Policy solutions for the Economic Impact of the Coronavirus – Tangible Change for America’s future
The current Coronavirus crisis has ripped the cover off of our global economic, health and social systems health and exposed the real challenges that we face, both here in America and across the globe. Congress, the current occupant of the office of President and the Administration agencies are all at different stages of accepting and responding to this crisis. State, County and Local governments are dually impacted and working to find tangible solutions to respond as well. Separate of the health crisis brought by the Coronavirus, the economic challenges are equally significant and potentially longer lasting than the health impacts. The growing levels of economic inequality and economic instability have increased exponentially over the past 40 years and this crisis has laid bare these realities. At the same time, the current crisis has also opened a door for serious policy changes to move the trajectory back to pre-Reagan Supply Side Inequality gaps to level set our economic and health care access platforms to reconnect Americans back to sustainability.
Per extensive policy research conducted over the past twenty years, I am compiling a series of policy prescriptions for addressing the current economic, health, social and trust challenges that are coming from America and the Global crisis around the Coronavirus. I believe these following policy items, in addition to what has initially passed the House of Representatives, can give America and our economic systems with the tangible impacts to balance the future for all income brackets of Americans.
Economic policy action steps:
1. Credit Card Relief Act - All Credit card companies need to provide a 6-month payment credit holiday (freezing debt balance and interest accruals) and increase credit limits on current consumers by 25%. The companies will be able to book and write off the losses for this program either on their next year’s tax filings or write it off over a 10-year period and receive refundable tax credits for the losses. – Net benefit:
a. consumers would still have the ability to pay on their credit cards, depending upon their financial status, paying down debt and keeping credit debt instruments in the performing asset category, minimizing credit defaults.
b. Consumers will feel a period of relief, which will stimulate confidence in situational and necessary spending, which is critical to the majority of households that earn less than $150,000 annually.
c. Credit card and financial institutions will take a short-term hit, over 2 quarters, but they will maintain or increase the net of performing credit products, reduce any rush of defaults and have the ability to book the losses in a way that best fits their financial needs.
2. Keeping Employees Sustainable Act - All Business would be given the ability to write off 115% of the value of paid wages and benefits to workers who are furloughed, laid off or given reduced schedules, to maintain the wage and benefit level for their employees. Businesses with less than $5 million in revenue per year or less than 20 employees, would be eligible for refundable tax credits, equal to 120% of the value of paid wages.
3. Small Business Loan Assistance Act - All Businesses with revenues under $100 million should be provided with no-interest loans backed by the SBA (less than $20 million in revenue) and the Department of Treasury/FED ($20 million and higher). Businesses with $100 million or more in revenue, would be provided with access to low interest loan options, if needed, with no more than a 6% interest rate. Normal credit restrictions will be eased to allow businesses with less than $5 million in revenue to access loans for operational needs with revenue demonstration, business bank account and operational assets as proof of business viability for loan determinations. That will increase businesses liquidity down the revenue and supply chain, which adds capital, goods and services spending, wages for employees.
4. Mortgage Payment Holiday Act - will provide mortgage holders with a 3-month total mortgage payment holiday and a 6-month principal holiday on their current mortgage. The principal would be frozen during this 9-month period. This will help homeowners conserve and redirect their resources to other pertinent bills during this current downturn, retain more money in their household over the next 9 months and during the 6-month principal holiday, 50% of the interest payments will be applied to the principal balance. A moratorium on evictions would also apply for homeowners who are behind in their mortgage payments.
5. Retail Access Act - Incentivize retailers by offering an equal tax cut for providing a 15% to 25% discount on consumer products, groceries and other essential goods that impact quality of life.
6. Short-term Income Stabilization Act – would provide an immediate cash benefit to Americans for a maximum of 3-months in the following categories:
a. Workers who have been laid off without compensation support from their employers or do not have eligibility for unemployment insurance coverage receives — $2,000 per adult and $1,000 per dependent child ($500 per non-dependent child) for each eligible month.
b. Workers who have been laid off with compensation support from their employers or have eligibility for unemployment insurance coverage receives — $1,000 per adult and $500 per dependent child ($250 per non-dependent child) for incomes less than $50,000 per household and $500 per adult and $250 per dependent child ($125 per non-dependent child) for incomes above $50,000 per household for each eligible month
c. Retirees or self-employed individuals receive — $1,000 per adult and $500 per dependent child ($250 per non-dependent child) for incomes less than $50,000 per household for each eligible month
7. Renters Assistance Act – Place a national moratorium for up to 6-months on evictions and utility shut-offs during National Health Emergencies such as the current Coronavirus crisis to ensure housing stability. Requires that renters still must pay up to 50% and no less than 25% of their monthly lease amount during the national moratorium.
