All told, Congress has authorized about $5.9 trillion in spending to address the social and economic fallout from the pandemic, of which $4.1 trillion has been disbursed or committed through the present, according to the Committee for a Responsible Federal Budget’s “COVID Money Tracker.” By now, more than a year into this unprecedented burst of spending, there’s sufficient hindsight to assess the federal pandemic response, and the early results bode poorly for proponents of “big government.”
Take, for example, the plight of the Small Business Administration, which operates two marquee pandemic programs. The first is the $813 billion Paycheck Protection Program (PPP), involving federal loan guarantees, set at a low interest rate (1 percent), which could be forgiven if the borrower spends a certain percentage (about two‐thirds) on payroll. The second is the $367 billion Economic Injury Disaster Loan (EIDL) program, which entails loans on favorable terms that are disbursed directly by the government. As I explain in a new Cato Legal Policy Bulletin, the SBA’s shambolic administration of these programs has jeopardized more than $260 billion in taxpayer money.
Next, consider $500 billion in state bailouts. The purpose of this spending was to head off a collapse in state budgets due to an expected decline in consumption, which in turn was supposed to cause a sharp decrease in state tax revenues. The bailout came in two phases. The first phase—$150 billion provided by the CARES Act—occurred at the outset of the pandemic, when there was true uncertainty about how the economy would endure lockdowns. But by the second phase of spending—$350 billion in the American Rescue Plan of 2021—it was clear that state revenues were doing far better than initially expected, as reported by my colleague Chris Edwards. Even Jason Furman, who chaired President Obama’s Council of Economic Advisers, said the second phase of state bailouts amounted to ‘‘overkill.”
Then there’s the joint federal‐state unemployment insurance program, which provides benefits to those who are out of work. Congress greatly expanded the program as part of its coronavirus response, and the Labor Department currently estimates that pandemic benefits will ultimately cost $873 billion. The problem is that the unemployment insurance program long has been one of the worst performing in government, and the stress of a vastly increased workload rendered its performance even worse. Last month, the Inspector General warned that the overpayment rate for pandemic benefits will be “much higher” than 10 percent, or almost $87 billion. How much higher? If California’s suspected rate (27%) applied writ large, then about $236 billion of taxpayer money would go to waste.
To recap, the federal pandemic response involves at least $350 billion in unnecessary state bailouts, perhaps $236 billion frittered away by the unemployment insurance program, and another $260 billion in potentially improper payments at the Small Business Administration. It adds up fast! To be sure, the dust is still settling when it comes to federal pandemic spending. Still, the early returns indicate that “big government” remains coterminous with “big waste.”
William Yeatman is a research fellow in the Cato Institute’s Robert A. Levy Center for Constitutional Studies.