2, 2020

What’s In the Coronavirus Stimulus Package?

$2 trillion is quite a bit of money. The Coronavirus stimulus package, signed by President Trump on Friday, is by far the largest economic rescue effort in history, shattering the record previously held by the 2008’s TARP program. This immense sum of money will be used to bolster distressed industries, revive institutional lending, and support everyday citizens.

The bailout has already caused the sluggish COVID-19 economy to stir, and the Dow showed signs of life at the end of last week. Whether these gains continue remains to be seen, as record joblessness and concerns about the inflationary pressures of the stimulus continue to mount.

Although the cost of the stimulus is tremendous, experts maintain that governments should be able to absorb the weight. Gavyn Davies of Financial Times notes that “most big economies could see government debt to GDP ratios rising by 10-20 percentage points,” however, he goes on to say that “government debt is unlikely to rise in an uncontrollable way,” due partly to higher sales of short-term Treasury bills. Lower oil prices will also help keep inflation under control

For the average American, the stimulus will help make ends meet amidst skyrocketing unemployment and a quarantine that was recently extended until the end of April. The bill includes a $1,200 direct payment to Americans making $75,000 a year or less, plus $500 per child. A significant expansion of unemployment benefits is included, including an extension of unemployment insurance to self-employed workers and contractors.

The bill also has significant tax implications for certain retirement plans. The legislation waives the required minimum distribution (RMD) rules for 401(k) plans and IRA’s, including penalties on early withdrawals, for amounts up to $100,000. Account holders would be allowed to make extra contributions for the purpose of repaying the distributions over a period of three years. By allowing people to tap into their retirement funds early, the government hopes to encourage spending and investment.

On an industrial level, the Coronavirus stimulus package provides relief for distressed industries, with $50 billion specifically set aside for airlines. Small businesses will have access to a pool of $367 billion, with emphasis on maintaining payroll and reducing layoffs. Other heavy-hit businesses such as retail, restaurants, and hotels will see significant funding as well. The package totals $500 billion for American corporations, and $150 billion for state and local governments.

But it may not be enough, say some in Congress. Legislators are already considering another bailout package of equal or even larger size, according to the Wall Street Journal, and many on Capitol Hill have vowed to go beyond mitigation and into the realm of recovery. This could mean an additional round of stimulus, with a focus on healthcare and digital infrastructure.

“We must have more resources—it’s absolutely essential—for state and local government. That’s where the first line of defense is,” said House Speaker Nancy Pelosi (D.-Calif.). Pelosi suggested that building bipartisan support for such an effort is feasible.

Only time will tell how the Coronavirus situation will be resolved. Nonetheless, the massive stimulus package is a welcome relief for suffering businesses, citizens confined to their homes, retirees, hospitals, and state and local governments. With talk of a phase-four round of stimulus surrounding Capitol Hill, many hope that the recovery from the COVID-19 shock will be a quick one.

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