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Most of the US’ $800 billion in paycheck protection funds went to the richest 20%

An empty restaurant in Manhattan during the first wave of covid-19 in March 2020
Jeenah Moon / Reuters
The paycheck protection program disbursed $800 billion to US small businesses.
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Of the $510 billion distributed by the US government as part of its paycheck protection program in 2020, more than 70% of it—or nearly $370 billion—went into the pockets of business owners and shareholders in the richest 20% of the population. A new paper published by the National Bureau of Economic Research (NBER) called the result “highly regressive,” but noted that the program improved its focus in 2021.

The paper, co-authored by 10 economists, many of them attached to the Federal Reserve, analyzed data from the program, which Congress enacted in 2020 to alleviate the distress of business during the covid-19 pandemic. The program offered low-interest loans of up to $10 million to companies with fewer than 500 employees, and promised to forgive the loans if the companies kept employment and wages at pre-pandemic levels in the following months.

The response was tremendous, the paper found. Around 94% of all eligible firms availed of the program, preserving up to million job-years of employment during and after the pandemic. (A job-year is comprised of a single job maintained over the course of one year; two people working six months apiece in a calendar year together present one job-year.) But the first $510 billion in loans failed to distinguish their recipients according to need—in part because of the pressures of the pandemic, but also because the US government had no infrastructure to conduct such targeted disbursals.

Under the circumstances, that wasn’t all bad, the authors argue: “Had policymakers instead insisted on better targeting, this would have likely substantially slowed aid delivery and reduced program efficacy.” But it was a brute-force method: “a fire hose rather than a fire extinguisher.”

The paycheck protection program wasn’t just about paychecks

Companies securing loans through the paycheck protection program had to use at least 60% of the funds for the wages, health insurance, and other benefit costs of their employees—people who, typically, aren’t among the wealthiest 20% of the country. But companies were also permitted to pay off creditors such as suppliers, banks, or landlords. As it turned out, though, only about a third or so of the first $525 billion in loans supported paychecks for jobs that would otherwise have been lost. The remainder went to business owners and stakeholders such as investors, creditors, and suppliers.

The authors also found that only $13 billion out of the $510 billion went to households in the lowest fifth of income groups, in contrast to the $370 billion that went to the richest 20%. “Subsidies to business are ultimately subsidies to high-income households,” the paper pointed out.

But other stimulus programs were more effective—or “less regressive”—in their distributions. The value of the stimulus checks mailed out to households was, in dollar terms, lower for the top 20% than for the bottom 20%. And more than half of unemployment insurance during the pandemic was disbursed to the bottom two-fifths of income groups.

In 2021, Congress distributed one final tranche of $285 billion in PPP loans only to firms that had seen their revenues fall—an example of the kind of targeting that the NBER paper recommends. But the government needs the capacity to identify these businesses in the first place, the way other nations like Germany and the UK were able to during the pandemic. “Targeted business support systems were feasible and rapidly scalable in other high-income countries because administrative systems for monitoring worker hours and topping up paychecks were already in place.”

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