The coronavirus pandemic has upturned Americans’ lives. Within the first few weeks, millions of Americans reported being laid off from their jobs. Other people are working reduced hours or working remotely from home. Children’s daycares and schools are closed, and parents have been thrown into new roles as educators and full-time babysitters, while, in some instances, also continuing to work full-time jobs. The profound financial effects caused by even a few weeks of the coronavirus’ upheaval spurred Congress to pass the CARES Act (Coronavirus Aid, Relief, and Economic Security Act), which purports to provide economic relief to individuals and businesses.    

 For individuals, the CARES Act includes five provisions that effectively provide people money: a direct payment in the form of a tax rebate, enhanced unemployment benefits, additional paid sick leave, limited mortgage foreclosure, and eviction moratorium, and temporary suspension of some student loan payments. Of these provisions, the direct payment and enhanced employment benefits are the two touted as centerpieces of the CARES Act and the two most likely to aid the majority of American households.

Ultimately, this financial support is shockingly minimal. The direct payments represent a fraction of the average American households’ monthly budget and are unlikely to reach most people within any sort of useful timeframe. The unemployment benefits, while providing people with more money over several months, require that people be laid off and similarly are unlikely to reach people quickly enough to be effective.

These corner pieces of the CARES Act are best understood as gimmicks. Through them, the federal government told people that it would take care of them in ways that were immediately salient to them as the coronavirus crisis began. People’s wages decreased at the exact time they were spending more money to stock up on supplies. The CARES Act promises to send people small checks and to augment unemployment benefits. Americans very soon will discover that these promises do little to help them survive the coming months of financial and social upheaval.

Congress undoubtedly will have to pass at least one more stimulus package. If American families are to survive this pandemic, the next package’s individual provisions must actually help people stay current with their minimum necessary expenses as these expenses are incurred. Below we discuss the gimmicks of the CARES Act’s individual provisions and what Congress should do for people in future bills to address this pandemic. If done right, helping individuals will cost the government more than $2 trillion next time. And, if done right, it will be worth every penny.

I.  How the CARES Act Gets Money to Americans

When thinking about how to provide American households with financial assistance during a pandemic, there are two primary approaches: sending people money and temporarily halting people’s recurring necessary expenses. The CARES Act’s individual provisions primarily take the first approach. In addition to the direct payments and enhanced unemployment benefits detailed below, it augments paid sick leave.[i]

The legislation also includes minimal provisions that halt recurring large expenses. Under Title 4 of the CARES Act, people who have federally-backed mortgages may request six months of forbearance, during which late fees or penalties are not allowed, but interest will continue to run. Mortgages owned by private lenders, such as large banks, are not included in this provision. For rental properties on which there is a federally-backed mortgage or that are part of federal housing programs, landlords may not evict tenants for four months. If landlords have financed their properties with private loans, they likewise are not covered by the eviction mortarium.[ii] Title 3 of the Act also includes a similar provision for federally-backed student loans that suspends monthly payments and eliminates interest accrual through the end of September.

As we discuss, cessation of recurring expenses is the best way to get the equivalent of money to Americans. And yet the CARES Act mainly provides for cold hard cash sent to people (often too little and too late).

A. Direct Payments

Perhaps the most publicized part of the CARES Act for individuals is the direct payments to American households, termed “recovery rebates,” which are provided for in Title 6. Single adults who make $75,000 or less and heads of households who make $112,500 or less will receive $1,200. Married couples who make $150,000 or less will receive $2,400. And every household will receive $500 for every child aged 16 or under in the household. How much people make is determined by their adjusted gross income on their most recently filed tax return, either 2019 or 2018. If a person or couple did not file a tax return, they can use their 2019 Social Security statement, which reports their income as reported to the IRS by their employer.

Those people who make over these thresholds will receive a sliding scale reduction in their direct payment at a rate of $5 per every $100 of income over their applicable threshold. For instance, a single adult will not receive a payment if their income is over $99,000. A married couple with one child will not receive a payment if their income is over $203,000. And a head of household with two children will not receive a payment if their income is over $146,500.

The mechanics of delivering payments to American households also is tied to previously-filed tax returns. The CARES Act contemplates payments coming to American households “as rapidly as possible.” It allows the Treasury Department to distribute payments electronically to the bank accounts to which people previously authorized the IRS to deposit their 2018 or 2019 tax refunds.

