Personal finance during the plague: what I’m watching for

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As we near the end of the beginning of our public and private response to the coronavirus pandemic, there’s obviously a lot to keep track of, and as we saw with the quickly-exhausted Economic Injury Disaster Loan and Paycheck Protection Program funds, waiting to act can be an expensive mistake.

With that in mind, I thought it would be useful to organize what actions I’m watching for from state and local governments in the short-, medium-, and long-term.

Short-term: Pandemic Unemployment Assistance and new EIDL and PPP funding

These programs should be coming (back) online by the end of this month, so if you’re interested and eligible for them you’ll want to watch out for them.

Pandemic Unemployment Assistance is short-term extension of unemployment insurance to populations that have traditionally been ineligible. This benefit was included in the last pandemic relief legislation, the CARES Act, so no additional federal legislation is needed. Like regular unemployment insurance, PUA will be administered by the states, so you won’t be able to apply until your state makes its application available. Some states, like Massachusetts, have already launched the program, while others may not be operational for several more weeks. The three most important groups covered by PUA are the self-employed, workers who have their income reported on a 1099 instead of a W-2, and employees whose work history would otherwise make them ineligible for unemployment insurance.

PUA recipients will receive the $600 federal top-up to their weekly benefit through July, 2020, in addition to the basic benefit calculated according to their reported income, and benefits are paid retroactively, so it will almost certainly be worth filing even if you have very low self-employment income. Since the benefit is paid by the states with federal money, I expect them to be extremely lenient when processing PUA claims.

Next up, while it’s not quite over the finish line, Congress is widely expected to appropriate additional funding in the coming weeks for the Economic Injury Disaster Loan and Paycheck Protection Program. It’s safe to assume the funding will again be quickly exhausted, so you should be ready to apply as soon as applications are again being accepted.

In case you missed it the first time around, the EIDL is essentially a grant of $1,000 per employee (include sole proprietors), up to $10,000. The application takes just a few minutes to complete, and the first tranche of payments was deposited very quickly — within a week or two in my experience. A typical sole proprietor or gig economy worker is probably only eligible for a single $1,000 grant, but be sure to think hard and claim any and all employees when you file. Lots of sole proprietors employ their spouse or kids, for example, even if all the income is ultimately reported on a single tax return.

The Paycheck Protection Program is slightly related to EIDL, in that an EIDL grant can be converted into a forgivable PPP loan. The advantage of PPP loans is that they can be much larger than the maximum $10,000 EIDL grant. The drawback is that applications are processed by private banks, rather than the Small Business Administration, and many people found banks were unwilling to work with them unless they had an existing business relationship. Now that the banks have some practice processing these applications, hopefully people will find the process easier to navigate once more funds are made available.

Medium-term: Medicaid expansion, unemployment insurance extension, SNAP eligibility changes

These are changes that I don’t yet see any momentum for, but that I think are likely to happen in one form or another as the crisis drags on.

Most people under the age of 65 are covered by workplace-based health insurance: either their own, their spouse’s, or their parents’ (in the case of children under the age of 26). Most of the rest are covered by Medicaid, with the remainder either uninsured or covered by an Affordable Care Act marketplace plan. Nobody particularly likes this system (except private insurers), but it theoretically makes most people eligible for some form of health insurance, with one big exception: low-income people in states that have not expanded Medicaid. A few months ago, this was a fairly small, politically marginal population. But with a plague sweeping the country and millions of people thrown out of work and off their workplace plans, that population just got a lot bigger and a lot less marginal. There has been some emergency funding for coronavirus testing and treatment, but even during a plague people still need treatment for high blood pressure, diabetes, cancer, and all the other indignities of mortal flesh. Medicaid expansion funds are already available to the holdout states, and I suspect there will be enormous pressure to take the money as the uninsurance crisis develops in parallel to the pandemic crisis.

Next, I’m keeping an eye out for future changes to unemployment insurance. In the CARES Act, Congress already provided funding to extend coverage from 26 weeks to 39 weeks, and provided roughly 16 weeks of the $600 “top-up” money I mentioned above. That means sometime beginning in August unemployed workers are scheduled to see their benefit cut by as much as 75%, depending on the basic benefit calculated by their state (my benefit is scheduled to fall by about 66%, for example). That is going to throw a lot of people who are just about managing to get by under quarantine into desperate poverty overnight. What happens next depends on both our progress against the virus and the state of the economy. If we’ve beaten back the virus sufficiently, Republicans may allow the federal top-up to lapse on the theory it will encourage workers to accept lower wages. If deaths are still high or even rising, and the economy is still in government-ordered paralysis, I would hope enough votes could be found for at least another 16 weeks of funding.

