August 12, 2020

Trump’s Payroll Tax Holiday Order Gives Employers a New Dilemma

“Since employees must still pay those taxes next year, this order is really an offer of a zero-interest loan rather than an actual reduction in tax liability,” said Michael Feroli, economist at J.P. Morgan. “It remains quite unclear whether employers will actually change withholding schedules, particularly if it could lead to financial uncertainties in 2021.”

Because questions about the constitutionality of the policy persist, businesses are likely to hold off any decisions at least until the government provides additional guidance. On Monday, several large corporations declined to say what they would do, because they wanted the Trump administration to provide more details first.

“We’re awaiting guidance from the U.S. Treasury Department on the payroll tax deferral, and we’ll make decisions on implementation once that’s been provided,” said Randy Hargrove, a spokesman for Walmart, the country’s largest private employer, with 1.5 million workers.

One option some employers might consider is to withhold the tax and repay workers later if it is eventually forgiven. But that would defeat the purpose of stimulating the economy now, when it could use the help.

If businesses are reluctant to reduce withholding because they may be liable to pay the tax later, they “might escrow the withheld amounts rather than pay the Treasury, and assure their employees that if the payroll tax liability is eventually forgiven by an act of Congress, the business would cut the appropriate check to their employees,” said Itai Grinberg, an international tax policy professor at Georgetown University Law Center.

Payroll experts said many businesses would be hesitant to do anything until they had assurances from Congress that they and their employees wouldn’t have to make good on the deferred taxes next year.

“It’s a little bit of a risk that Congress may not act, and if you’re deferring a significant amount of taxes the reality is, a few months later, you’re going to have to come up with that cash and pay those taxes,” said Pete Isberg, vice president of government relations for ADP, a payroll specialist that serves more than 800,000 businesses.

Article source: https://www.nytimes.com/2020/08/10/business/economy/trump-payroll-tax-holiday.html

Start-Ups Braced for the Worst. The Worst Never Came.

Demand has surged for start-ups that offer virtual learning, telehealth, e-commerce, video games and streaming, and software for remote workers. Start-ups in areas like fitness or children’s activities also quickly adapted their offerings to go virtual.

That doesn’t mean tech start-ups have escaped unscathed. Some — like those providing travel services, restaurant software or tickets to events — watched revenue disappear. Stay Alfred, a luxury hospitality start-up in Washington, recently began winding down its operations, blaming the virus. ScaleFactor, an accounting start-up in Texas, and Stockwell, an office vending machine start-up that was previously known as Bodega, did the same.

But over all, the money has continued flowing. Start-ups in the United States raised $34.3 billion in the second quarter, down slightly from $36 billion a year earlier, according to PitchBook and the National Venture Capital Association. Much of the financing went to the largest companies, with the number of “mega-rounds” (deals larger than $100 million) on a pace to top last year’s total.

“People are trying to focus on who they believe the winners are, on companies that have pivoted successfully to meet the new norm,” said Heather Gates, a managing director at Deloitte who advises start-ups.

Across Silicon Valley, the start-up panic began dissipating around May. That was when layoffs slowed to a trickle, according to Layoffs.fyi, a site that tracks start-up layoffs. Just 5 percent of the hundreds of companies that did layoffs went out of business, according to the site.

Hiring is now picking back up. Job openings posted to a network run by Drafted, a recruiting company, increased 30 percent in the last month, said Vinayak Ranade, its chief executive.

Article source: https://www.nytimes.com/2020/08/10/technology/start-ups-pandemic-silicon-valley.html

Trump’s Orders on Coronavirus Relief Create Confusion

But there was some acknowledgment that the measures could face legal challenges and were not as potent as congressional action.

A number of critical provisions are also left unaddressed without a broader deal, including a lapsed federal program for small businesses, another round of stimulus checks, aid to schools confronting the beginning of the academic year and funds for state and local governments reeling from the toll of the pandemic.