8. Employer of Last Resort Act - Move cash social benefit programs for non-senior citizens to a consumable employment model similar to the public works projects during the great depression. – Using Noted Economist Hyman Minsky’s early advocacy of what has come to be called, the “employer of last resort” (ELR) or “government job guarantee” program. The philosophy underlying this strategy takes the unemployed as they are and fits public jobs to their capabilities. Such public employment for adult workers would be at the national minimum wage; part time work to supplement social security and child maintenance allowances would be available; youth wages could be set at some discount from the legislated minimum wage. This is analogous to farm price supports: the legislated minimum wage is replaced by a wage floor set by an always available alternative. The employment available would be in labor intensive services that lead to readily visible public benefits.
9. Fair Market Assessment and Valuation Act (FMAVA) – This act would restore the value of taxable residential and commercial land in distressed communities and individual properties in non-distressed communities to a fiscally sound value floor based on traditional economic principles. The act would function as follows:
a. Market assessments by current appraisal models would be suspended. Valuation of distressed communities and individual properties in non-distressed communities would be rolled back to 1994 valuation data.
b. The re-assessed property value would then be adjusted to 2020 value by calculating the 1994 value of residential and commercial property annually times the rate of inflation for each year (1995-2019) and consumer price index. This would become the new property valuation floor.
c. Market assessment and appraisal models would be indexed to inflation and CPI models for a five-year period to allow for continual stabilization of the real estate market.
d. Distressed communities would be defined as municipalities or significant geographical sections within a municipality (15% of the residential and/or commercial real property) with high rates of bank or tax foreclosures, toxic loan portfolios and underwater mortgages on residential and commercial property.
The model eliminates the artificial cycle of comps, positive and negative consumer speculation and panic and replaces it with valuations based on reasonable logic and monetary policy. This will create stabilization in the housing and financial markets and finally define the floor for the toxic loan products in the US market.
10. Mortgage Patriot Act (MPA) – This act would compel existing mortgage holding banks through the CRA renegotiate the principal of a distressed mortgage or toxic mortgage to newly re-assessed valuation model for the distressed community or individual property in the non-distressed community or allow a new lender to finance a renegotiated loan indexed to the new principal amount. The act would function as follows:
a. The bank servicing or owning the mortgage loan with the borrower would recalculate the principal amount of the loan to the new assessed property value and then apply the existing interest rate to the balance of the loan term (allowing the bank to retain the interest rate income opportunity).
b. The bank would credit all mortgage payments made to date by the borrower to the value of the new loan product at a 60% principal & 40% interest ratio.
c. The bank and the borrower would sign the new mortgage loan certificate and the borrower would be extended a reduced balance on any current and outstanding late fees or penalties (10% of fee and penalty balance).
d. The new loan would be a non-recourse loan for the commercial and residential borrower.
The rationale behind this act is twofold. The first aspect of this law would be to allow the borrower to refinance their loan product at a rate and value that will value their existing activity to stay compliant with the terms, encourage retention of the loan and the home and provide real and substantial monthly payment relief to the borrower and family. This allows the borrower to see the value maintaining their loan and payment history with a loan that is structured to a realistic value for the home. The monthly payment relief will also create a monthly family stimulus effect, freeing monthly cash for the family to spend in other loan products, consumer spending and investments. The second aspect with of the MPA is that it creates a vehicle for the mortgage holder to improve their good loan portfolio while maintaining a primary profit driver, the existing interest rate. It would be applied to the new loan vehicle.
11. Property Assessor Valuation Act – this act would reset the SEV for a distressed community or an individual distressed property in a non-distressed community based on the FMAVA effect on the community or property in question. This act would be an emergency provision only and would not be used except in defined financial stress or property devaluation stress situations. The mill rate for the community in question would be assessed against the new SEV value. For communities that see a net increase in taxable income, the income must be dedicated through statue to a minimum of one of the following three functions:
a. Debt Reduction – paying above minimum on bond, pension and health care benefits.
b. Funding quality of life agencies (Parks, recreation, police, fire, EMS, library, etc.).
c. Funding business development, attraction and interaction agencies to improve business retention efforts.
We project that a significant number of residential and commercial tax payers will see a tax decrease because their homes are valued based on the artificially high market prices during the housing bubble. Municipalities should realize a net tax receipt increase because the number of artificially low value properties will rise in value and the foreclosure rates should decrease due to stabilizing the value of underwater mortgages.
12. Paid vacation tax deduction – A tax credit of 50% of the paid time and benefit burden value for businesses that offer a minimum of an additional 40 hours of paid vacation time for employees earning between $75,000 to $150,000 per year and a tax credit of 75% of the paid time and benefit burden value for businesses that offer a same minimum of an additional 40 hours of paid vacation time for employees earning less than $75,000.