Of course, if people did not provide the IRS with direct deposit information, the Treasury Department will need to send the payment some other way. Based on IRS statistics, 20% of people eligible for a tax refund do not provide the IRS with direct deposit instructions. How these and other Americans who did not receive a tax refund will get their direct payments is not specified. Regardless of the payment method, the CARES Act requires that the Treasury Department send a notice to recipients’ last known address within 15 days of distributing the payment. That notice must provide how the payment was made, the amount of the payment, and a phone number at the IRS for people to report that they did not receive the payment.

B. Enhanced Unemployment Benefits

Another core component of the CARES Act in providing money to American households deals with unemployment benefits. Unemployment insurance is principally a cash payment, state-level program made possible through a partnership with the Department of Labor.[iii] Each state creates and manages its own unemployment insurance program, but the federal government sets certain baseline requirements.

Generally, individuals qualify for unemployment benefits if they are unemployed through no fault of their own, often by being laid-off due to a lack of work.[iv] States also have enacted certain minimum earning and work requirements, which are derived from a base period calculation that typically consists of about four quarters of the calendar year before the claim is made, excluding the current quarter and the one prior to it.[v] People must file unemployment benefit claims with the applicable state agency, often over the phone or online.

Typically, states do not pay employees 100% of their prior earnings. Instead, the benefit is usually limited to about one half of that amount up to a state-level earnings average. The precise formula ranges widely from state to state, and only some states provide a supplement for children and other dependents (typically $25 or less per week). For February 2020, the national average weekly benefit was $387, with significant variation between states. The state average for Massachusetts was $550 but only $161 in Puerto Rico.

Title II of the CARES Act expands unemployment insurance through the end of 2020. The law makes several moves to accomplish this endeavor. First, it expands eligibility. Any person who self-certifies that he or she is able to work but is unable to do so on a full-time or part-time basis because of a wide variety of reasons related to COVID-19 (including illness, quarantine, caregiving, underlying illness susceptibility, or work closure) is eligible to apply for benefits.[vi] This expanded definition covers individuals who are typically not eligible for unemployment insurance, such as those with insufficient work histories to meet state law standards and independent contractors, like gig economy workers.

Second, individuals are eligible to receive their normal state-calculated benefit, plus an additional $600 per week regardless of state law earnings limitations. This additional benefit only lasts until the end of July 2020. Third, the CARES Act elongates the time during which people can collect benefits for an additional 13 weeks, from a typical 26 weeks to a total of up to 39 weeks (nearly 9 months).

As to benefits’ delivery, the CARES Act endorses states’ already adopted approaches. States generally offer either direct deposit or a pre-loaded debit card. For example, in Massachusetts, although the first payment always comes in the form of a paper check, benefits are thereafter received either via direct deposit into a bank account or loaded to a prepaid debit card. The first payment typically takes between three and four weeks after the application is made. Few states (if any) still offer a paper check option. However, the CARES Act allows the additional $600 payment to be made separately from the normal benefit payment, but it must be made on the same weekly basis.

II.  Paying People Requires Providing Them What They Actually Need Right Now

Despite being lauded as everything from “a lifeline” to American workers to a giveaway that provides “taxpayer funds to plenty of people who don’t need more money,” when it comes to giving direct financial aid to individuals, the CARES Act falls short. Indeed, in important ways, the law provides nothing more than gimmicks to Americans.

 At first glance, the $1,200 or $2,400 (plus $500 per child) “recovery rebate” may seem like a significant amount. Some might imagine that one could do quite a few things with an extra thousand dollars or two. Many American households, however, have little savings, and once their savings are depleted, these funds will cover few of their continuing expenses. The typical American family has about $8,863 in a savings account but with significant variance based on age. Couples in the 34 and younger group only have about $4,727 stocked away. Single individuals in that cohort have even less—$2,729.

People’s lack of savings ties to rising expenses and relatively stagnant incomes. In the past ten years since the Great Recession, household incomes have risen about 15%, yet housing is up 26%, medical expenses up 33%, and college tuition is up an astonishing 45%. These national averages also obstruct the financial precarity of many Americans. Federal Reserve survey data from 2017 indicated that four in every 10 adults if faced with an unexpected expense of $400, would not be able to cover the expense without selling something or going into debt.

We also do not yet know for how many months American households are expected to stretch the rebate payment. Some posit that Congress will pass another bill in the near future to authorize additional household payments. But there is already political push-back against additional spending. Is this payment supposed to help Americans make it through the next two months? Three months? Six months? The rest of the year? The answer to that becomes significant as the jobless rate grows—by some estimates scheduled to top off at 30 percent. The Federal Reserve Bank of Saint Louis calculates that the relief checks will last four weeks for low-income households and a max of eight weeks for higher earners.