“The downside of executive orders is you can’t address some of the small business incidents that are there,” Mark Meadows, the White House chief of staff, said in a pretaped interview that aired Sunday on Gray Television. “You can’t necessarily get direct payments, because it has to do with appropriations. That’s something that the president doesn’t have the ability to do.”

The White House lawyers had been crafting the executive actions over the past two weeks. By Friday, after the talks remained at a stalemate, it became clear that they would need to move forward with the plan. Mr. Trump was eager to sign the payroll tax order on Friday evening, according to a senior administration official, but after his legal team said it was not yet ready, he opted to do so on Saturday at his Bedminster golf club.

Officials in recent days had been debating which measures to employ, with Mr. Mnuchin resistant to the payroll tax suspension and Larry Kudlow, the director of the National Economic Council, arguing in support of it, according to a senior administration official. Although White House officials believe the executive actions have given Mr. Trump the upper hand, his advisers continue to say that more support for schools and another round of stimulus checks are needed to keep the economic recovery on track.

Among the most complicated measures is the president’s intention to revive lapsed weekly federal unemployment payments of $600 through the repurposing of other federal funds, including from a pot of disaster relief aid, to create a $400-a-week bonus payment. That payment, however, is contingent on states providing $100 per week and establishing an entirely new program — called a “lost wages assistance program” — to distribute the aid.

But states are also facing plunging revenues because of the pandemic. They have already struggled to allocate the original $600 payment because of overwhelmed and often antiquated systems, and some experts warn that the revised benefit could last for only five weeks.

Article source: https://www.nytimes.com/2020/08/09/us/politics/trump-stimulus-bill-coronavirus.html

Administration Officials Defend Executive Action on Pandemic Relief

A number of critical provisions are also left unaddressed without a broader deal, including a lapsed federal program for small businesses, another round of stimulus checks, aid to schools confronting the beginning of the academic year and funds for state and local governments reeling from the toll of the pandemic.

“The downside of executive orders is you can’t address some of the small business incidents that are there,” Mark Meadows, the White House chief of staff, said in a pretaped interview that aired Sunday on Gray Television. “You can’t necessarily get direct payments, because it has to do with appropriations. That’s something that the president doesn’t have the ability to do. So you miss on those two key areas. You miss on money for schools. You miss on any funding for state and local revenue needs that may be out there.”

The White House lawyers had been crafting the executive actions over the past two weeks. By Friday, after the talks remained at a stalemate, it became clear that they would need to move forward with the plan. Mr. Trump was eager to sign the payroll tax order on Friday evening, according to a senior administration official, but after his legal team said it was not yet ready, he opted to do so on Saturday at his Bedminster golf club.

Officials in recent days had been debating which measures to employ, with Mr. Mnuchin resistant to the payroll tax suspension and Mr. Kudlow arguing in support of it, according to a senior administration official. Although White House officials believe the executive actions have given Mr. Trump the upper hand, his advisers continue to say that more support for schools and another round of stimulus checks are needed to keep the economic recovery on track.

Among the most complicated measures is the president’s intention to revive lapsed weekly federal unemployment payments of $600 through the repurposing of other federal funds, including from a pot of disaster relief aid, to create a $400-a-week bonus payment. That payment, however, is contingent on states providing $100 per week and establishing an entirely new program — called a “lost wages assistance program” — to distribute the aid.

But states are also facing plunging revenues because of the pandemic. They have already struggled to allocate the original $600 payment because of overwhelmed and often antiquated systems, and some experts warn that the revised benefit could last for only five weeks.

Mr. Trump went golfing on Saturday with Sen. Lindsey Graham, Republican of South Carolina, who had tried to nudge the president toward higher weekly subsidies to supplant lost income. Mr. Trump joked that they would simply have to run the printing presses faster to make up the additional amount it would cost, a person familiar with the discussion said.

Article source: https://www.nytimes.com/2020/08/09/us/politics/trump-stimulus-bill-coronavirus.html

Without $600 Weekly Benefit, Unemployed Face Bleak Choices

As a result, families are being forced to make decisions with lasting consequences.

