Committee for a Responsible Federal Budget

What's in the Final COVID Relief Deal of 2020?

Dec 21, 2020 | Economics

Lawmakers passed a new COVID relief deal on December 21, 2020, which was subsequently signed into law by the President on December 27. The deal in many ways resembles recent proposals from a bipartisan group of lawmakers and from Treasury Secretary Mnuchin, both of which cost over $900 billion. It is the fifth major bill enacted in response to the COVID pandemic and economic crisis, and the first since April's Paycheck Protection Program and Health Care Enhancement Act

The agreement includes support for small businesses, expanded unemployment benefits, recovery rebates, funding for schools, transportation spending, money for COVID testing and vaccines, and a variety of other programs. We do not yet have a CBO score, so the summary and analysis below represents our best understanding of the bill, as compiled from legislative summaries and the bill text. We will be updating it as more details become available. Our figures are slightly higher than press reports, in part because we include COVID-related measures that were not counted in early tallies of the COVID-specific parts of the legislation.

Under our central estimates, the package will cost about $935 billion and would boost economic output by $625 billion (3 percent of 2021 GDP), which is equivalent to closing the entire estimated output gap for 2021 and almost half of the total estimated output gap through 2023. The bill will also propel personal income to record levels in the first quarter of 2021.

Major Provisions in the Year-End COVID Relief Bill

Provision Ten-Year Cost
Aid to Small Businesses $325 billion
  Paycheck Protection Program (PPP) Second Draw  $284 billion
  Economic Injury Disaster Loan Advances $20 billion
  Emergency Grants to Venues $15 billion
  Other Small Business Relief and Program Expenses $6 billion
  Deductibility of expenses paid for by PPP loans ^†
   
Extend and Augment Unemployment Benefits (+$300/week) for 11 weeks $120 billion
   
Stimulus checks of $600/person $166 billion
   
Education $82 billion
  K-12 Education Grants $54 billion
  Higher Education Grants $20 billion
  Governor's Emergency Education Relief Fund $4 billion
  Grants for HBCUs, Minority-Serving Institutions, and Tribal Colleges  $2 billion
  Grants to For-Profit Colleges to Provide Financial Aid $1 billion
  Education Grants for Tribes and Territories $1 billion
   
Health Care $69 billion
  Funding to States for Testing, Tracing, and COVID Mitigation $22 billion
  Vaccine Procurement $20 billion
  Vaccine Distribution Through the States & CDC $9 billion
  Mental Health Funding $4 billion
  Additional Health Care Provider Grants $3 billion
  Repeal the Medicare Sequester through March 2021 $3 billion*
  Increase Physician Pay Schedule $3 billion
  Other Health Funding $4 billion
  Distribute Majority of Existing Provider Relief Fund to Struggling Health Providers **
   
Transportation $45 billion
  Second Round Payroll Support Program for Airline Workers $16 billion
  Transit Infrastructure Grants $14 billion
  State Highway Funding $10 billion
  Grants to Transportation Service Providers Like Buses and Ferries $2 billion
  Airport Grants $2 billion
  Amtrak Funding $1 billion
   
Other Spending $87 billion
  Nutrition and Agriculture Programs $26 billion
  Rental Assistance $25 billion
  Community Lender Support $12 billion
  Child Care Grants $10 billion
  Broadband Grants and Investment $7 billion
  Provide Additional Emergency Funding to Agencies $3 billion
  Disaster Relief Funding for COVID Funeral Expenses $2 billion
  Community Development Block Grants $2 billion
  Write-Off $10 Billion U.S. Postal Service Loan $0
   
Other Tax Cuts $40 billion
  Extend and Expand Employee Retention Tax Credit $20 billion
  Reinstate 100% Business Meals Deduction for 2021 and 2022 $6 billion
  Increase Earned Income and Child Tax Credit by Allowing Taxpayers to Use 2019 Income $4 billion
  Extend CARES Act Charitable Provisions $4 billion
  Extend CARES Act Employer-Paid Student Loan Exclusion Through 2025 $3 billion
  Extend Families First Paid Leave Credits Through March 2021 $2 billion
   
