Forget about Kanye. The real scandal of the Paycheck Protection Program is about who didn’t help (opinion)

07/16/2020 Business


But the focus on high-profile borrowers like Kanye West distracts from the overall picture: The real PPP scandal is not who got help, but who didn’t. The PPP was a flawed program that failed to help small businesses and workers, and our economy continues to suffer as a result.

When the Covid-19 pandemic hit the United States earlier this year, many companies were forced to close indefinitely, and had to make difficult decisions about what to do for their workers. The PPP, created through the CARES Act, gave these companies the option of receiving low-interest loans to cover payroll and a limited portion of other expenses. Loans could be converted into grants if companies used most of the money to keep workers on their payrolls.

Keeping small businesses afloat and employed workers were vitally important to policymakers’ economic response to Covid-19, and the PPP could have helped the country meet them. But by design, it was troublesome from the start. Rather than offering direct business support, Congress chose to run the program through banks and offered banks higher fees for issuing larger loans, even though all loans were fully government-backed. and they were effectively risk-free.
As a result, companies that had strong relationships with banks had easier access, and banks had a strong financial incentive to move companies seeking larger loans to the front line. Black and brown business owners, who are less likely to have strong bank ties and more likely to operate smaller businesses seeking smaller loans due to structural racism, were at a disadvantage. According to a survey, only 12% of black and brown business owners who applied for PPP loans received them.
How Kanye West Embodies the Big Problems of the Payroll Protection Program
The PPP certainly helped, but given the magnitude of the current economic crisis, Congress could and should have chosen a more effective alternative. Although the labor market has come a long way in recent months, more than 20 million jobs were lost in April alone, the unemployment rate remains double-digit, and black unemployment is even higher than the overall unemployment rate. The researchers estimate that 100,000 small businesses have closed permanently, and since the financial suffering caused by Covid-19 has not ended, these numbers are likely to increase further.

While people may be caught looking at who exactly benefited from PPP loans, it is much more important to focus on how we can tackle the very real challenges that still threaten workers and small businesses. The country’s economy already suffers from dangerous levels of monopoly power that raise prices, harm workers, and inhibit innovation and growth.

The widespread closure of small businesses would only further enhance corporate consolidation. With virus cases increasing in many parts of the country, threatening to halt efforts to “reopen” the economy, Congress must recover from the flawed approach embodied in the PPP and provide additional support to small businesses and their workers, and Quick.

To do this, the government must step in and directly assume payroll obligations for companies that have been hard hit by our current economic crisis. By expanding existing tax credits that offer businesses support for their payroll obligations, Congress can quickly provide affected small businesses with funds to retain and rehire their workers.

By operating through the tax system, such proposals will provide relief to all businesses in need and ensure that government support is used to keep people employed. This must be combined with continued support for expanded unemployment insurance to ensure that workers receive support regardless of their employers’ decisions.

Second, we should provide targeted and targeted grants to Black and Latinx-owned small businesses, which have performed particularly poorly on PPP. Finally, we should provide grants (or, in the worst case, low-interest loans) to small businesses to help cover non-payroll costs, such as rent, that could be taking them out of business.

We can improve PPP and prevent thousands of small businesses from failing and millions more workers being left behind. That, not the latest celebrity brand to receive PPP funding, should be Congress’ focus in the coming weeks.

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