Though its full impact is yet unknown, the coronavirus has the potential to upend the U.S. economy and send it into recession. Even if a recession is avoided, it’s clear that certain industries—and their workers—will be hit hard. Airlines, cruise lines, and hotels have been at the center of the story, and it wouldn’t be a surprise to see restaurants and retail also take a hit. Then there are the so-called gig workers, who could be among the hardest hit if the gigs dry up.
There’s only so much the Federal Reserve can do about the situation. Its job in all this is to make sure that companies that need access to funds can get it, whether that means lowering interest rates, as it did last week, or through other steps. It needs to keep the financial system working.
But as many have pointed out, there’s nothing the Fed can do about the spread of coronavirus, supply-chain disruption, or workers losing their jobs. If the hit from coronavirus reaches crisis level—and it’s still not clear it will—then it will be up to the Federal government to figure out. Ideas already being discussed include a payroll tax holiday, infrastructure spending, and tax rebates. Here’s what has been tried to over the years.
Cut Corporate Taxes
The idea behind cutting corporate taxes is that companies will have more money to spend on paying workers, so they can hire more or at least fire fewer. Already, Italy has announced a tax credit for any company that has seen revenue decline by more than a quarter. In the U.S., White House sources have been quoted as saying that the government was considering tax relief for airlines, cruise operators, and other travel companies impacted by the coronavirus. Corporate tax cuts, however, have been criticized as being less effective than other forms because they don’t do much to stimulate demand.
Tax Rebates and Stimulus Checks
What better way to help the economy than putting more money in people’s pockets? This was tried in 2008, before the recession that started in 2007 became the Great Recession, when Congress tried to boost the economy by passing the Economic Stimulus Act of 2008 in February of that year. The law is best remembered for the stimulus checks that Americans received, which was supposed to lead to a quick boost in spending. It did, but not enough to stave off the financial crisis. An even faster way to get money more money to Americans is by cutting the payroll tax. That tax takes a piece out of every worker’s paycheck. Of course, it would benefit only those who have a job.
Infrastructure Spending
Everyone likes to think of infrastructure spending when the economy goes bad, but it’s often considered a stimulus of last resort. For instance, one year—and one Lehman Brothers bust—after Congress enacted the Economic Stimulus Act of 2008, it passed the American Recovery and Reinvestment Act of 2009. The law included tax rebates but also extended unemployment benefits, provided tax incentives for companies, and, yes, funded infrastructure projects. The most massive infrastructure stimulus, however, came with the New Deal during the Great Depression. Not only were Social Security and other entitlements created, it funded massive infrastructure projects as a way to put Americans to work. Let’s hope it doesn’t come to that.
Write to Ben Levisohn at Ben.Levisohn@barrons.com
2020-03-08 16:17:53Z
https://www.barrons.com/articles/tax-cuts-infrastructure-spending-and-other-ways-to-give-the-economy-a-boost-51583631184
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