Congress Should Depoliticize Coronavirus Relief | Citizens Against Government Waste

Congress Should Depoliticize Coronavirus Relief

The WasteWatcher

Thousands of small businesses and millions of employees are at risk of being harmed by outdated government regulations on “affiliated” companies, which could deny them access to the Payroll Protection Program (PPP) enacted by Congress in the CARES Act.

While the issue at hand is somewhat complex, the impact is simple. Companies affiliated with investors are not eligible for CARES Act relief if those investors employ more than 500 employees nationwide. This is true even if an individual business retains their employees and follows the same rules as every other small business in the country. This exclusion will harm companies like W Energy Partners LLC in North Dakota, which employs seven workers and acquires acreage and wells in the Williston Basin, to 328 employees at Commerce Hub in Albany, New York, a leading cloud-based software provider for e-commerce shipments. Small businesses like these employ millions of workers around the country, and there is no sound policy reason that any of them should be excluded from relief.

As noted in an April 7, 2020 letter signed by ten fiscally conservative organizations including Citizens Against Government Waste (CAGW), the failure “to protect a subset of small businesses for political reasons could threaten tens of thousands of jobs.”  This discrimination “against investor-backed businesses” is a result of “using the crisis of COVID-19 to punish investors and private businesses … for political purposes.”  The exclusion of these businesses “could result in thousands of businesses laying off workers of closing their doors altogether.”

The letter urged the Small Business Administration to waive the affiliation rules for all businesses to “ensure a level playing field” and for Congress to permanently reform the affiliation rules in future legislation.  Members of Congress in both parties have also pushed for the SBA to provide relief.  Unfortunately, those who support the discriminatory provisions in the CARES Act and oppose SBA rule changes are following in the path of Senator Elizabeth Warren (D-Mass.), who introduced legislation in July 2019 that would harm millions of investor-supported workers.

As Andy Pudzer’s December 15, 2019 Wall Street Journal op-ed noted, the senator’s “Stop Wall Street Looting Act,” S. 2155, would impose a number of onerous mandates on private investors that that would tie up capital and reduce investors’ returns, thereby reducing incentives to take risks and invest.

The U.S. Chamber of Commerce analyzed her legislation and “found that returns from private-equity firms ‘typically outperform other investments.’”  Opponents of capitalism like Sen. Warren like to point to failures rather than successes, including the Toys “R” Us bankruptcy, which went under like many other retailers have been doing and will continue to do because of competition from discount stores and online retailers.  The non-private equity companies that go broke for the same reasons are not subject to the senator’s vilification.

As the Chamber’s report noted, “PE funds have long played a major role in the development of a broad range of companies, which employ 8.8 million people across the United States, including several hundred thousand people across every state, such as Hilton Hotels, Popeyes, Uber, Airbnb, Dollar General, Dunkin Donuts, Jiffy Lube, LA Fitness, Tate’s Bake Shop, Beats Electronics, The Nature’s Bounty, and McGraw-Hill Education.”  The Chamber calculated that “the multiplier effects” of PE firms and PE-backed companies “support over 26 million jobs and contribute over $475 billion in annual Federal and state/local tax revenues.”  

The investments made by private equity funds make substantial contributions to public retirement systems in states like California and New York, as well as other funds like the Massachusetts Pension Reserve Investment Management Board.

 In other words, the very people that Sen. Warren and her supporters in the crusade against private equity claim to be helping, including workers at companies like Dunkin Donuts, Jiffy Lube, and Popeyes, along with retired janitors, teachers, and state and local workers, would all be hurt if her legislation was to become law.  

The Chamber report concluded that the enactment of Sen. Warren’s legislation would “be so impactful that … even in a modest-case scenario, the country’s workforce would be reduced by approximately 6 million jobs, and combined federal, state, and local tax revenues would drop by approximately $109 billion per year in the long run.”  

There is never a good time to inflict economic pain on workers for political purposes, but to do so during a crisis like COVID-19 is especially troubling.  Simply put, policymakers should not be in the business of picking winners and losers among small businesses.  They should seek broad-based relief for everyone.  

A good start to level the playing field would allow the millions of workers at “affiliated” small businesses to be eligible for CARES Act relief just like the millions of workers at other small businesses.  And as America emerges from the COVID-19 crisis, discriminating against any company and its employees based on the form of ownership should be rejected out of hand.



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