When Jason Depretis and his fiancée lost their Florida restaurant jobs in early March, they started falling behind on their rent and their car payment. The $600 unemployment supplement was a lifeline, allowing them to hold on to their home and their car. But on July 28, that lifeline snapped: The repo man showed up for the car on the day that their landlord delivered a three-day notice of eviction.

With the extra $600 a week, Mr. Depretis, 42, would probably have been able to pay enough to hold off both creditors. Without it, he had to choose. He paid his landlord $650 to stave off eviction, and watched the car be towed away.

But it was a terrible time to lose the car. He had found a job starting in September at a restaurant, but it is 45 minutes away, and there is no bus service that corresponds with his hours. The closest food bank is 30 minutes away, and he can’t get there without a vehicle. He said he didn’t know how he and his fiancée would put food on the table for themselves and their two children.

“Without the $600, there’s absolutely no way that my family’s going to make it,” he said.

For families like Mr. Depretis’s, even a temporary loss of income can be the start of a downward spiral, said Elizabeth Ananat, a Barnard College economist who has been studying the pandemic’s impact on low-wage workers. Wealthier families may be able to draw on savings to get through until Congress reaches a deal. But for lower-income households, even a temporary lapse in benefits can have lasting consequences. An eviction can make it hard to rent in the future. Having a car repossessed can make it hard to find another job. And for children, periods of hunger, homelessness and stress can have long-term effects on development and learning.

“Children cannot smooth their eating over the year,” Ms. Ananat said. “Families that do not have access to credit cannot smooth their food, their electricity, any of their necessities.”

Many Republicans argue that the extra benefits were keeping recipients from looking for work, especially because many were getting more on unemployment than they had made on the job. Business owners have complained that they are struggling to fill positions.

But several studies have found no evidence that the supplement was discouraging job hunting, and many workers appear to be accepting jobs even when the pay is less than their unemployment benefits. And by injecting billions of dollars into the economy each week, the benefits almost certainly prevented even more layoffs.

Article source: https://www.nytimes.com/2020/08/08/business/economy/lost-unemployment-benefits.html

Trump’s Orders on WeChat and TikTok Are Uncertain. That May Be the Point.

A spokesman for Tencent, the parent company of WeChat, which is widely used in China and around the world as a messaging and payments app, said it was “reviewing the executive order to get a full understanding.”

The Trump administration has steadily ramped up its actions in a broader economic and geopolitical fight with China, starting with a trade war that put tariffs on hundreds of billions of dollars of Chinese products in 2018 and 2019. It also introduced restrictions on other kinds of Chinese technology, including clamping down on exports to the Chinese telecom giant Huawei.

The sudden, vaguely worded order from the White House on Thursday night, which came without further explanation or a media briefing, followed a familiar model for some of the other policy announcements on China from the Trump administration. Many have left multinational companies in suspense for days or weeks about the specifics.

With policy moves like tariffs and export controls, the Trump administration wielded uncertainty as a source of leverage, using it to frighten companies into compliance and leaving themselves room to back down or escalate the situation.

The executive orders on WeChat and TikTok leave the determination of what constitutes a “transaction” up to the secretary of commerce, Wilbur Ross. According to the language of the orders, Mr. Ross will make that determination in 45 days, meaning it would not be clear to businesses what will be included in the ban until it actually goes into effect.

“It may be that it’s won’t be nearly as bad as people might fear,” said Jason M. Waite, a partner at the law firm Alston Bird, adding that the administration might discover legal or practical concerns with putting the order in place in the interim. “It is a 45-day surprise.”

People familiar with the deliberations said administration officials clearly intended to target the presence of WeChat and TikTok on the Google and Apple app stores, cutting off downloads and updates for the Chinese apps. It is unclear if the restrictions could affect other parts of the Chinese companies’ sprawling portfolios and business dealings, particularly for Tencent.

