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US: Economic Relief Package Shortchanges Workers

Insufficient Corporate Oversight; Long-Term Measures Needed

As applications for jobless benefits surge, visitors to the Department of Labor in New York are turned away at the door by personnel due to closures over coronavirus concerns, March 18, 2020.  © 2020 AP Photo/John Minchillo

(Washington, DC) – The United States government’s US$2 trillion economic package passed in response to COVID-19 contains important protections but will leave many low-income people unable to afford life necessities, Human Rights Watch said today. The urgency of the crisis demanded immediate if imperfect relief, but Congress should address these shortcomings in subsequent legislation.

The emergency Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed on March 27, 2020, includes more worker and family protections than earlier proposals. However, the relief is temporary, despite the expected long-term impact of COVID-19 on the economy, and excludes informal and undocumented taxpaying workers. It also provides billions of dollars in public support to large companies without sufficient public oversight or restrictions.

“The CARES Act is an important step, but not enough money will get to people who most need it, and it may not tide people over for very long,” said Lena Simet, senior poverty and inequality researcher at Human Rights Watch. “Congress should enact other measures to reduce people’s bills, and extend these benefits to informal workers, or many will struggle to keep their families housed and fed.”

Short-Term and Exclusionary Employment Protection

The CARES Act includes direct aid to families and extended employment benefits. Adults with incomes below $75,000 will receive a one-time payment of $1,200, with an additional $500 for every child aged 16 or under. Those who lose their jobs due to COVID-19, including self-employed and part-time employees, will receive $600 per week in addition to any amount to which they are eligible under state law for a period of 4 months. This will extend unemployment benefits to many workers previously ineligible for such protections, including those working in the “gig” economy or people who provide home care or domestic work, who are disproportionately women.

The temporary relief provided to many still risks leaving millions unable to afford necessities, such as rent, utilities, and food, when the law’s benefits expire. Congress should urgently take steps to protect people from losing access to utilities, including a moratorium on shutoffs for failure to pay, a step that would ensure continuous access to water necessary to comply with hygiene recommendations to prevent the spread of the disease. After the initial 4 months, the average weekly unemployment benefit in the US will return to just $372, and millions of low-wage workers such as salespeople will be eligible for as little as $234 in some states, which is equivalent to an income below the federal poverty line.

The risk that many will face prolonged financial hardship is exacerbated by inadequate requirements that all companies benefiting from the CARES Act maintain existing levels of employment. Even as companies reopen, they may hire only a small share of their pre-crisis workforce. In the US, in the week of March 22, 3.3 million people applied for unemployment, 5 times the previous record. The total number of workers who will lose their jobs as a result of the crisis is expected to reach between 7 and 15 million. The structure the CARES Act puts in place stands in marked contrast to many European government programs, which cover large percentages of company payrolls to prevent mass firings. This lower capacity and slower hiring in the US may especially harm women. In the last recession, more men gained employment than women in the first 2 years of recovery, with women over 50 years old experiencing the greatest difficulty in overcoming long-term unemployment. 

The CARES Act does not protect the more than eight million informal and unauthorized workers in the US, since only workers with social security numbers are eligible for benefits through the national unemployment system. In 2015, people with individual tax identification numbers, who are excluded from the act, paid $13.7 billion in net taxes, according to the American Immigration Council. These workers, also disproportionately women, are among the poorest and most vulnerable communities in the US, and even short-term unemployment without relief can put families at dire risk.

Typical of economic crises, poor households have been hit hardest by layoffs related to the coronavirus and they often take longest to recover. In New York City, 29 percent of households now have someone who is unemployed. Among poor households, this share is 34 percent.

“Congress’ short-term fix is likely to fall short for the millions of low-paid, vulnerable workers in the country who will face long-term economic insecurity,” Simet said. “Congress will need to tackle the structural inequalities in the US that will become more pronounced if the crisis is prolonged.”

Insufficient Oversight and Restrictions for Corporations

The CARES Act authorizes the treasury secretary to disburse $500 billion in loans, loan guarantees, and “other investments” to certain businesses, with minimal requirements to protect or support workers. Businesses receiving these funds need only retain them “to the extent practicable.” Restrictions on executive pay, dividend payouts, and stock buybacks are only in force for one year after these loans are repaid.

Oversight for the corporate disbursements is inadequate, Human Rights Watch said. The law establishes a Special Investigator General (SIG) to oversee these funds. However, the office can only subpoena documents and does not appear to be required to make its reports public. The law directs federal officials to respond to interview requests and instructs the SIG to report noncompliance to Congress. In signing the law, President Donald Trump included a statement effectively seeking to overturn these limited powers, claiming the right to withhold any information, including the SIG’s reports, from Congress. Leaving Congress in the dark would remove bipartisan oversight, which is especially problematic since the SIG is appointed by the president and confirmed by the senate, both of which are controlled by the same party. The law also establishes a separate Pandemic Response Accountability Committee, a group of inspectors general that has jurisdiction over all coronavirus-related spending. However, four of the seven positions to be included in the committee are currently vacant.

The law’s conflicts-of-interest provision, intended to curtail mismanagement and corruption, prohibits companies in which government officials or their close relatives have a 20 percent or greater ownership stake from benefitting from these funds. However, the law does not require the treasury secretary to enact rules prohibiting conflicts of interest among contractors and employees hired to help disburse funds. Such a provision had been included in the 2008 stimulus package and is especially important for financial managers who are privy to nonpublic information. Moreover, the conflicts-of-interest provision does not extend to other parts of the $2 trillion package.

Trump and his family members, as real estate developers who have not divested from their businesses, can benefit from a provision that significantly reduces taxes for earnings from real estate sales. Jared Kushner, the president’s son-in-law, sold a $25 million stake in a real estate investment in March that could potentially benefit from this position, and Trump is reportedly exploring selling his Washington, DC hotel.

The CARES Act includes another $300 billion ostensibly for small businesses, but makes eligible all restaurants and hotels with fewer than 500 employees at a single location – which includes large chain stores. The size requirements in this law differ significantly from those of the government’s Small Business Administration, which restricts its support for businesses in the same category to those with revenues of no more than between $8 million and $30 million, depending on the subcategory. This is another source of funds that can potentially benefit Trump’s businesses.

“The CARES Act does not do enough for workers losing their jobs and includes an enormous transfer of public money to corporations without adequate oversight,” said Sarah Saadoun, business and human rights researcher at Human Rights Watch. “Congress needs to fix these shortcomings, otherwise the most vulnerable will bear the brunt of the COVID-19 crisis.”


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