Total  $935 billion*
"Offsets" (reductions in previous budget authority) -$560 billion
Net Total (budget authority) ~$360 billion*

Source: Legislative summaries, bill text, JCT, CRFB calculations.
* Rough CRFB estimates where official scores unavailable. Subject to change as more details emerge. 
** The bill requires that at least 85 percent of the unobligated PRF balance be used for more distributions to health providers that incurred losses in Q3 and Q4 of 2020 and Q1 of 2021. This represents around $20 billion in potential distributions.
^ This change may reduce tax revenues by up to $200 billion relative to current law (or less if there are limits imposed on deductibility, as reported by some sources), but much of the cost was inadvertently scored in the original bills so it would not be counted as an additional cost by CBO.
†Although the proposal rescinds funds from the PPP program and the Federal Reserve’s lending facilities, those funds would not have been spent anyway under current law so the actual deficit impact will be closer to $350 billion. The precise deficit impact is unknown — for example, unemployment benefits could cost more or less depending on unemployment levels and PPP loans may not be fully utilized.

The package provides a total of $325 billion of spending for small businesses, including $284 billion for a second round of forgivable Paycheck Protection Program loans, $20 billion of Economic Injury Disaster Loans advance grants, which will provide up to $10,000 for businesses that continue to remain severely impacted by the ongoing slowdown, $15 billion in emergency grants for shuttered entertainment venues, movie theaters, and museums, and other business support. The bill would also allow businesses to deduct expenses paid out of past and new PPP funds for tax purposes, contrary to current IRS regulations. While this provision would not score with any cost (since it was already assumed in CBO's initial score), it could cost up to $200 billion relative to current practices based on estimates from Adam Looney at the Brookings Institution.

The package also extends the current temporary unemployment programs for gig workers – Pandemic Unemployment Assistance (PUA) – and for those that have exhausted regular unemployment benefits (Pandemic Emergency Unemployment Compensation), along with other unemployment provisions, for 11 weeks from December 26 through March 14, 2021. Weekly unemployment benefits would also be boosted by $300 per week over that period, which is half of the $600 per week supplement provided through July, but in line with the Administration's six-week Lost Wages Supplement and enough to replace roughly 100 percent of work income for the average unemployed worker. Unemployment benefits would be boosted by an additional $100 per week for those with both self-employment and wage income, reflecting that the PUA formula does not credit wage income. New PUA applications would cease on March 14, but workers could continue receiving benefits through April 5.

In addition, the package includes a second round of recovery rebates or "Economic Impact Payments," equal to $600 per person. That is half the size of the $1,200 rebates provided for adults in the CARES Act, but would represent a $100 increase for children. The payments would phase out at higher incomes. Families with mixed-immigration status would be made newly eligible for both the first and second Economic Impact Payments. The bill would expand and increase funding for nutrition programs like SNAP, provide rental assistance through states, and provide funding for child care and broadband.

The legislation contains nearly $70 billion in health care funding. Most significantly, lawmakers agreed to provider $22 billion for state COVID testing and tracing programs, $20 billion to purchase vaccines to be made available at no cost, and $9 billion to assist states and the CDC in distributing vaccines. The bill also repeals the Medicare sequester (which had been paused by the CARES Act) for all of 2021, and funds mental health, COVID research, and other health spending. The bill also provides an additional $3 billion in grants to health providers to account for lost revenue of expenses related to the ongoing public health emergency, and requires that around $20 billion in existing Provider Relief Fund money is disbursed to health providers that incurred losses at the end of 2020 and into 2021.

While the bill does not include any unconditional funding for state and local governments, it does include approximately $85 billion in state and local aid earmarked for specific purposes, including $54 billion for K-12 schools, an additional $5 billion in general education funding that can be spent by state governors, tribes, and territories, $14 billion in grants to transit systems, and $10 billion in state highway funding.

