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THREAD. I expect history will judge PPP a success. Congress was right to include a second round of PPP in its $900 billion relief package. And many of the changes Congress made to PPP today are positive.
My latest Bloomberg column: https://www.bloomberg.com/opinion/articles/2020-12-21/payroll-protection-program-costly-errors-welcome-corrections?sref=QK42wmXj @bopinion
My latest Bloomberg column: https://www.bloomberg.com/opinion/articles/2020-12-21/payroll-protection-program-costly-errors-welcome-corrections?sref=QK42wmXj @bopinion
2/ "Second draw” PPP loans will only be available to companies with 300 or fewer employees, while the original plan allowed businesses with up to 500 employees to be eligible.
3/ The new version also includes special measures to help businesses with 10 or fewer employees to have access to funds. My research with Glenn Hubbard shows that the program was likely most effective for smaller companies. https://www.nber.org/papers/w28032
4/ Because they have shareholders — who should take losses before receiving taxpayer funding — and access to capital markets, publicly traded businesses should not be eligible for the program.
5/ Congress wisely codified this restriction in the new bill. It also allowed employer costs related to worker protective equipment and to efforts to adapt to the virus to be eligible for loan forgiveness.
6/ A key part of the PPP’s success lies not in the text of Monday’s bill but in the way the program will be implemented by the Treasury Department. It is critical that Treasury gives banks assurances that they will be held harmless in the event that borrowers misrepresent...
7/ ...themselves on loan applications. These assurances were not strong enough in March and April, and that led banks to favor existing customers for the loans, leaving behind some of the most vulnerable small businesses.
8/ Congress also introduced some flaws into PPP. First, the bill allows companies to deduct expenses financed by the PPP. For example, a business that paid its electric bill using a grant from the program can deduct the cost of that bill from its taxes.
9/ But since the business didn’t pay the expense out of earned revenue, it shouldn’t be deductible.
The second mistake is that eligibility for “second draw” loans is restricted to companies that experienced at least a 25% reduction in gross revenue.
The second mistake is that eligibility for “second draw” loans is restricted to companies that experienced at least a 25% reduction in gross revenue.
10/ This focuses loans on businesses that have been hardest hit, which many will interpret as a feature, not a bug. But it will also give preference to businesses that are the more likely to fail, making the program less effective by not putting funds to their best use.
11/ Third, the program should do more to help the economy adapt to post-virus realities.
12/ Even given these flaws, extending the Paycheck Protection Program was the right thing to do. My research with economist Glenn Hubbard shows that it supported employment and improved the financial health of eligible business over the spring and summer.
13/ I expect that the new round will have similar effects.
14/ Supporting small businesses has been the right thing to do during the pandemic.
Fin/ Once the vaccine is in wide distribution, the government should not prop up these companies. They will need to sink or swim on their own. Fortunately, the post-virus economy that will allow them to do just that is on the horizon.
My column: https://www.bloomberg.com/opinion/articles/2020-12-21/payroll-protection-program-costly-errors-welcome-corrections?sref=QK42wmXj @bopinion
My column: https://www.bloomberg.com/opinion/articles/2020-12-21/payroll-protection-program-costly-errors-welcome-corrections?sref=QK42wmXj @bopinion
