Coronavirus Aid, Relief, and Economic Security (CARES) Act (2020)

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The Coronavirus Aid, Relief, and Economic Security (CARES) Act is a federal law that expanded benefits through the joint federal-state unemployment insurance program during the coronavirus pandemic. The legislation also included $1,200 payments to certain individuals, funding for Supplemental Nutrition Assistance Program (SNAP) benefits, and funds for businesses, hospitals, and state and local governments.

Background

The CARES Act was a law passed during the coronavirus pandemic. President Donald Trump (R) signed the Act into law on March 27, 2020.

States in early 2020 had issued stay-at-home orders and closed nonessential businesses, which resulted in widespread unemployment. In April 2020, the national unemployment rate reached 14.8%, the highest rate recorded since unemployment data tracking started in 1948. The unemployment rate was 3.5% in February 2020.

For more information on unemployment filings during the coronavirus pandemic, click here.

Legislative history

Senate Majority Leader Mitch McConnell (R-Ky.) introduced the CARES Act in the U.S. Senate on March 19, 2020. After several days of negotiations between McConnell, Senate Minority Leader Chuck Schumer (D-N.Y.), and Treasury Secretary Steven Mnuchin, the Senate passed the CARES Act 96-0 on March 25. On March 27, the U.S. House passed the CARES Act via voice vote, which did not require a recorded vote total. President Donald Trump (R) signed the legislation on March 27.

Provisions

This section includes summaries of some of the major funding provisions of the $2 trillion spending package passed in the CARES Act.

Temporary unemployment insurance expansion

Congress earmarked roughly $260 billion to expand unemployment insurance benefits across the country. The act supplemented state unemployment insurance payments by increasing the number of weeks an individual could receive benefits and by providing individuals with an additional $600 per week on top of what they would normally receive. The CARES Act and the American Rescue Plan established the following supplemental unemployment insurance programs during the coronavirus (COVID-19) pandemic:

• Federal Pandemic Unemployment Compensation (FPUC)
  

The Federal Pandemic Unemployment Compensation (FPUC) program aimed to provide qualifying unemployment insurance claimants with a supplemental $300-$600 per week in addition to their state unemployment insurance benefits. The program expired on September 6, 2021.

• Pandemic Emergency Unemployment Compensation (PEUC)
  

The Pandemic Emergency Unemployment Compensation (PEUC) sought to provide 24 weeks of extended unemployment insurance benefits to recipients who have exhausted their standard benefits. The program expired on September 6, 2021.

• Pandemic Unemployment Assistance (PUA)
  

The federal Pandemic Unemployment Assistance (PUA) program aimed to provide individuals who are out of work but ineligible for standard unemployment insurance benefits with $300-$600 in weekly compensation. Qualifying individuals included workers who are not eligible for standard benefits, such as independent contractors and self-employed workers, as well as individuals who have exhausted their standard benefits, extended benefits, or PEUC benefits. The program expired on September 6, 2021.

• Lost Wages Assistance (LWA)
  

The Lost Wages Assistance (LWA) program aimed to provide individuals receiving at least $100 per week in standard unemployment insurance benefits, PEUC benefits, or PUA benefits with an additional $300 per week. The federal government paid $300 per week in LWA benefits to qualifying individuals while state governments contributed $100 per week, either in the form of standard or supplemental benefits. The program aimed to provide benefits from August 1, 2020, to December 27, 2020, but funding was depleted by September 5, 2020.

• Mixed Earners Unemployment Compensation (MEUC)
  

The federal Mixed Earners Unemployment Compensation (MEUC) program sought to provide an additional $100 per week to individuals receiving unemployment insurance benefits who earned at least $5,000 through self-employment in the tax year prior to their claim. Claimants receiving PUA benefits were ineligible for MEUC benefits. The program expired on September 6, 2021.

Creation of Paycheck Protection Program

See also: Paycheck Protection Program (PPP) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020

The CARES Act allocated approximately $669 billion to the Small Business Administration (SBA) to fund loans of up to $10 million per qualifying small business under the Paycheck Protection Program. By May 1, 2020, the SBA guaranteed 3,873,158 forgivable loans.