What this means is that for many Americans, though the additional money is welcome, it will not be nearly enough. How “not enough” the additional money is for an individual or couple will depend significantly on where they live. The amount allocated to every household presumes that the cost of living is the same for all Americans. This is clearly false. Someone living in small town Louisiana is bound to find $1,200 more significant than someone living in San Francisco. Indeed, numerous other programs—ranging from housing voucher programs to bankruptcy to SNAP payments—federal law scales economic benefits based on the market where individuals reside. This ensures that the amounts are meaningful in light of where people live.

The rebate payment calculation can be similarly critiqued as insufficiently tailored. The rebate amount is derived from an individual’s 2018 or 2019 tax return. Many Americans may not have filed their 2019 returns. Even if someone has filed their 2019 return, their income may have fluctuated significantly between 2018 or 2019 and present day. For instance, a real estate broker’s $75,000 commission-based income from 2019 might suddenly be reduced to almost nothing under current real estate market conditions. The same can be said for many jobs that are commission or hourly-wage based. Only if an individual has been laid off from those jobs will they be able to collect unemployment. In addition, the composition of a family can change from year-to-year with marriages and births that prior years’ tax returns will not show.

Beyond the monolithic approach that Congress took to calculating the rebate amount, it also seemingly thought little about how the rebate will be delivered to American households. A week after the bill was signed, the Treasury Department said it would likely take three weeks for Americans with direct deposit information on file with the government to receive payment. By one account, that only includes 90 million individuals. While a website portal is supposedly forthcoming for those without direct deposit information, that is also several weeks away. Other news stories suggest that many Americans may not receive their direct payments for as many as four months. This has led to banks and other consumer financial services providers jockeying to provide services to distribute the payments, bringing worries that they will take a cut of money meant to go to American families.

A lot can happen in just three weeks in terms of needing money to pay necessary expenses. If someone loses their job, they have to pay for health insurance--for COBRA, to temporarily continue employer-provided insurance, or to purchase an individual plan on the open market. During this period, people also will need to pay their car loans. Many individuals may default on their car loans, meaning their vehicles can be repossessed. Families may be stranded and unable to make necessary trips to the grocery or receive medical care. Indeed, Nothing in the CARES Act prevents general debt collection activities such as vehicle repossession, and a  number of states have implicitly or explicitly indicated that debt collectors are considered “essential businesses” and thus can remain open during shutdowns.

Many people also will have to continue paying their home mortgages. Although the eviction and foreclosure moratoria helps free up extra funds for some, that isn’t necessarily true for a significant minority of American households. The foreclosure moratorium only applies to federally-related mortgage loans, leaving out about one-third of the market. These mortgage holders are at the mercy of state governors and mayors for relief.

Even those people who are covered by the CARES Act, the law only provides a right to a forbearance. A forbearance doesn’t mean that the amounts not paid are forgiven. Rather, they must be made up later—and if the financial crisis is any indicator, the accrued amounts may have to be paid all at once at the end of the forbearance period.[vii] Few homeowners will have enough cash to make a big lump sum payment, particularly coming off the heels of a pandemic with historic unemployment. On top of this, it’s not entirely clear who is entitled to the forbearance. The CARES Act appears to give a wide berth for any COVID-19-related reduction in income, yet in early April, Treasury Secretary Mnuchin indicated that the relief was only intended for those who had lost their jobs due to the virus.

The situation for tenants is even more uncertain. Again, the CARES Act eviction moratorium only applies to federal housing programs and leased premises subject to federally-related mortgages. Everyone else (a large portion of U.S. tenants) must fall back to their states for relief.[viii] And even in those cases, it’s often not clear what happens to all those missed rental payments in the interim. Are they subject to forbearance or do they accrue late fees and penalties? Will they be due in a lump sum at the end of the moratorium?

Both the payment amount and timing mismatch may drive people to payday lenders and similar high-cost alternative finance outfits. Households in financial desperation and waiting for a forthcoming cash infusion are perfect targets for predatory lending. That people anticipate receiving money that they likely need now makes them even more perfect targets.

Finally, while the unemployment payments are more generous in terms of eligibility, length, and amount than what the unemployment current system provides, problems will likely arise. First, the extra $600 payments end in July. The time from filing a claim, through claim approval, to receipt to the first payment may take months. This hand-up might be brief, perhaps totaling $1,800 in the best-case scenario. Second, the CARES Act defers to state unemployment law. Even if someone's eligible, the core benefit will be limited to only half of their previous income and will be capped by the average state earning ceiling.

