Biden should study the legislative history of the Paycheck Protection Program: ‘It is a grant’
Timothy P. Carney
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President Joe Biden attacks many opponents of his unilateral student-debt forgiveness programs as hypocrites because their businesses received emergency pandemic aid through the 2020 Paycheck Protection Program.
Biden appears not to know that federal student loans and the federal PPP are not remotely similar programs. Forgiving student debt is a change in policy because the law authorizing such loans was passed with the expectation they would be paid back, except in extraordinary circumstances. The PPP loans were designed to be forgiven in ordinary circumstances, and lawmakers in both parties stated that explicitly.
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In fact, the PPP was crafted as a grant program that, for various logistical reasons, was disbursed as a forgivable loan.
Biden could benefit from checking out the history of this bipartisan program.
Economists Michael Strain and Glenn Hubbard designed PPP, and they called it a federal grant program that was disbursed through private bank loans. This method of disbursement was the quickest way to get the money out the door for two reasons: (a) banks could disburse funds quicker than the federal bureaucracy; (b) it would be better to check eligibility for the aid after the money is out the door than before because every day without money increased the risk of permanent business collapse.
Check out this March 20, 2020, whitepaper, a blueprint for the PPP, laying out that the program was a grant program disbursed through loans:
“We are essentially talking about making grants to businesses to recover a significant portion of revenue over a defined period of time (e.g., twelve weeks). Standing up a new government facility would be difficult to do in a timely way. Commercial banks already have relationships with businesses and could make loans equal to a fraction of revenue based on past tax returns (or other accounting information). The loans would be guaranteed by the federal government, then forgiven at the end of the period, conditional on businesses not laying off any workers over that period and on continuing to pay their workers their full wages, salaries, and benefits.”
Why grants rather than loans? “Service businesses face a permanent revenue loss,” the economists explained. “Even at a favorable, or zero, interest rate, many small businesses would be forced to shut down or lay off workers rather than take out a loan, because the expense of paying back the loan, even over a long period of time, would swamp their profits.”
Here’s how Sen. Susan Collins (R-ME) explained the bill two days later on the Senate floor:
“Small businesses would be eligible for a 100% federally guaranteed emergency loan to cover their payroll for eight weeks, as well as certain fixed expenses — normal customary expenses like rent or mortgage payments and utilities. These loans would ultimately be eligible to be forgiven, provided that the employers kept the workers on their payrolls. That is the key provision.”
Here’s how then-Sen. Rob Portman (R-OH) described the bill: “It really converts into a grant if they use it for payroll. … If they use it for rent, and if they use it for mortgage payments, the loan is written off entirely. It, essentially, is a grant to those small businesses.”
Then-Sen. Lamar Alexander (R-TN) described it as a program “that would loan money to small businesses of less than 500 people so they can pay their employees in West Virginia and Tennessee. And then, if they did that, it would be forgiven. In other words, it is a grant.”
Rep. Nydia Velazquez (D-NY), who was chairwoman of the House Small Business Committee, said this at the time: “The bill allocates $350 billion for forgivable, low-cost loans for businesses to continue paying their employees. Let me be clear: these loans are fully forgivable if firms keep their workforce on the payroll during this crisis.”
Again, the lawmakers who wrote and passed PPP called it “essentially a grant.” That is not how federal student loans were ever presented.
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Business owners would only have to pay back the portion of the loan that wasn’t spent on keeping workers employed and paying basic expenses. That is, the bill set up an after-the-fact eligibility test for this money, which was effectively a grant.
So Biden is, perhaps unwittingly, attacking these business owners for accepting emergency aid at a time when the government was locking down their businesses.