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The Long-Run Fiscal and Economic Effects of the CARES Act

PWBM estimates that the CARES Act increases GDP by about 5 percent in 2020 while lowering GDP by 0.2 percent in 2030.

The Precarious Position of Pennsylvania Healthcare Providers

We report results from a survey of Pennsylvania physicians, finding that more than half report large decreases in hours worked for staff in their workplaces and 44 percent anticipate their income to decrease by more than half. We estimate PA doctors could lose $6 billion in income during 2020 Q3, with 45 percent of those in private practice anticipating shutting down within the next six months.

Short-Term Economic Effects of a “Phase 4” Infrastructure Response to Coronavirus

We estimate that a large infrastructure bill would increase GDP by no more than $360 billion per year for 2020 and 2021. Short-run GDP expansion from new infrastructure spending is limited by available projects and likely social distancing measures, and so states could not absorb more than $300 billion per year in new federal aid over the next two years.

Small Business and Coronavirus Relief

In an attempt to prevent and reverse layoffs due to coronavirus, the recently-passed CARES Act established a new lending program targeted at businesses with 500 or fewer employees. These businesses account for 99.7 percent of all firms, 47.3 percent of employment, 40.7 percent of annual payroll, and about one-third of the growth in employment and wages. These businesses also account for 60 percent of employment in the leisure and hospitality sector, which has been disproportionately harmed by the pandemic’s effects.

Lasting Macroeconomic Impacts of the Coronavirus Crisis, Absent Fiscal Policy Response

We estimate the lasting macroeconomic effects of the anticipated recession due to coronavirus, as the initial shock leads to lower federal revenue and higher debt. If the economy recovers the year after a deep recession ("V shape"), we project that federal debt will be 3.2 percent higher and GDP will be 0.3 percent lower by 2030. If the recovery occurs over two additional years (“U shape”), federal debt rises by 5.9 percent and GDP falls by 0.6 percent lower by 2030. Barring future fiscal policy to reduce debt, so-called “potential GDP” will, therefore, be permanently lower due to the coronavirus.

New Charitable Deduction in the CARES Act: Budgetary and Distributional Analysis

The CARES Act establishes a new, temporary charitable deduction (limited to $300) in tax year 2020 for taxpayers who claim the standard deduction. PWBM projects that this provision would cost about $2 billion and would have little effect on total donations. More than half (53 percent) of the benefit would accrue to families in the 60th to 90th percentiles of the income distribution.

Continuation of Low Oil Prices Would Hinder Investment and Growth in 2020

If oil prices remain at current levels through the end of 2020, we estimate that growth in business investment will be 1.9 percentage points lower and growth in GDP will be 0.25 percentage points lower in 2020.

The Demographics of the Coronavirus Crisis: Living Arrangements of “Leisure and Hospitality” Workers