Article source: https://www.nytimes.com/2020/08/07/business/economy/trump-executive-order-tiktok-wechat.html

Millions of Evictions Are a Sharper Threat as Government Support Ends

Just as important as those protections were the federal unemployment and stimulus payments. After all, most renters do not have eviction problems if they stay current on their bills, and with help from the $1,200 stimulus payments and $600 in extended unemployment that came with the CARES Act, many of them have.

Benjamin Schenk, a San Diego landlord who operates 30 units in two buildings, is one of the many property owners who have been surprised by the high number of tenants paying their rent in the early months of the pandemic. In March he was talking with his lenders about how he might restructure his loans in anticipation of nonpayments, only to make it to August with payment rates close to 100 percent, which he attributes to the CARES Act.

But people are now falling behind. Though it will take until mid-month to get a true sense of how bad August will be, several tenants who lost their jobs stopped paying rent in the first few days. “The aid that folks are relying on has dried up and not a lot of places are hiring,” Mr. Schenk said.

While there’s no comprehensive data on rent payments, a weekly tracker from the National Multifamily Housing Council that covers about 11 million units has started slipping. In the Census Bureau’s most recent Pulse Survey, for the week of July 16 to 21, just under one in five renters said they were unable to pay July’s rent on time, while one in three were unsure they could make August payments.

The threat to small landlords is also a threat to tenants. About 40 percent of the nation’s 48.2 million rental units are owned by “mom-and-pop” operators who tend to have a limited financial cushion. Since much of the nation’s affordable housing consists of small apartment buildings and single-family homes if these smaller landlords go under many of their units could be “lost.” Some would become owner-occupied housing. Others will get acquired by larger investors who plan renovations and rent increases — compounding a longstanding affordable housing shortage.

Evictions, meted out by local courts, are difficult to tally nationwide. For now, new filings are depressed compared with historical averages, according to a survey of a dozen cities by Princeton University’s Eviction Lab. But they have resumed around the country, and are likely to grow.

There is a difference between an eviction filing, which is the start of a legal process, and an actual eviction, in which a tenant is removed. According to Eviction Lab, there were 3.7 million such filings in 2016, about one million of which led to an eviction — a figure that undercounts displacement.

Article source: https://www.nytimes.com/2020/08/07/business/economy/housing-economy-eviction-renters.html

Why Black Workers Will Hurt the Most if Congress Doesn’t Extend Jobless Benefits

The same pattern has persisted in heavily state-controlled programs like welfare: The larger a state’s Black population, the less generous its benefits.

“Yesterday’s racist system becomes today’s incidental structural racism,” said Kathryn Edwards, an economist at the RAND Corporation.

She has found that the geographic concentration of Black workers in stingier states means that the average maximum unemployment benefit a Black worker in America can receive per week is about $40 less than the average maximum benefit a white worker can get. That number might sound small, but Ms. Edwards points out that it adds up over 26 weeks of unemployment to a median rent payment in many states, or nearly the size of a $1,200 pandemic stimulus check.

If policymakers wanted to reduce racial disparities in what seem like race-neutral unemployment programs, William Spriggs, a Howard University economist, said they would want to do precisely the two things Congress did: expand the categories of covered workers, and increase the benefits they receive.

“What I did not anticipate fully and was shocked by,” Mr. Spriggs said, “was the South is also bad about running these programs.”

The most complicated part of the federal expansion was the entirely new program, called Pandemic Unemployment Assistance, meant for workers who wouldn’t normally qualify for state unemployment. This is the benefit that covers Uber drivers, self-employed hair stylists, and tipped servers or part-time retail workers whose reported earnings were too low to qualify normally.

Georgia and Florida were among the last states to begin making payments through that additional program (Florida’s labor force also has one of the highest shares of self-employed workers). And last week, Gov. Ron DeSantis of Florida publicly acknowledged that the state’s deeply troubled unemployment system introduced under the previous governor, Rick Scott, had been set up to frustrate workers and make as few payments as possible.

