A Rushed, Flawed Hot Mess: How the CARES Act Fails Small Businesses and Individuals

What the legislators should have done is compile the vast amount of data they already have from tax returns in order to put together a stimulus package that accounts for the true need of small businesses.

By Alex Dew

Artwork by Yanis Mouradian

There was a collective sigh of relief around the country when President Donald Trump signed the CARES, or Coronavirus Aid, Relief, and Economic Security, Act, into law on March 27th. With all the economic devastation brought on by the coronavirus pandemic and the subsequent lockdowns, many Americans are struggling to keep the lights on. Small businesses are among those suffering the most financially, with 50% of those surveyed by Goldman Sachs reporting they will only be able to keep operating for three more months at the most under the current conditions. 

At first glance, the CARES act seemed godsent, the golden child born of a rare collaboration between two usually polarized parties that for once transcended their differences in the name of the greater good. “Today, we can look to our elected representatives with admiration,” fan-boyed Leon LaBrecque in Forbes. The two- trillion-dollar economic stimulus bill includes provisions aiding individuals, small businesses, big corporations, hospitals and public health, state and local governments, and education. 

Here’s the Spark Notes version of the major measures in the CARES act:

  • Individuals earning less than $75,000 can expect a one-time cash payment of $1,200. Married couples receive $2,400 and families get $500 per child.
  • $600 per week added to normal unemployment benefits
  • 13 additional weeks of unemployment insurance
  • Gig-workers and freelancers who normally aren’t eligible for unemployment can now apply.
  • Tax filing deadline extended to July 15th
  • All private insurance companies must cover COVID-19 testing and treatment, including vaccines.
  • Grants of up to $10,000 available for emergency relief to small businesses in order to cover immediate operating costs
  • $17 billion allocated to cover six months of payments for small businesses already receiving SBA loans
  • Payroll Protection Program: Loans of 2.5 times average monthly payroll available to small businesses that retain their employees from February 15th to June 30th, to be forgiven if all employees are retained during that time period
  • $500 billion in loans set aside for big business, with $58 billion allocated to airline companies
  • All businesses, small and large, receive a tax credit for all employees retained from February 15th to June 30th
  • $153.5 billion allocated to hospitals, community health centers, the CDC, veterans’ services, and the Strategic National Stockpile, which gathers medicines, personal protective equipment, and ventilators for hospitals
  • A second wave of funding for food banks, child-nutrition programs at schools, and food- stamp programs totaling $473 billion

Sounds great, right? You’re not alone if you think this bill seems like exactly what we need. But on closer examination, the CARES act is revealed to be a rushed piece of legislation that leaves out many groups that need help and benefits some unfairly.

Usually, the process by which a bill becomes a law (I know we all remember the Schoolhouse Rock video) is lengthy by design. Passing relief packages usually involves hearings where different groups get to voice their opinions and tell the legislative bodies what they need. With the virus breathing down our necks and public assembly impossible, the CARES Act never went through this process. “More reactive than proactive,” as a source who preferred to remain anonymous and is an expert on economic policy described it, the CARES Act not only fails to make provisions for many people but is not based on any hard data about what individuals and businesses actually need. It also fails to make provisions for an uncertain future, providing nothing more than the briefest exhale of relief for most beneficiaries. 

Four out of five millionaires will make over $1.5 million more than last year thanks to reduced tax liability under the act.

Small businesses in particular are getting the short end of the stick, according to our source. Legislators failed to fully comprehend the “true landscape” of small business in America or do any kind of comprehensive assessment of how much money these businesses are making, their earning potential during the pandemic, and how much they really need to survive. The Payroll Protection Program excludes many small businesses from any kind of substantial relief, because restaurants, salons, hotels, and many construction companies were forced to lay off employees already, when their clientele dried up overnight. Further, the Payroll Protection Program has already run out of funds and isn’t accepting any more applications, mere weeks after it was created. 

Our expert also notes that small businesses have hit numerous road bumps as they have tried to secure relief. The Act and its sponsoring bodies haven’t provided any clear guidance for how small businesses can obtain relief, and what direction they do give changes day-to-day as the pandemic evolves and allocations evaporate. 

Leila Qari, who owns Denver Cat Company, a successful cat café, applied for relief through the PPP. While Qari felt fortunate to receive funds, she watched many other owners of small businesses like her rendered helpless by technicalities and errors in implementation. Qari says that the PPP fails to have any “uniformity” in application, because receiving funding is dependent on having a relationship with a bank, despite legislators initially claiming the opposite is true. As an immigrant who prides herself on her low debt, Qari was initially concerned that her lack of a lending relationship would hinder her from getting loans. Luckily Qari banks with a regional mid-size bank and had all of her documentation ready to go before the application date. Many small businesses that bank with big banks or small banks weren’t so lucky, because big banks favor large corporations and small banks quickly ran out of money. And small business owners who missed the due date were out of luck as soon as the program’s funding ran out, which for many banks like Chase, occurred only five minutes after applications opened.

With the $349 billion allotted to the PPP drained, as many as 95% of small businesses haven’t received any relief funding. In many cases it’s through no fault of their own. John Hanlon, who owns multiple small businesses, submitted ten applications for loans, five Economic Injury Disaster loans and five PPP loans, as soon as the banks began accepting them. He’s yet to receive any money.  “If the intent was to get money into small businesses hands quickly enough to keep employees on payrolls, it is an abject failure of execution,” Hanlon says.

