The Coronavirus Aid, Relief, and Economic Security or CARES Act is a $2 trillion cash giveaway by President Trump and Congress in response to the pandemic that threatens to drag down our economy.
On the one hand, we should all applaud Congress and Trump for temporarily putting aside partisan bickering to help the American people. On the other hand, looking closely at aspects of the CARES Act, it seems likely it will be rife with waste, fraud, abuse, and will put large sums of taxpayer dollars in the pockets of wealthy business owners, not workers.
The Payroll Protection Program, for example, gives loans of up to $10 million dollars to small businesses to pay their employees for two-and-a-half months. If businesses use that money to pay employees (with some caveats) during that time period and don’t lay anyone off, the government forgives the loans entirely.
Clearly, many businesses are suffering, and this PPP money is going to be a lifeline to remain open and keep employees.
For that, we should all be grateful.
But what if the employer doesn’t lose any business due to COVID-19? If they borrow $10 million dollars from PPP and use that money to pay their employees, when their PPP loan is forgiven by Uncle Sam, the employees will get their usual salaries, and the company’s owner will get an extra $10 million dollars courtesy of the U.S. taxpayer.
Keep in mind the PPP does not require the employer to prove that they would have fired those employees without the free money.
Or, what if an employer loses 15% of business due to the pandemic, but cuts employee salaries by 30% and uses a PPP loan to pay out those reduced salaries? The math is complicated, but the employer could actually make more money over that same time period than if there had been no pandemic.
These are honest and legal ways the PPP allows business owners who are not struggling due to the pandemic to make massive profits. Now, think about the unethical and illegal methods that probably also exist.
At this very moment, does anyone believe that organized crime is not working overtime to create the fake businesses and the forged tax documents required to get the fully forgivable loans? It would almost be malpractice for highly sophisticated Chinese or Russian syndicates not to take advantage of the PPP.
This vulnerability to fraud is not just an oversight by the government.
In order to get the money out the door as quickly as possible, the usual roadblocks erected by the government to eliminate lending fraud have mostly been removed. Under the CARES Act, banks making the loans are indemnified against their customers making false claims and are not required to verify the information submitted by borrowers to secure the loan.
This is not to mention that the president is working to eliminate the inspectors general who will scrutinize the CARES Act for fraud. Or that the White House says it will not comply with aspects of the law that require them to inform Congress about how the money is being spent.
On top of that, a provision hidden in the 880-page CARES Act allows the Federal Reserve the right to set up a $450 billion bailout plan without keeping any records.
Because of the popularity of the $350 billion PPP, Congress and the White House are now looking to put more money into this program. Thankfully, there is time to fix the CARES Act before that money is paid out.
Looking at the PPP, Congress and the White House need to ensure that businesses getting access to those taxpayer dollars demonstrate they are both legitimate and suffered a loss of revenue due to the pandemic.
Considering that the government is printing hundreds of billions of taxpayer dollars to give away, shouldn’t we make sure the PPP funds are being used to protect workers and not outright stolen?
Gary Meltz is a former press secretary for Rep. Eliot Engel and is currently the principal at MELTZ Communications, a crisis and political risk management firm in Washington, D.C.
