Coronavirus

Here's Why Rep. Justin Amash Opposes the CARES Act

The libertarian-leaning congressman says the Paycheck Protection Program for small businesses discriminates against those that most need it.

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Save for the typical legislative scuffles, consensus around the Coronavirus Aid, Relief, and Economic Security (CARES) Act, meant to help Americans struggling amid COVID-19 shutdowns, has been overwhelmingly bipartisan. Rep. Justin Amash (I–Mich.) is one of the rare exceptions.

"As I said before and after I voted no on the last coronavirus bill, it was never designed to work," he tweeted on Monday. "The approach is inefficient and fundamentally flawed."

Amash's recent criticism primarily focuses on the shortfalls of the Paycheck Protection Program, which launched on April 3 and ran out of $349 billion in funding just shy of two weeks later. The Senate voted Tuesday to funnel an additional $320 billion to the program, though the libertarian-leaning Amash says there are other issues with the legislation that extend beyond how quickly it ran out of money. 

He is particularly concerned with the exclusive loan terms developed by large lending institutions, as they have given larger companies with stronger banking connections access to loans before smaller, independent businesses. Several banks, for instance, initially opted to decline applications from would-be borrowers if the company didn't have a lending history with that institution. After a backlash, Bank of America reversed that policy but continued to reject applicants who had any lending history with another bank. 

That system allowed businesses like Shake Shack, the fast-casual burger chain with thousands of employees, to secure a $10 million dollar federal loan while small businesses were told the money had run out. (To Shake Shack's credit, it decided to give the loan back.)

"By capping PPP and having banks decide which businesses get funds, Congress and the White House created a system in which businesses with strong banking connections are getting easier access to funds while other businesses are shut out," Amash said. "But the businesses that aren't favored by banks are less likely to have access to loans outside of PPP, which means those businesses—the ones that are having the most trouble getting PPP funds—may be the ones that most need access to it."

That's precisely what happened with Shake Shack, which qualified for the Paycheck Protection Program under an exception that hotel and restaurant chains may apply if they employ less than 500 people per physical location. The restaurant received the capital it needed from an equity transaction on the market, prompting management to return the government loan.

Amash also criticized the bill's requirement that loans may only be forgiven if the business uses 75 percent of it on payroll expenses. As I've previously written, that's a lot to ask of small companies who have overhead costs to pay beyond payroll despite having no customers, no revenue, and in many cases, little cash set aside. What's more, the unemployment benefits created by the CARES Act—an additional $600 a month on top of state benefits—have proved more attractive to some workers than remaining employed. Employers must return to their pre-coronavirus employment levels by June 30, 2020, to have their loan forgiven—a task that may prove difficult if the government is paying their staff to stay home.

The Paycheck Protection Program should stop "penaliz[ing] small businesses that find they're unable to rehire employees because newly enhanced unemployment insurance benefits during the pandemic are bigger than workers' paychecks would be," Amash wrote. "Without fixes to the program, many small businesses will continue not to benefit from PPP, and we'll be talking again about the ongoing failings of the program in the coming weeks.

The congressman has also railed against the CARES Act's $500 billion loan for corporations, which he characterized as welfare for big businesses.

"Neither Congress nor the Treasury secretary should be picking winners and losers. Corporate welfare is not only unjust but also reflects government conceit," said Amash. "Only consumers, not politicians, can appropriately determine which companies deserve to succeed."

Coronavirus Justin Amash Stimulus Business and Industry Small Business Government Spending