13. Non-Custodial parent tax deduction (standard or itemized deduction eligible) – Non-Custodial parents with child support obligations will be eligible for the following tax deduction:
o If only meeting child support obligations on-time – 25% of the annual obligation amount.
o If meeting child support obligations on-time and spending 10% to 25% of the available parenting time with the child(ren) – 40% of the annual obligation amount.
o If meeting child support obligations on-time and spending 25% to 50% of the available parenting time with the child(ren) – 60% of the annual obligation amount.
o If meeting child support obligations on-time and spending more than 50% of the available parenting time with the child(ren) – 75% of the annual obligation amount.
14. Universal Child Care, with cost indexed to parents household income and subsidized with Federal Cost Sharing Model - $0 cost for parents with household income less than $50,000 and graduated scale model of between 10% to a max of 40% of the State’s average annual child care cost for parents with household incomes up to $350,000.
15. Expand the Family Medical Leave Act to include compensation for parents (married couples and single mothers and fathers who have established paternity) taking time off after the birth of the child and expend the amount of available time from 12 weeks to 9 months.
16. Extend the Family Medical Leave Act to allow for workers who are impacted by the Coronavirus (either directly through illness, family illness or workplace interruption due to co-worker illness) to include paid compensation equaling up to 85% of their base pay and available time of 12 weeks. Have this jointly funded by Federal Government, Business Sector (with deductible tax credit for contribution to the FMLA fund) and charitable contributions by individuals and foundations (with deductible tax credit for contribution to the FMLA fund).
17. Creation of a Life Stipend for single mothers or low income families (annual earning at 200% above the poverty level or less or meeting other socio-economic conditions) – provides for eligibility to receive a $500 monthly stipend to support parenting expenses.
18. School volunteer time off credit - A tax credit of 50% of the paid time and benefit burden value for businesses that offer paid time off for parents to participate in school activities and programs – no cap on the eligible hours.
19. School participation, supplies and materials tax credit (standard or itemized deduction eligible)– parents will be eligible to write off 100% of the expenses for purchasing school clothing ($450 max credit), supplies, mileage and time for participation in school activities or volunteering in school programming.
20. Child Growth and Advancement Tax Deduction/Refundable Tax Credits (standard or itemized deduction eligible) – Parents (custodial and non-custodial) would be able to either write off their expenses for educational, social and transportation expenses involving placing their children in extracurricular non-school based activities to further the development of the child.
21. Payroll Tax Adjustment Act - Increase the payroll tax rate (currently 12.4 percent) to 15.4 percent in 2020 and later.
22. Payroll Tax Adjusted Earnings Act - Apply OASDI new 15.4 percent payroll tax rate on earnings above $400,000 starting in 2021, and tax all earnings once the current-law taxable maximum exceeds $400,000.
Health Care Access
23. Medicaid expansion and managing spending growth: The Federal Government would fully guarantee the Medicaid expansion fund at 100% and allow states to expand Medicaid up to 200% FPL. People currently affected by the Coronavirus would be eligible to enroll in Medicaid if they meet the income level threshold. Starting in 2025, every 5 years thereafter, Medicaid spending would have to be reviewed for spending & cost reduction opportunities to slow the spending growth rate for the next 5 years. This would be a continuing forecast model.
24. Any mother who lacks healthcare coverage will be immediately eligible for either Medicaid or Medicare, depending upon their age – (The reimbursement rate will be increased based upon household income and poverty rate of the mother) – Income eligibility levels will max out at $80,000 for a single parent household and $110,000 for a two parent household.
25. Allow employed parents greater access to the new marketplaces, and allow employers greater flexibility to offer — or not offer — health insurance coverage. Remove the employee mandate and replace it with a coverage cost share model for employers with between 10 to 150 employees to buy insurance through the Marketplace for their workforce and split the premium cost between the employer, the Federal Government via tax credits or subsidy and the employee on a two tier model (40% Employer, 40% Federal Government & 20% Employee for up to 400% FPL/33.3% Employer, 33.3% Federal Government & 33.4% Employee).
26. Re-open the enrollment period for the Affordable Care Act now and fund the cost sharing reduction payments for insurers.
27. Settle the existing cost-sharing reduction payment issues in House v. Price, making full payment to insurers for the money still owed them for 2016 under the ACA’s program for reinsuring high cost-claims, and settling the insurer lawsuits challenging the failure of the government to make risk corridor payments due insurers who lost money insuring consumers through the exchanges for 2014 and 2015.
Benefits of this package of economic stimulus:
The aforementioned steps will allow for a stimulus type of effect on the local, state and national economies in the following ways:
1. Continuing income levels will ensure consumer confidence and trust in both their employers and the Governments response to this crisis.
