I trust this note finds you healthy yet sick of social isolation. I recently read an apt quote applicable to now: “There are decades when nothing happens and then there are weeks where decades happen”.
As usual, my mind turns to the history books to find some perspective about what we’re now collectively grappling with. The Spanish flu pandemic of 1918 was really bad. That crisis was also compounded by too many Americans who would not follow social isolation policies.
On the lighter side, young Isaac Newton, while under quarantine in England during the Great Plague of the 17th century, put his solitary time to good use. He invented calculus and formed his theory on gravity while social distancing for a full year. Talk about making lemonade out of lemons!
In my isolation, my feeble mind is thinking about how to save the 2020 college football season and of course how to rally our client investment portfolios.
I also read where in the 14th century, during the “Black Death” bubonic plague era, Venice was a major European trading port. The Venetians were naturally spooked about the pandemic, so they forced visiting ships to wait in the port’s harbor for forty days before its passengers could enter their fair city. Thus the word “quarantine”, derived from the Italian word for forty.
I personally prefer the term coined by my Baltimore friends for this social isolation technique, “cornteen”.
Quite a lot has happened in the past two weeks on the policy front as the viral pandemic has worsened. The federal government moved surprisingly quickly to pass the CARES Act, a massive bi-partisan federal bill that is receiving good reviews. It contains $2.2 trillion of economic rescue (not stimulus) spending, something for nearly everyone and most businesses.
There’s a lot to unpack in the CARES Act, but the fiscal objective was to complement the recent bold moves of the Fed Reserve and spray as much cash as possible into the hands of the American worker and businesses of all sizes ASAP. The financial band-aid is supposed to repair the severe economic damage caused from shutting down the world’s most important economy.
Below is a canvas of the key components of the CARES Act and a guide to help you take advantage of the new law.
• Direct cash payments in April to all Americans based on their taxable income.
• Supplemental federal unemployment benefits up to $600 per week for thirteen weeks.
• Charitable cash gifts are now tax deductible up to 100% of adjusted gross income.
• On the small business side, innovative new programs were introduced to quickly get money to small business owners and keep employees on the payroll. The first is the Paycheck Protection Program, which extends a forgivable business loan through a bank or credit union to cover business payroll and benefit expenses for up to 2.5 months. If the employees are retained for two years, the loan will eventually be forgiven.
If you are self-employed with no employees, you’re still eligible for the PPP loan program. Call your banker for more information.
• Another option is the SBA Economic Injury Disaster Loan program, for which you apply directly through the SBA online. If approved, the first $10,000 is a grant and additional loans of up to $2.0 million are available at low interest rates and long repayment terms.
• Yet a third program is the Employer Incentive Tax Credit program. It offers a 50% tax credit for employee wages for each quarter the government has forced the business to shut down. There are several limitations and it’s much more complicated than the PPP or the SBA loan program.
• A business can delay paying the employer portion of employee 2020 Social Security taxes until 2021. Speak to your tax professional about this payroll tax relief.
• We have submitted both the PPP and SBA loan applications this week and encourage you, a friend and / or a family member who owns a small business to do so as well – and soon.
• There’s a new five-year business income tax loss carryback against prior business taxable income, which could generate material cash refunds. You know what to do; speak to your tax advisor first.
• For the rest of 2020, there’s a new hardship withdrawal option from IRAs and retirement plans under which you can withdraw up to $100,000 with no 10% early withdrawal penalty and then take up to three tax years to pay it back with no tax liability.
• The maximum participant loans from retirement plans have been increased from $50,000 to $100,000 and from 50% of vested balance to 100%, but only for 2020.
• Finally, two other interesting tax provisions was the suspension of required minimum distributions from IRA and retirement plans for 2020 and the deferral of principal and interest payments on federal student loan payments until September 2020.
The bold small business relief provisions in the law will hopefully keep many businesses afloat and more employees on their payrolls over the next few months. More fiscal spending is coming soon as the economic impact of the CARES Act is measured.
Many are understandably worried about the risk of gratuitous levels of corruption and graft with so much government money flung wide and fast. Accounting for all this money will be daunting, but what choice do we have?
We will be dealing with the complicated aftermath of the pandemic and the policy responses for years to come, but that’s a (blog) topic for a different day.
I’m still grappling with how we were so woefully unprepared for a deadly viral pandemic with many warning signs flashing. A bipartisan failing.
I’m also amazed at the bravery of the health care workers working in hellish hospital conditions without the proper protective gear. Unselfish humanitarians for sure, perhaps with a small screw loose.
Please reach out to us if you have questions about the CARES Act and how it may advantage you or someone you care about.
Until next time, be healthy…..Tim