Additionally, as Qari points out, the CARES Act defines a “small businesses” differently than most. Certain businesses of up to five hundred employees per location are considered “small” by the act and given access to the same relief funding as companies like Qari’s “mom and pop” operation that employs only four people. By this logic, Ruth’s Chris Steakhouse, which operates over 100 restaurants and employs upwards of 5,000 people, was put in the same “small business” category as Qari’s café, and given $20 million in funds.  Banks, of course, favor larger businesses, making it harder for people to like Qari to obtain the loans. 

Additionally, the PPP only forgives the loan if small businesses adhere to strict guidelines that include maintaining the employment of all employees and never missing a payroll date. Qari was forced to miss her last payroll date by one day because she was waiting for her PPP funding to arrive. Once the funds arrived, she paid her staff, but the amount of money she spent on that round of payroll won’t be forgiven. 

What the legislators should have done is compile the vast amount of data they already have from tax returns in order to put together a stimulus package that accounts for the true need of small businesses. Our expert advocates for a “collective effort” between small businesses, the IRS, and state and local governments to create a constantly updated database tracking small business profits and needs. This database would set small businesses up well for the future too, as the information it contained could help legislators create efficacious economic relief bills for a variety of unforeseen events that impact the welfare of small businesses, like future natural disasters. 

In the face of this faulty legislation, tax attorney Daylan Nyarko advises that in order to successfully navigate the fallout of the pandemic, small businesses should “enlist the help of your professional team. Consult with them to determine the most prudent approach, particularly if your funds are limited.  Be sure to ask questions, don’t act on impulse, and read all fine print before you commit to any funding. During these challenging times, small business owners are tasked with prioritizing the health and safety of themselves, their families, and the communities in which they serve. That’s no small feat.”

Some individuals are left behind by the CARES Act as well, and it fails to account for the practical implications of delivering money to millions of Americans. For example, initially, there was no system in place for the ten million low-income families that make too little money to be required to pay taxes to file for relief funds. A mechanism wasn’t created until recently, after weeks of pushback. Nor was there initially protocol in place for delivering money to people whose direct deposit information the IRS doesn’t have on file. The IRS finally set up a website to address these issues, but currently only half of the payouts have been delivered. It is very likely that those who had to input their information to the IRS website in the hopes of receiving their money will have to wait months for paper checks to be printed and mailed out, part of which delay may or may not be attributable to Trump’s insistence that his name be printed on them. 

Not only does the CARES Act lack the depth and breadth of coverage that is needed, but some suggest that there are sinister motivations behind it. While the act explicitly forbids the President, Vice President, cabinet members, and members of congress from profiting from allocations set aside for big corporations, some, like Senator Sheldon Whitehouse (D-Rhode Island), argue that the CARES act is a thinly-veiled “special-interest looting of the American taxpayer.” Buried deep within the eight-hundred-page, labyrinthine stimulus bill are two tax clauses that are irrelevant to COVID-19 relief and benefit a small number of rich taxpayers. 

A day after the CARES Act was passed, the nonpartisan congressional Joint Committee on Taxation analyzed these clauses and found that four out of five millionaires will make over $1.5 million more than last year thanks to reduced tax liability under the act. Not only does this make the $1,200 checks low-income individuals are receiving look like chump change, but these payouts will cost taxpayers more than the funding set aside for hospitals and local governments, totaling $195 billion over the next ten years.

With Trump still refusing to release his tax returns, it is unclear at this moment whether he and his favorite in-law Jared Kushner will be among those millionaires benefiting from the stimulus bill. Until the Supreme Court hears oral arguments and decides in three pending cases regarding Trump’s finances, we won’t know how many pots Trump, Kushner, and the gang have their fingers in. But Senator Whitehouse and Democratic Texas Representative Lloyd Doggett think the probability is high enough that they wrote a letter to Vice President Mike Pence demanding that the Trump Administration release any internal communication advocating for the inclusion of the two clauses in question. 

The Supreme Court was supposed to hear the cases on Trump’s financial records mere days after the passage of the CARES Act, but due to the pandemic, we will have to wait until after telephonic arguments on May 4th to learn of its decision on whether Trump will have to release his tax returns. Precedent isn’t on Trump’s side, and while we don’t yet know if he stands to benefit from the CARES Act, it is clear that there is more to this blindly celebrated piece of legislation than meets the eye, and that supporting individuals and small businesses through the pandemic requires a lot more than the CARES Act provides. 

To the credit of Congress, as our expert points out, members felt pressured to pass legislation quickly, without thorough information about the beast they were fighting and the people they were trying to save. There is still so much that we don’t know about COVID-19,  and it is still unclear how deep or how long-lasting the scar that it has left on our economy will be. Our expert suggests that economically, we have only seen the “tip of the iceberg” and that we desperately need legislation that is based on objective data. Going back to the numbers would reduce the risk of special interests manipulating legislation for personal gain, in addition to ensuring that individuals and small businesses are getting what they really need to get through the pandemic. 

Further, as our source points out, our success in medically waging war on COVID-19 relies upon our success in dealing with its economic wake, and vice versa. Solid economic policy based on hard numbers and actual need will only help us flatten the curve and triumph over coronavirus: we are in a better position to provide doctors with the supplies they need, strengthen the businesses that are the backbone of our communities, and promote the welfare of American families if the economy improves. The CARES Act clearly won’t give us the results we need to triumph over Covid-19 and preserve the economy, and our legislature needs to do better. 

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