2. American consumers will have a logical window to restructure their debt situation, take advantage of paying down some debt levels and providing immediate relief to combat the impacts of the sudden shutdown of industry and commerce.
3. Consumer spending will stay stable and increase over the event horizon due to the stability in their personal income, their credit situation and their largest personal asset (their home).
4. Stabilized approach to restructuring our economic platform to better support parents and families through tax policy that supports families and helps them be more responsive to businesses and lifestyle changes.
5. Stimulation of economic activity with a reduction of federal or state stimulus programming – Stabilizing housing values will restore consumer certainty and confidence in their net worth. Understanding that their biggest asset has regained a significant portion of its value, consumers and businesses will now be free to spend in other purchasing sectors, especially consumer products. The circulatory effect of consumer spending and confidence will also extend to the banking community as people look for stable debt products for future modest investment in their home and family life (college loans, second car loans, etc.). We believe this model of demand side economics will trickle up from consumers to producers and back down to consumers by focusing actions on making consumers the primary market contributor.
6. Federal and State governments would be able to stimulate wide scale economic activity without the following actions:
a. Debt issuing.
b. Quantitative easing.
c. Increased regulation.
d. Unnecessary supply-side driven tax cuts (like the 2017 Tax Act).
e. Interest rate cuts from Federal Reserve.
f. Federal or state stimulus spending – unless necessary.
This solution model fixes a major economic flaw with short term emergency action and gives the market relief to course correct for long term stabilization. Use of these actions would be strictly limited by statue to defined emergency situations.
a. Concurrently, governmental revenue growth and increasing personnel in specific departments have the dual impact of employment growth and income injection into the demand marketplace.
b. Governmental spending increase with private sector vendors for goods and services combined with increased private sector business spending to meet new customer demand (individual, governmental and business to business) further supports the cycle.
7. Businesses will spend money to invest in communities that hold and retain a sensible return in property value and can allow for spin off development.
8. Banks and financial institutions will see a reduction in toxic loan assets and defaults, improving their loan and credit portfolios and investment ratings, which will introduce liquidity into the market and open up business and residential loan markets.
9. Reversing the number of employed adults and homeowners who are upside down in their mortgages, which increases their personal disposable income for spending and which supports existing private sector businesses.
10. Providing equal corresponding tax cuts, credits and incentives to maintain spending in private sector businesses correlates to maintaining employment levels currently, which cycles more income into the marketplace.
11. Increased employment and mortgage principal relief can directly lead to increased tax receipts for governmental agencies, to coincide with applicable tax increases.
12. Financial industry long term stabilization – The 2008 financial crisis was based on the following cycle, which still are evident in our current financial systems:
a. Financial institutions give residential loans and refinancing loans without security, collateral and financial investment from non-stable or traditional borrowers (toxic loans).
b. Financial institutions sell loans (Mortgage backed securities) on commodities market for huge profit due to confidence in housing market.
c. Financial institutions buy insurance from AIG and similar insurance brokerages to protect the principal amount of loan and MBS purchases again defaults.
d. Borrowers start massive defaults on residential loans, causing investor and consumer confidence to drop.
e. Massive defaults cause tremendous pressure on property values, sending them failing to record and continual declines.
f. Financial institutions start cashing in insurance claims to protect their investment (loan or MSB).
g. AIG nearly runs out of cash paying claims.
h. Industry in plagued for next few years with toxic mortgages, bad investment losses, growing residential loan walk-away and strategic defaults, booking continual accounting and real capital losses on balance sheets.
i. Continual defaults depress real residential and commercial property values, continuing to foster cycle of decline and uncertainty in markets.
The continuing instability in the financial and housing market is based on two key functional areas, value of assets and continual defaults of consumers. Both have clouded efforts to define the floor for the toxic loans and the property values associated with those toxic loans. Our model allows for a floor to be built into the toxic and distressed loan portfolio of banks around the US and world. The resulting floor allows for Banks to value the toxic loan products and determine which products may be rehabbed through other debt products and other acts. Our model also allows the banks to transform distressed loan portfolios into performing loan portfolios, which improves their balance sheets and gets positive ratings from investment firms. Banks will have to book new accounting losses for the first and possibly second quarter after implementation, but should be back to positive operating profit models by the third quarter after implementation.
13. Restored value equalization in communities such as urban, aging suburban and rural communities will have a short term to long term positive impact on the following:
a. Housing sales and new construction.
b. Growth in property values.
c. Desire to invest in communities (residential investment and commercial investment).
d. Residential and business attraction.
e. Increased tax revenues for municipalities, school districts and counties to spend on core services and debt reduction.