While Congress has been deadlocked and unable to reach an agreement regarding an extension of pandemic assistance, President Trump has decided to take unilateral action with a series of executive orders.
Early morning futures are mixed, so while some unemployed individuals are celebrating, the markets have been more cautious – and probably for good reason. Let’s take a little look at the orders and see what we can expect.
Memorandum on Continued Student Loan Payment Relief During the COVID-19 Pandemic
The first order extends the duration of student loan payment relief through December 31. This doesn’t forgive any debts, but it does allow borrowers to defer payments without penalty or additional interest accrual. The Secretary of Education is also instructed to facilitate deferments and waivers, while also redefining economic hardship in such a way that recognizes the current economic situation.
So far, there’s no major problems here. Trump’s student loan order doesn’t change the amount owed so much as it merely restructures those debts and provides a more flexible payment arrangement. It doesn’t require any funds to be disbursed, and it’s basically in line with the president’s constitutional authority to determine executive priorities.
Executive Order on Fighting the Spread of COVID-19 by Providing Assistance to Renters and Homeowners
In the next order, Trump promises to help renters and homeowners… but this is where things start to get questionable. Section 2 declares the intent of minimizing evictions and foreclosures, but Section 3 provides a very murky enforcement mechanism.
The Secretary of the Treasury and the Secretary of Housing and Urban Development shall identify any and all available Federal funds to provide temporary financial assistance to renters and homeowners who, as a result of the financial hardships caused by COVID-19, are struggling to meet their monthly rental or mortgage obligations.
The obvious problem here is that Congress has not appropriated money for this action, so Trump is asking his executive staff to “find it.” What the president doesn’t seem to understand is that the government was not designed to run like a business. The CEO can’t just decide to take money out of one account and transfer it to another, because those funds are allocated by Congress for a specific purpose.
Put simply: the president can’t unilaterally spend public dollars. While the language of this order is encouraging to those who are at risk of foreclosure or eviction, the reality of it won’t do much to help them.
Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster
In the third order, things start to get really weird. The order specifies that employers can defer all payments on Social Security taxes through the end of the year. There are a few exceptions, and the order doesn’t cover payroll taxes due on individuals earning more than $2,000 per week.
Like the student loan executive order, this doesn’t eliminate the amount that’s due and it doesn’t require Trump’s executive staff to redirect funds that were allocated elsewhere. In that sense, it is theoretically enforceable.
But is it a good idea? Maybe not. A payroll tax holiday might increase the consumption rate of those who are currently employed, but the economic crisis right now relates primarily to a historic lack of employment opportunities. The bill also leaves companies with a large liability at the end of the year, so it increases short term liquidity at increased risk of long term default.
The order also instructs the Treasury to “pursue” a total forgiveness of this tax over the specified time frame, but that would require the very legislation Trump is trying to avoid by fiat.
Memorandum on Authorizing the Other Needs Assistance Program for Major Disaster Declarations Related to Coronavirus Disease 2019
And here’s what the headlines are celebrating: Trump extends the unemployment benefit subsidy! Except, well, much like his other orders there is no funding to back this up.
Since Congress couldn’t achieve a deal and since there is no budget for this extension, Trump has ordered FEMA to find the cash. He’s also promising to raid the remaining $80 billion in the Coronavirus Relief Fund (CRF) that was supposed to be paid directly to the tribes, states, and local governments most impacted by the pandemic.
Again: the idea here is fine. People on unemployment need better job options and a stronger safety net while they look for work. The political reality is that this is exactly the type of government action that requires Congressional approval and funding. $80 billion plus FEMA’s balance sheet won’t add up to the $1 trillion that we’ve already spent on pandemic-related unemployment assistance, and it will leave our emergency responders underfunded right in the middle of hurricane season.
Unemployment must still be reckoned with
While it’s great that the executive has allowed individuals and businesses to defer as many payments and debts as possible, these actions won’t be sufficient to curb the massive economic crisis that is brewing in the shadow of the pandemic.
It’s also way too soon for the unemployed to start celebrating. While the order to extend payments might signal an increased willingness to compromise, it will not provide substantial assistance on its own. Congress must act to provide the requisite funding, and the longer they wait, the worse the economic effect will be – both at the individual and at the macro level.