When the stay-at-home orders are lifted, we’ll be in a race to get millions of Americans back to work. Large companies will be in a stronger position, since they are more likely to have the capital and borrowing ability to restart production and rehire employees who were laid off.
Many of the nation’s smaller businesses, however, were operating far closer to the financial edge even before the coronavirus. Those millions of businesses, which normally represent almost half of all employment in the United States, will need their own path back to normal.
The most immediate concern is to keep workers who have not already been laid off on payrolls. The so-called “Phase III” legislation passed by Congress, the CARES Act, includes a provision called the Paycheck Protection Program, which gives the Small Business Administration authority to provide federally backed loans to help businesses with fewer than 500 employees cover operating expenses like payroll, rent and utilities.
This has been widely described as a loan program under which some of the loan amount may be forgiven, but that undersells its generosity and availability. While structured as a loan, the Paycheck Protection Program is, in effect, a federal cash grant that leaves small business owners with wide discretion on how to spend the money, as long as they maintain payrolls.
The amount of the loan spent on operating expenses like payroll, rent and utilities will be forgiven as long as the employer does not lay off workers or cut wages by more than 25 percent. Even employers who take out a PPP loan and do end up laying off workers will still be eligible for a reduced forgiveness amount.
This level of discretion is probably too broad and amounts to a huge gift to small business recipients and the banks making these loans and charging fees and interest, all guaranteed by U.S. taxpayers. Had Congress taken more time to negotiate the PPP as a stand-alone program, some of those provisions may have been tightened.
For example, small businesses don’t need to present proof of actual economic harm, and Congress is allowing lenders to determine eligibility rather than the Small Business Administration itself. Borrowers also don’t need to satisfy any credit-worthiness criteria or put up any collateral. But now that it is law, it will be an important part of the landscape for post-pandemic small business recovery.
The next, more long-term step must be repealing and reforming laws and regulations that made the current crisis worse and stand in the way of a prompt recovery. Many of the rules recently waived or suspended under emergency conditions were of dubious value in the first place. (For a growing list, see the #NeverNeeded tag on social media.)
The most immediately relevant are state-level “certificate of need” laws that restrict the number of medical facilities that can be built and “scope of practice” laws that limit what services medical professionals may provide. State-level medical licenses that are not recognized across state lines also fall into this category.
Reform of some of these “never needed” regulations are vital to fighting the current pandemic, and some will need to be changed to counter the next big public health emergency.
But there are many more such rules — enacted over the years as special interest favors or misguided attempts at protecting certain industries — that need to be scrapped to maximize economic opportunity for Americans, especially in the small business sector. Everything from banning online sales of e-cigarettes and home delivery of alcohol to limits on the gig economy and restrictions on telemedicine consultations should get a stern review.
My Competitive Enterprise Institute colleague Ryan Young has proposed that Congress create a permanent regulatory review commission to methodically comb through the Code of Federal Regulations and propose packages of outdated and counterproductive regulations for elimination via an up-or-down vote.
Each of these eliminated or reformed regulations will seem small on its own, but their cumulative impact would unleash a massive amount of economic potential.
Moreover, because the burden of compliance falls most heavily on small companies without a department of staff attorneys, reducing the burden of federal, state and local regulations will aid small business owners and workers the most.