Finally, we’ll need to see what changes are made to SNAP eligibility and benefits over time. SNAP is the largest and most effective anti-poverty program in the country, since it provides “cash-like” benefits to low-income workers. However, under normal conditions it has an extremely punitive eligibility structure: low-income people who are out of work (or work less than 20 hours per week) are only eligible for 3 months of benefits every 3 years. That restriction has been suspended for now, so unemployed people can receive benefits without working during the crisis. As with unemployment insurance, the political battle to allow benefits to continue to flow will depend in large part on the progress of the struggle against the virus and the state of the economy.

Long-term: temporary, semi-permanent, and permanent changes

Here are just a few of the long-term possibilities I see emerging from the present moment. They aren’t the only ones, and I’m not trying to prophesy the future, but merely suggest the kinds of changes I expect to see over the next, say, 1-5 years.

First, the CARES Act included a one-year suspension of required minimum distributions from pre-tax (“traditional”) retirement accounts. The purported logic here was that it’s “unfair” to “force people to sell” after a market crash. I say “purported” because the supposed explanation doesn’t make any sense: you don’t have to “sell” anything to make a distribution, since you can use the distribution to buy the same assets in a regular brokerage account. What is true is that you have to pay taxes on the distribution, and any future dividends and appreciation will be taxable. In other words, the RMD suspension is simply a tax cut for high-income people with large IRA and 401(k) balances. After enjoying their one-year suspension, there’s going to be enormous pressure from this powerful constituency to continue it, on a temporary or permanent basis. In 2021, they’ll argue that the markets haven’t recovered to their previous peak. In 2022, they’ll argue that while the nominal value has recovered, that’s not taking inflation into account. In 2023, they’ll argue that really they shouldn’t be forced to make withdrawals until the market recovers to its previous trendline. And finally, 4, 5, or 6 years from now, they’ll argue that they made financial plans based on the suspension of RMD’s and they would have invested differently if they thought the suspension would ever really end, so it’s unfair to start requiring them now. Trust me: this is how rich people think.

Second, on a more hopeful note, tens of millions of formerly middle-class people are encountering the welfare state for the first time, and it’s hopefully making an impression. On the plus side, new Medicaid enrollees are going to discover how much better it is than their employer-based insurance: no premiums, no co-pays, no deductibles, and comprehensive dental and optical coverage. It’s hard to imagine many of them wanting to go back, which will hopefully create additional pressure for Medicaid for All, or at least an optional Medicaid buy-in for employers. On the negative side, people are discovering that the back-end systems which process welfare claims have been starved of resources for decades (something the poor could have told them, if it ever occurred to them to ask). Hopefully that will lead to some kind of consensus for modernization and streamlining. For example, my state uses three different, totally independent systems to process Medicaid, SNAP, and unemployment insurance enrollment, even though the exact same information is required for all three programs.

Finally, brand new programs have been introduced on a temporary basis, and workers have had the chance to experience what a fully-functioning welfare state might look like. For example, the Families First Coronavirus Response Act introduced workers to the idea of paid family and medical leave for the first time, on a temporary and limited basis: it primarily benefits workers who are forced to stay home to care for a child whose school or childcare center has been closed due to the plague. But there’s obviously nothing special about the coronavirus in this respect: people have to stay home to care for children for all sorts of reasons, and some people will surely come to realize paid family and medical leave needs to be a permanent fixture covering a much broader range of life events. Obviously not everyone caring for a child at home is going to become a paid leave advocate, but equally obviously some of them will.

Conclusion

Reading over the above, I realize that I might come across as optimistic, which is totally wrong. The virus is deadly, the pandemic is severe, and I am not at all optimistic that we will have effective treatments or a vaccine anytime soon. I am not optimistic that the virus will recede during the summer, and if it does I am not optimistic it will not surge back into an unprepared population in the fall. If Democrats win the Senate and presidency in November, I am not optimistic that Republicans will not sabotage virus preparedness in order to increase the death toll. In fact, I am certain they will.

But what I am is hopeful. I think people eventually respond, sometimes frustratingly slowly, to their material conditions, and the plague has exposed to more people than ever a rot in our material conditions that was allowed to fester too long. The urge to slap a coat of whitewash on the rot will be incredibly strong, there will be enormous, well-funded political pressure to do so, and it’s certainly possible that we succumb to it.

So I am not optimistic, but I am hopeful.

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