There are several COVID-related tax provisions included in the omnibus. For one, the bill expands and extends the Employee Retention and Paid Sick Leave payroll tax credits from the CARES Act, for a net cost of $22 billion. The bill also reinstates a full deduction for business meals for 2021 and 2022 at a cost of $6 billion, with half of the effect occurring in FY 2022. The bill also allows low-income taxpayers to use their 2019 earned income for purposes of claiming the Earned Income and Child Tax Credit if the result would be more favorable than using 2020 earned income. JCT estimates this will reduce federal revenues by $4 billion. The bill also extends several CARES Act tax provisions, the above-the-line charitable deduction and looser donation limits through December 31, 2021 and the employer-paid student loan exclusion through the end of 2025, for a total combined cost of $7 billion. The non-COVID portion of the bill continues several tax extenders, permanently continues lower tax rates on alcohol, and extends tax breaks for clean energy, hiring certain disadvantaged groups, and investing in certain areas.

How Much Will the Package Boost the Economy?

Overall, we estimate this $935 billion package will boost GDP by between $515 to $730 billion, with a central estimate of $625 billion. That would be enough to close the full output gap in 2021 in our base estimate, though in reality some of the economic gains would occur in 2022 and 2023.

To generate our range of estimates, we applied different fiscal multipliers to five categories of spending included in the bill: small business relief, expanded and extended unemployment benefits, state and local aid, rebate checks, and other policies. For our low-impact estimate, we used the same category fiscal multipliers estimated by CBO for already-enacted COVID relief. For our high-impact estimates, we used multipliers suggested by Wendy Edelberg and Louise Sheiner at the Brookings Institution, increasing the assumed PPP and small business multiplier to account for increased targeting. The aggregate result is a multiplier of between 0.55x and 0.78x. For our central estimate, we took the average of this range, 0.67x.

Estimated GDP Boost From COVID Relief Proposals (billions)

  Economic Impact Estimates
Category Fiscal Impact Low Central High
Unemployment Benefits $120 $80 $120 $155
Economic Impact Payments $165 $100 $135 $165
Paycheck Protection Program and Other Small Business Support $345 $125 $150 $170
State and Local Aid (including Education and Transit Funding) $85 $75 $80 $85
Other Spending and Revenue $220 $140 $145 $155
Total  $935 $515 $625 $730
         
Overall Multipliers   0.55x 0.67x 0.78x

Totals may not sum due to rounding. CRFB calculations based on CBO data.

Importantly, this relief package will provide a tremendous boost to the economy, increasing expected output by about 1 percent over the next three years, the equivalent of 3 percent in 2021 alone (though not all of the effect will take place in the first year). Assuming a $600 billion output gap in 2021 – which represents our best estimate based on CBO's July projections and more recent economic data – the bill could be sufficient to cover the entire output gap. Over three years, it would close nearly half of our projected output gap.

Our output gap figures are based on recent CBO projections, though there are reasons to think both actual and potential GDP will be somewhat higher than these estimates (the net effect on the output gap is unclear). We discuss our methodology in full at the bottom of our recent piece, Could a COVID Relief Deal Close the Output Gap?

As we receive more information on the package, we will update this analysis and provide additional analysis. We will also update our COVID Money Tracker.

To date Congress has enacted the equivalent of $2.7 trillion of net COVID relief, most of which has already been spent (see more at www.COVIDMoneyTracker.org). This money has largely been spent and more support is needed. The year-end relief bill is appropriately targeted, of sufficient scale to have a noticeable impact on GDP, and will help close the current output gap. We will track all of the disbursements from this latest bill as part of COVID Money Tracker, as we have continued to do since the Spring.

This blog post is a product of the COVID Money Tracker, a new initiative of the Committee for a Responsible Federal Budget focused on identifying and tracking the disbursement of the trillions being poured into the economy to combat the crisis through legislative, administrative, and Federal Reserve actions.

 

This blog was updated on 12/22 and 1/4 to include additional details available in the legislative text and JCT estimate, as well as the fact that the bill was signed by the President.