Unintended Consequences Emerge From Coronavirus Relief Bill

Unintended Consequences Emerge From Coronavirus Relief Bill

Earlier this month, as the CARES Act was being debated, several senators, including Ben Sasse, Lindsey Graham, Tim Scott, and Rick Scott pointed to a major flaw in the bill that would potentially incentivize staying out of the workforce, since the benefits would pay workers more for being unemployed than for working. As Graham said at the time, “[T]his bill pays you more not to work than if you were working. If this is not a drafting error, then this is the worst idea that I’ve seen in a long time.”

Unfortunately, an amendment proposed by Sasse to rectify this error failed in the Senate, and the bill as written was passed.

Now, the consequences are starting to appear.

This past week, in Washington state, Jamie Black-Lewis, a spa owner said that she was able to obtain loans for $177,000 and $43,800, and was surprised to see that her 35 employees were not happy to see that they weren’t being laid off, as reported by TheBlaze.

According to CNBC, Black-Lewis halted pay for her employees of her two spas and for herself in mid-March, when her businesses were ordered shut due to the pandemic. However, her employees met her with anger, since now they’d make less than if they’d stay on unemployment.

The way the bill works is that the CARES Act offered $349 billion in loans for small businesses. Supported by the federal government, banks can fully forgive the loans under certain conditions, one of them being that the bulk of funds go to payroll, salaries remain intact and number of employees cannot be cut.

But the loophole the four senators highlighted says that anyone eligible to collect unemployment in their state would get an extra $600 a week in benefits for up to four months. CNBC notes that the $600 is about 156% larger than the current $385-a-week nationwide average.

TheBlaze further notes that Black-Lewis told CNBC, “[I]t’s a windfall they see coming. In their mind, I took it away. I couldn’t believe it. On what planet am I competing with unemployment?”

Hopefully the lesson Washington takes from this conundrum is to be prudent with legislation and make sure that it works as planned. But don’t count on it.


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