Businesses were eligible for full loan forgiveness if they used the loan to cover payroll costs, interest on mortgages, rent, or utilities. At least 75% of the forgiven loan amount had to be spent on payroll costs, and businesses had to maintain salary levels and pre-pandemic payroll spending.

Individual payments

Roughly $300 billion was earmarked for direct payments of $1,200 for individuals making up to $75,000 annually.

Aid to large businesses

Roughly $500 billion was earmarked for assisting large businesses. Of the $500 billion, about $87 billion was allocated to airlines.

The bill also created the position of an inspector general to oversee pandemic recovery. The inspector general, along with a congressional committee, provided oversight of all loans and other uses of taxpayer dollars. The bill prohibited the president, vice president, and members of Congress from benefiting from the money allocated to corporations.

Aid to state and local governments

Roughly $339.8 billion was set aside for programs carried out by state and local governments. Of the $339.8 billion, $274 billion was allocated to specific COVID-19 response efforts through block grants

Aid to hospitals

Roughly $100 billion was earmarked to support hospitals responding to the coronavirus.

Food program assistance

Roughly $24.8 billion was earmarked for food programs. About $8.8 billion was allocated to schools to provide meals for students, $15.5 billion went to supplementing the Supplemental Nutrition Assistance Program (SNAP), and $450 million was allocated to food banks and other community food distribution programs.

Higher education provisions and student loan deferment

In addition to the funding portion of the bill, there were also various provisions regarding higher education. For example, the bill deferred payments on federal students loans through Sept. 30 without penalty. The bill also allowed schools to turn unused work-study funds into supplemental grants.

Impacts of extended unemployment insurance benefits

Experts and economists have observed mixed outcomes from extended unemployment insurance benefit programs. Congressional Budget Office Director Peter Orszag in testimony to Congress in 2008 argued extended unemployment insurance benefits were a cost-effective form of stimulus during recessions and economic downturns because recipients were likely to spend the money quickly and boost aggregate demand. However, Orszag also said extended unemployment benefits could discourage recipients from seeking or accepting work as quickly.

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Based on CBO’s analyses of the family income of long-term UI recipients in previous periods, it seems likely that recipients would quickly spend most of those benefits. For example, an examination of the experiences of long-term UI recipients in 2001 and early 2002 who had not found work soon after their benefits ended—that is, the people for whom extensions of UI benefits are intended—indicated that their average family income was about half of what it had been when they were working. Moreover, more than one-third of the former recipients who had not returned to work had a family income below the poverty line (measured on a monthly basis), and about 40 percent lacked health insurance. ... Because these options would also tend to boost income among families very likely to spend most of the additional money rapidly, the options would be relatively cost-effective. The availability and size of UI benefits may, however, somewhat discourage recipients from searching for work and from accepting less desirable jobs. Extending the duration of benefits or increasing their size means that at least some recipients may remain unemployed longer than they would have without that aid. The effect is probably most pronounced when jobless rates are relatively low; when joblessness is high and work is especially hard to find, extensions of UI benefits appear to lengthen spells of unemployment by a smaller amount.

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Economist Martin Feldstein made similar observations regarding the possible negative effects of extending unemployment insurance benefits. Feldstein argued the disincentive to return to work could reduce earnings, spending, and aggregate demand.

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While raising unemployment benefits or extending the duration of benefits beyond 26 weeks would help some individuals ... it would also create undesirable incentives for individuals to delay returning to work. That would lower earnings and total spending.

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Researchers Ammar Farooq, Adriana Kugler, and Umberto Muratori argued that extending unemployment insurance benefits could allow workers to find better jobs that matched their skills and help businesses find better employees, creating a positive effect in the labor market.

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These results suggest that if a worker can receive UI benefits for a longer period, she will be able to find a job with an employer that is closer to her in terms of quality. This worker then is likely to leave another job open for someone else who is also likely to be better matched, and in turn that other worker can also leave vacant another job and relieve it to someone else, generating a chain reaction that makes many other workers, beyond the one receiving the UI extension, match better in the labor market.

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See also

• Unemployment insurance
• Social Security Act (1935)
• Federal Unemployment Tax Act (1939)
• Federal-State Extended Unemployment Compensation Act (1970)
• Employment Security Amendments of 1970
• Emergency Unemployment Compensation Act of 1971

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