Article source: https://www.nytimes.com/2020/08/07/upshot/unemployment-benefits-racial-disparity.html

Oversight Member Blasts the Fed’s Efforts to Rescue Main Street

“Many banks seem disinterested in the program because they either wish to retain more than five percent of a profitable loan or they have no interest in retaining any stake at all in an unprofitable loan,” a group of four Republican Senators, led by Kelly Loeffler, wrote in an Aug. 4 letter to Fed Chair Jerome H. Powell and Treasury Secretary Steven Mnuchin.

The senators recommended reducing the minimum loan size and increasing the debt-to-earnings ratio allowed for borrowers. They also want the Fed and Treasury to eliminate the loan stake that banks must retain, or promise that taxpayers will take the earliest losses on bad loans rather than sharing those losses evenly with banks.

Mr. Mnuchin has resisted taking on too much risk with the program, saying at one point that he did not want to lose money on it if the economy played out as expected. While some of the program’s terms have eased, it is clear that they have not changed enough to spur its widespread use so far.

Some Fed and Treasury officials have indicated that the fact that few businesses are using the program is not necessarily a sign of failure. Boston Fed President Eric S. Rosengren, who is testifying at the commission’s hearing, has made the case that the program would be successful if it was available to help companies if a second wave of the virus erupts and credit conditions worsen.

Mr. Rosengren’s branch of the Fed is running the Main Street program. He is testifying ahead of officials from banking and business groups and a labor union.

“I would note that in addition to providing loans for borrowers in current need of funds, the program offers a credit backstop for firms that do not currently need financing, but may if the pandemic continues to erode the financial condition of these firms over late summer and fall,” Mr. Rosengren said in his prepared testimony Friday.

“We actually have seen significant pickup, recently,” Mr. Rosengrenadded.

Mr. Rosengren said that while more than $100 million in loans had actually been settled, more than $600 million in total were somewhere in the process as of Thursday night. He also pointed out that setting up a program to quickly service the bespoke private loan market at a large scale has been “inherently difficult.”

Article source: https://www.nytimes.com/2020/08/07/business/economy/federal-reserve-main-street-lending.html

Trump Reinstates Tariff on Canadian Aluminum

For months, American and Canadian officials have debated whether Canada’s rising imports violate that agreement or constitute a surge. Imports of Canadian aluminum have risen since the tariffs were lifted last year, but they remain below levels seen within the last few years.

The American aluminum industry has struggled to compete in recent years with producers in countries like China, Russia, Iceland, the United Arab Emirates and Canada that offer generous state subsidies or benefit from cheap electricity. Today, only a handful of American aluminum smelters, which make raw aluminum out of bauxite, still operate.

Supporters of the tariffs say that they have helped to revive American production, but that imports from Canada and the economic slump that accompanied the pandemic had once again thrown the industry into disarray. In April, the aluminum giant Alcoa idled a smelter in Ferndale, Wash., saying that production there was “uncompetitive.”

Two American companies with domestic aluminum capacity, Century Aluminum and Magnitude 7 Metals, have lobbied intensely for the tariffs to be reimposed. In a statement Thursday, Michael Bless, the chief executive of Century Aluminum, said the move “demonstrates this administration’s continued dedication to restoring the U.S. aluminum industry” and “helps to secure continued domestic production of this vital strategic material.”

But the rest of the aluminum industry, which has operations spread around the globe, including in Canada, has fought against the measure. The multitude of industries that use aluminum to make products including cars, beer cans and washing machines, have also argued against the levies, saying they increase their costs and make their products less competitive globally. Even Whirlpool, the appliance maker where Mr. Trump made his announcement on Thursday, has seen its costs for raw materials rise as a result of the metal levies.

In June, executives from more than 15 of the world’s largest aluminum companies, including Alcoa, Constellium and Novelis, sent a letter to the Trump administration arguing against the tariffs.

“Fully 97 percent of U.S. aluminum industry jobs are in mid-and-downstream production and processing,” the letter read. “These jobs depend on a mix of domestic and imported primary aluminum, including from countries like Canada.”

Article source: https://www.nytimes.com/2020/08/06/business/economy/trump-canadian-aluminum-tariffs.html