Exclusive: A new Senate plan would guarantee paychecks for workers who are furloughed or laid offApril 17, 2020
By Li Zhou
Support for a once-radical idea — the government funding of company payrolls — is growing in Congress, as the legislative body scrambles to respond to the coronavirus pandemic and the massive economic fallout that’s resulted.
The newest proposal on the subject, the Paycheck Security Act, comes from Sens. Bernie Sanders (I-VT), Mark Warner (D-VA), Doug Jones (D-AL), and Richard Blumenthal (D-CT). Their bill, which was shared exclusively with Vox, would fund a portion of a company’s payroll costs, up to $90,000 per worker who has been laid off or furloughed, if a business can demonstrate that it has suffered a 20 percent month-over-month drop in revenue.
The thinking behind the legislation is similar to that of a bill introduced by Rep. Pramila Jayapal (D-WA) last week and an idea put forth by Sen. Josh Hawley (R-MO) in a Washington Post op-ed. Jayapal’s legislation would cover a company’s payroll costs up to $100,000 per employee, while Hawley’s suggestion would cover 80 percent of wages, up to the United States’ median wage. Support for such plans is spanning an increasingly broad range of lawmakers.
Bernie, Doug, and I represent the breadth of the Democratic Party’s thinking on this,” Warner said.
These ideas are picking up steam as lawmakers discuss what should be included in the next economic stimulus package from Congress, which may not be approved until May or later. Given the overwhelming demand for unemployment insurance and small-business loans that’s been observed in recent weeks, lawmakers see a comprehensive effort like this as increasingly necessary to reduce layoffs and relieve some of the pressure on an already overburdened unemployment system.
This bill intends to keep workers employed so businesses can resume their operations more quickly once the economy is up and running again: Companies interested in receiving these funds would have to maintain worker pay and benefits and offer to bring back those they have laid off.
“We need some simplicity and efficiency,” Sanders told Vox. “If I lost my job and I’m trying to get through to unemployment, I can’t make that connection, because they are overwhelmed.”
What the bill would do and how it’s different from other proposals
The legislation would provide businesses of all sizes with grants that cover part of workers’ salaries and some operational costs for up to six months. The proposal is inspired in part by a provision in the CARES Act, which helps guarantee paychecks for airline workers through September.
These grants are specifically intended to cover up to $90,000 in wages for every worker who has been laid off or furloughed by a business; they could also include up to 20 percent of revenue to be used for operational costs like utilities and rent. The monthly payroll costs would be calculated using a monthly average between January 2018 and February 2019, depending on whether a business operates seasonally.
There are some eligibility restrictions, however. To ensure that this funding goes to the businesses that need it most, companies that currently have 18 months of average payroll on hand in cash would be barred from receiving these grants. Those that are receiving funding from the Payroll Protection Program and the Economic Injury Disaster Loan program would also be ineligible, unless the money they were getting from either of those programs ran out.
Businesses would be able to demonstrate their need for the program by showing documentation of month-over-month revenue losses. The senators’ white paper doesn’t yet specify exactly what time frame would be used for these losses, but the program would likely use numbers from January to March 2020, with an adjustment for seasonal businesses, according to a Warner spokesperson.
The grants would be doled out via a partnership between the Treasury Department and the IRS. Some of the delivery mechanisms the proposal suggests are payroll processors, which could get the money to businesses more quickly, or a direct bank deposit from the IRS straight to companies.
Using these processors could eliminate the backlog businesses have experienced with other programs like the Paycheck Protection Program.
There are some slight differences between this plan and Jayapal’s, which is a bit more generous. Hers would cover up to $100,000 per worker, for example.
Warner notes that the decision to focus on furloughed or laid-off workers is to address clear gaps that companies are facing.
“If a business has lost 50 percent of their revenues and they have 50 percent of their revenues coming in, and that 50 percent is letting them pay their workforce, you don’t want to overly subsidize that ongoing operation,” he says.
Both Jayapal and the senators say they’ve been in touch about working together on their respective proposals.
European countries have implemented similar programs to reduce unemployment
Other countries including Germany, Denmark, and the United Kingdom have implemented some form of a paycheck guarantee program to reduce unemployment.
In mid-March, Denmark implemented a program similar to both Jayapal and the senators’ bill, with the government covering 75 percent of workers’ salaries that companies pay out, up to a certain amount. The investment in such a program is massive: The program, by one estimate from the Atlantic, will cost as much as 13 percent of Denmark’s national economy. Across Germany, Denmark, and the UK, however, unemployment has stayed much lower than it is in the US.
The Senate bill’s sponsors argue that this program could potentially cost less than other stimulus programs.
“We can make the case that this is probably costing the government less than some of the other proposals thus far,” says Sanders. Warner noted, too, that the cost of the CARES package along with recent measures taken by the Federal Reserve could be well over $6 trillion. He suggested that the Paycheck Security Act would not surpass that.
In the past four weeks, a staggering 22 million people have filed for unemployment. To combat the scale of the economic crisis the country is experiencing, the senators argue that lawmakers need to be thinking more expansively than they otherwise might.
“I think the challenge is also going to be a recognition from a lot of folks that we simply can’t flip a switch and turn the economy back on,” Jones said.
When asked about potential Republican backing, Jayapal and Warner were optimistic. “This is a time for all of us to be creative,” Warner told Vox, adding that discussion about both the UK and German programs came up during negotiations about the CARES Act.
“The idea that was bipartisan in the Paycheck Protection Program is that we need to keep workers on paychecks,” Jayapal noted, adding that this common thread could boost support for both bills.
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