Right now, the outbreak of the COVID-19 virus is creating an economic crisis in the United States. As the public take critical steps to reduce viral transmission, consumer demand is plummeting. Businesses large and small are losing access to liquidity, putting them at serious risk of becoming insolvent and displacing millions of workers.
As the federal government weighs a Phase Three relief bill to preserve the economy and millions of jobs, one thing is clear: We cannot let a liquidity crisis become an insolvency crisis.
At the center of this issue are the relationships between employers and employees. With reduced revenues, businesses cannot make payroll, meaning furloughs and even pink slips for millions of U.S. citizens. Once this crisis ends, companies will scramble to hire back displaced employees. Getting our economy back up and running will be much harder.
However, many in Washington are focusing on short-term solutions, such as emergency payments to U.S. citizens facing a potential interruption in their paycheck. That may be a necessary step in this crisis, but it barely scratches the surface of what most families need.
This is why the federal government’s No. 1 focus should be helping companies make payroll to keep as many people employed as possible. If we inject liquidity into the market, people will still have a job to go back to when the coronavirus is contained.
There are five steps the federal government can take right now to provide much-needed liquidity to businesses.
Guarantee short-term business bridge loans. We need to create a credit facility to bypass bureaucracy and help banks and credit unions provide bridge loans to struggling businesses immediately. This injection of cash will help businesses stay afloat and pay their employees.
Provide a nine-month waiver on the payroll tax. At this critical moment, employers and employees need all the capital they can get to keep people on the payroll.
Delay federal tax estimates. All federal business tax estimates should be delayed until October. Additionally, all net operating loss claims should be carried back at least two years, and the IRS should process them promptly.
Halt troubled debt restructuring. Troubled debt restructuring reduces the incentive for banks to work out new loan agreements with struggling borrowers. We have to temporarily halt this practice to make sure banks are giving businesses all the help they can.
Delay or repeal the implementation of the Current Expected Credit Losses standard. This new standard makes it unnecessarily difficult for banks and credit unions to lend in a distressed economic environment. Eliminating it will help free up access to loans for every business.
The extraordinary measures the U.S. is taking to contain the spread of the coronavirus are absolutely critical to protect public health. Expanding testing, isolation of infected individuals, and social distancing will help to reduce the rate of new infections per day, as they have in countries such as South Korea.
However, reduced demand in the market will force many American businesses to collapse and completely devastate the economic recovery we were starting to see in the U.S.
If businesses go insolvent today, then the economy and the finances of U.S. citizens will suffer long after the coronavirus is contained. The five steps outlined above will go a long way to ensuring that large and small businesses have the liquidity they need to stay afloat, meet their payroll, and hit the ground running once the public health crisis ends.
What the Senate is contemplating in this Phase Three bill is not a bailout, nor is it a stimulus package. It protects workers. We need to keep people healthy, but we also have to learn from what countries ahead of us in this cycle are doing to get their workforce back into operation. We may not be there yet, but we can get there if we act now.
This is an unprecedented time for our country and our world. We have faced many challenges before, and I have no doubt that we will all rise to this challenge and come out of this crisis stronger as a country. No virus will ever break the American spirit.
David Perdue, a Republican, is the senior senator from Georgia. When he was elected, he was the only Fortune 500 CEO in Congress.
