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Could FFCRA crush small and medium business?

Rabby

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The Families First Coronavirus Response Act (FFCRA) has quite a few parts. The part that got me thinking is the DOL's poster of employee rights under the act. We're all apparently required by law to supply this poster to employees, including remote workers. All of the costs appear to be borne by small to mid-sized employers. Now, there is an unspecified (not yet defined by DOL) limited exemption for businesses with fewer than 25 employees. But if you don't fall under that exemption, you could be forced to pay people for months while they sit at home, healthy, with their kids who are out of school.

Does anyone have insight into why this act only applies to employers with fewer than 500 employees? They are required to provide up to 14 weeks paid sick leave, even if employees are not sick. Just having their kids home from school appears to be enough, if they can claim they are unable to "telework" (aside: this is the dumbest new vocabulary word I've seen in a while). And you can't let people go or reduce their pay (other than what's defined in the act) for reasons related to the act or virus. So if you had over 25 (I've also seen the number 50) employees but would also be bankrupted by this act, you don't really have any recourse. I think there's some kind of tax credit, but by the time that comes around maybe your business is dead and there are no jobs for your 100 employees to come back from, after sitting in a house with their kids for 14 weeks. Can a business afford to pay their entire workforce for 14 weeks without them producing anything? Everyone is out for 14 weeks and you have to pay them. The word "rights" starts to sound like a weapon, doesn't it? If you've built an asset that employs 100, 200 people, "rights" means we're going to take away from you and grant a benefit to someone else, using your asset, even if it has to be liquidated. Are "rights" being protected, or are one groups assets being liquidated for another group's short-term benefit?

I'll interject here that I think it's a rosy idea for people to enjoy time with their kids, be safe in a house, not get coronavirus, get free money (if anything was ever really free), and all kinds of wonderful Candyland stuff. Wow! Rainbows and sparkles! I get it. It's "nice." It's "safe." But at the same time, I wonder if the cost could be to wipe out a large part of the middle-market businesses. Maybe we really will have 30% unemployment, or more (as per James Bullard's prediction). Maybe GDP really will drop by 50%. Something like this might be able to make that happen, depending on how it's abused, and how it's enforced. And if that does happen, we can only hope the resulting famine is mostly confined to the US. If you want to 10x (or even better!) the death toll from coronavirus, I can't think of a better way to do it than wiping out the small and medium enterprises. You could put the whole population into poverty that way. No middle class. No lower class. Just a return to serfdom, to 476 AD.

I haven't seen anything that imposes these same costs on larger companies, with over 500 employees. I find this mind-boggling. They have FMLA, but that's largely job-protected unpaid leave. Is there some equivalent for them that makes them lose 20% of their capital effective immediately? 14 weeks is 27% of the year. Two weeks at 100% pay. 12 weeks at 66.75% pay. Do the big companies just get a free bailout while small business pays its own way (and isn't given the autonomy to decide how to do that), or do they have some other costs being legislated on them?

I would love to hear from someone who has actually digested this bill. What do you think are the economic consequences in a worst case scenario? What might actually happen instead. There are probably several things I do not understand about this legislation. Perhaps there is some provision I am not aware of, which prevents the destruction of small to medium enterprises. Tell me that too, if you know about it. It will make me feel better.

Are the forgivable payroll loans limitless, so that if I have to pay $4,000,000 in labor costs while everyone is on sick kid-sitting leave, I can do that with no problems? And everyone will get loans? The river will never run dry?

Will workers who receive notification of their new "rights" (benefits) be universally ethical and understand that it's in their best interest to work with their employer, rather than bankrupt them? Will small/mid manufacturing businesses that can't make any use of remote workers survive somehow?

I conjecture I might also hear from someone who says "you heartless bastard, we're helping families here! Families!" And in case I do get comments like that, I'll just answer them right now. You need to understand logically what I've written above. Logically, not emotionally I'm talking about the potential economic consequences of a law that was passed. Economic consequences kill people, and put them in poverty, and in some cases bring about the failure of nations. I don't know whether this one is at that level or not. But if it significantly impacts SMBs, it could be. So think about that before making the emotional plea. Everyone is "families." And everyone starves, and all the medical facilities go away, and all the products go away, if we crash the whole economy somehow. Families can have employment and food, or families can try (many times in vain) to survive an economic cataclysm worse than the Great Depression. Our ability to think rationally about legislation like this may be the only thing that can swing those probabilities in the right direction.
 
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Rabby

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Also... I just wanted to say "sorry" for the doom and gloom parts. I think we can make things work, especially in the US where we tend to be pretty good business survivors. But I don't think laws like this should just be left alone, with nobody figuring out what they mean for us 6 months to 1 year in the future. Right now, nobody seems to be analysing that.
 

Rabby

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I'm not the only one watching these bills and trying to figure out what the consequences might be:

There is no more politics of fiscal prudence in America, just a competition to see who can wag the biggest firehose. While the bodies begin to pile up in New York City and elsewhere, Washington has responded with a massive course of experimental economics. May we respond better than rats in a cage.

From How Much Is $2.3 Trillion? More Than Even Obama Could Imagine

Still, nothing written about the provision putting costs directly on smaller employers. This is about costs that are spread across all citizens.
 

Jon L

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Briefly reading through the Wikipedia article you posted, the expense of this is compensated by a dollar for dollar reduction in the payroll tax. That's 7% right? Not sure how the math works but it sounds like most of the cost of this will be paid for by the treasury dept. If I understand that part, Treasury will 'print' money to pay for it.
 
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Rabby

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Briefly reading through the Wikipedia article you posted, the expense of this is compensated by a dollar for dollar reduction in the payroll tax. That's 7% right? Not sure how the math works but it sounds like most of the cost of this will be paid for by the treasury dept. If I understand that part, Treasury will 'print' money to pay for it.

I'm not sure exactly how it's supposed to work. Payroll tax is only a fraction of what you pay an employee. So if that's the only way they get paid back, they'll have an upfront cost which is slowly paid back over the course of 200 weeks afterward, in the form of lower taxes.

I guess what's really going on is they don't want people filing for unemployment. The unemployment numbers scare people, so they want to make small businesses the new unemployment department so they don't have to report it as "unemployment."

Meanwhile, these businesses have to bear the cost, and the cashflow problems, and the administrative burden of, being a secret unemployment department.

I hope the disaster loans will be enough to cover this, at least. If not, a business with 100 employees might pay out $500,000 in the next 14 weeks. Meanwhile they would have no income, and it might not be safe to hire new workers, because those workers could immediately take 14 weeks leave on Day 1. Then the company would have to wait 200 weeks (close to 4 years) to recover that cost as a slight reduction in taxes for each paycheck. If their business shrunk to half its size after the pandemic, it would take them 8 years to recover the costs that way. Doesn't seem feasible.
 

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