Third, eligibility may have been expanded, but it doesn’t cover everyone. Individuals who leave a job voluntarily because of health-related fears are not covered. Consider a person with a CDC designated pre-existing condition whose employer maintains on-site work requirements in a state without a shelter-in-place or essential business restriction or an employer deemed an essential business. If that person chooses not to work to protect themselves, they will not be eligible for benefits. And the CARES Act does nothing for those people who are seeking work for the first time or who have been looking for new work for months. They will be unlikely to find employment and may be the most in need of temporary financial help.

III.  How Congress Can Fix Its Mistakes

It’s difficult to wrap our heads around how deep this crisis will go, and how long it will last. Two weeks after state governors issued the first state stay-at-home orders, more than 10 million people have filed unemployment claims, almost 20% more than filed between 2008-10. It is likely to get worse, and quickly. As the infection and death count grow, it’s clear this is just the beginning. Drastic measures are needed and unfortunately, the CARES Act fails to address the harms of this pandemic to the most vulnerable. The enhanced unemployment benefits of the CARES Act are a start in the right direction, but will take far too long to make a difference to people’s pocketbooks. Congress will have to go back to the drawing board, and needs to do so quickly. While the American economy is in an induced coma to shake the COVID-19 outbreak, Congress should focus on minimizing human suffering by ensuring access to shelter, utilities, food, and health care, thereby putting Americans’ major expenses on hold.[ix]

Nearly half of Americans have less than $400-500 set aside for an emergency. Even if the CARES Act gimmick checks arrived in people’s bank accounts today instead of three or more weeks from now, the one-time check would not be enough to make a difference. People need cash flow or the equivalent of money right now and for several months into the future.

They also need to obtain or maintain their health insurance. This crisis underscores the highly problematic way in which individuals acquire health insurance in the United States. Unemployment payments will not be enough to cover the cost of COBRA, and ACA plans can be prohibitively expensive either on a monthly basis or because of high deductibles. If Congress really wants to reduce human suffering during these uncertain times, they would allow uninsured individuals or families to sign up for Medicare starting now.

Money equivalents should begin with an immediate nationwide eviction and foreclosure moratorium, accompanied by a debt collection, garnishment, and re-possession moratorium.[x] We agree with the Massachusetts Attorney General that attempting to collect consumer debts right now would constitute an unfair practice in violation of the Fair Debt Collection Practices Act, the Consumer Financial Protection Act, and many state consumer protection statutes. Halting these proceedings is important for more than financial reasons.

Evictions, foreclosures, and repossessions require human-to-human interaction that are likely to increase the number of people infected with the COVID-19 and exacerbate our public health crisis. Each of these processes cannot be accomplished with proper social distancing. Despite debt collectors’ arguments to the contrary, these are not essential processes or businesses. People need food, medicine, trash pickup, and mail delivery. No one needs to be called by a debt collector, to be evicted for their home, or to have their car repossessed right now. And this is not just a matter of the harm these events could bring to the individuals called, evicted, and forced to live without a car. These actions undoubtedly will affect the lives of unrelated individuals.[xi]

Similarly, as Americans are required to shelter at home and many are unable to earn an income, we need a nationwide moratorium on utility shut-offs. This should include basic utilities like electricity, gas, water, and the devices people are using to remain connected during this crisis, such as phone and internet access. These are all essential in the current environment in a world of social distancing.

Moratoria will not be enough, however, if all they do is push off the costs to the unknown future. Unemployment insurance is not the proper place to intervene here. Again, this is also an issue of social distancing and slowing down the virus. In these extraordinary times, the FDA, CDC, and other government agencies have relaxed regulatory red-tape for fast-tracking important things like vaccines and tests, Congress should do the same with regards to direct payments.[xii]

We propose an expansion of the gimmick payments into something that will actually help people. First, these payments need to come on a monthly basis until a few months after the health crisis ends to give the economy time to recover. Second, the amount should be tied to census and labor bureau data so that it can be meaningful for people living in cities and other high-cost areas. Third, we would incorporate Representative Tlaib’s proposal that pre-loaded debit cards should be sent to every person for whom it has an address, could be obtained in person, at local post offices, or would be distributed through outreach. The cards can be set up to require personally-identifiable information before they can be activated to prevent their use by the wrong person. If a person contacts the Treasury to notify them of their address change after the debit card was sent, the erroneous debit card can be blacklisted and would never be activated.

The federal government is going to need to carry the economy for the next year or more. The longer we delay in accepting this, the more people will suffer and the longer the economic suffering will last. Proposals abound for how to “pay for” the economy life support we describe above, from “minting a coin” to a time-limited progressive wealth tax. The exact mechanism is beyond the scope of this piece. One thing is certain, we cannot afford to wait.