The $1.9tn Covid-19 relief package Joe Biden signed into law last week has been alternatively hailed and condemned as a singularly progressive piece of stimulus legislation.
As well as replenishing state and school budgets, it boosts child tax credits, assistance for renters and food aid, in an effort to help people in “pockets of misery”, according to US Treasury secretary Janet Yellen.
Relatively little goes to big businesses: the $14bn allocated to airlines is less than 1 per cent of the package, while the $29bn targeted at restaurants and bars caps the total that any individual company can receive at $10m. Despite all this, the legislation has been broadly welcomed by some of the biggest US companies and lobby groups.
The bottom-up design of Biden’s American Rescue Plan Act stands in stark contrast to last year’s Cares Act, which offered $500bn in support for big companies alongside direct payments to individuals and expanded unemployment benefits.
That “trickle-down” model was also evident in 2008 when Congress bailed out banks, insurers and carmakers, and after the 9/11 attacks of 2001 when Congress targeted support at airlines.
“Obviously corporations would benefit from direct money going to them as opposed to this trickle-up,” said RA Farrokhnia, professor at Columbia Business School.
No House or Senate Republican supported the package, but chief executives on both sides of the political divide have lent the latest stimulus their support.
More than 150 executives, including the heads of BlackRock, Blackstone and Goldman Sachs, wrote to Congress in February to back the package, and the head of the Business Roundtable described the lobby group as being “strongly supportive” of much of it.
When the Yale School of Management professor Jeffrey Sonnenfeld polled 80 chief executives last week, 71 per cent endorsed the stimulus — close to the level of support pollsters have found in the wider population. Surveys from the National Association of Manufacturers and others show CEO confidence is recovering at striking speed.
Beyond direct recipients of stimulus funds such as airlines, several companies have said they expect to benefit indirectly, either because they supply those recipients, because the stimulus will help their own suppliers, or simply because consumers will have more money to spend.
On recent conference calls, air conditioner manufacturers such as Honeywell and Carrier Global predicted that the funds the package provides for improving air quality in schools would create sales opportunities.
Technology groups have similarly pointed to the $1bn the act provides for modernising government agencies’ cyber security defences. And Pernod Ricard, the drinks group, has been among the suppliers to restaurants voicing hopes that they will now have the money to restock.
Industry groups have cited the $10bn in funding for the State Small Business Credit Initiative as a key reason for their support, as it offers relief for critical suppliers to larger companies.
By far the most commonly cited explanation for business support, however, is the prospect that the $1,400 direct payments now being sent to Americans earning $75,000 a year or less will soon be spent on companies’ products.
“When stimulus cheques hit, you immediately get the impact,” Visa’s chief financial officer, Vasant Prabhu, told a conference last week, highlighting the spike in debit card spending that occurred when an earlier round of funds was distributed in January.
Companies from Dollar Tree, the discount retailer, to Marriott, the hotelier, and Curaleaf, the cannabis dispensary operator, have told investors in recent days that they expect a sales boost.
Their optimism has grown in part because some people did not spend the money they received in earlier rounds of Covid-19 stimulus and instead added it to their savings accounts. If virus trends continue to improve and the vaccine rollout goes smoothly, that might mean the consumer is on the verge of a pent-up spending spree.
“I never imagined that we’d be sitting here today with a consumer that is sitting on $1.8tn of excess savings,” Albertson’s chief executive Vivek Sankaran admitted to analysts.
For Farrokhnia, the Columbia professor, the unique combination of an economic crisis and a health crisis has made it hard for big business to oppose Covid-19 relief. Headlines last year about healthy public companies applying for loans which struggling smaller companies needed more also “created bad press”, he noted.
In that context, any CEO coming out against the latest stimulus “would have seemed not only greedy but also would have been perceived as standing against all these other programmes that are meant to provide benefit for children and so on,” Farrokhnia observed.
For Sonnenfeld, chief executives’ support can be explained partly because they “appreciate that most legislation is an imperfect compromise — even great legislation”.
Amount in plan targeted at helping restaurants and bars
Josh Bolten, CEO of the Business Roundtable, said the lobby group had issues with some elements of the package but “we didn’t have a chance to carve the bill the way we wanted to”.
One early proposal which business opposed was carved out of the bill before it became an act, however: a doubling of the federal minimum wage to $15 an hour.
Whether corporate America’s cautious support for this “trickle-up” relief package represents a shift in a boardroom consensus that has endured since Ronald Reagan’s presidency is still unclear.
Almost two-thirds of the CEOs Yale polled said the American Relief Plan had gone too far, echoing complaints from the US Chamber of Commerce that the size of the package left less money for other priorities, including infrastructure spending. Business is now also gearing up to fight any increase in corporate taxes.
But Farrokhnia said the politics of business-first stimulus packages have changed.
“There will be financial crises in which the best course of action would be to give direct money to large corporations,” he said. “But I suspect there would be more popular resistance. It certainly would give politicians cause for pause.”