The Senate has passed a $2.2 trillion aid bill in response to the coronavirus crisis. The bill is expected to be passed quickly by the House and signed by the president.

Members of Congress stuffed a vast array of subsidies in the 880-page legislation, ranging from $454 billion for big businesses to $25 million for the Kennedy Center in Washington, D.C.

Here are the main spending buckets:

• $454 billion to finance loans to businesses and the states.
• $46 billion in loans and grants to airlines and other specified businesses.
• $377 billion in loans and grants to small businesses.
• $290 billion in stimulus checks for all individuals below an income cutoff.
• $260 billion in expanded unemployment benefits.
• $175 billion in grants to state and local governments.
• $180 billion in health-related spending.
• $154 billion for education, agriculture, food stamps, housing, and other programs.
• $290 billion in business and individual tax cuts.

CRFB summarizes the costs here, congressional summaries of parts of the bill are here, and a Wall Street Journal summary is here.

Some of the spending is poorly targeted, such as the $1,200 stimulus checks mailed to every lower- and middle-income adult whether unemployed or not. Some of the spending could create harmful incentives, such as the $600 across-the-board boost in weekly unemployment benefits, which could encourage companies to lay off workers.

Some of the spending, such as for education and housing, is not properly federal and should have been left to the states. Much of the spending will create a bad precedent for expansive generosity, such as the airline and small business aid programs that are not loans but full cashflow and paycheck protection plans.

Much of the business aid comes with rules that micromanage company operations, such as worker pay and retention requirements and share buyback and dividend restrictions. Some of the business aid may include equity stakes, which is pure socialism. All these interventions make it easier for governments to take similar big-government actions during normal times.

Some businesses receive special treatment including airlines, farms, and defense contractors such as Boeing. As for the Kennedy Center, its wealthy patrons should be bailing it out, not taxpayers.

All the spending will strengthen the belief that the federal government always comes to the rescue. Many state and local governments have insufficient rainy day funds to deal with crises. Many businesses are heavily indebted and vulnerable to downturns. Many individuals also save too little for short-term contingencies. American society in general is too heavily leveraged—partly because the welfare state crowds out savings, partly because the tax code encourages consumption and borrowing, and partly because with each crisis the government enacts ever-larger bailouts.

When the COVID-19 health crisis is over and the economy recovers, policymakers should tackle the massive federal debt, which had already been on an unsustainable path. But it is hard to be optimistic when the last two major crises—9/11 and the 2008 financial crash—prompted vast new spending that was added to the national credit card with no plan to pay it back.

The Wall Street Journal reports:

From Boeing Co. to Verizon Communications, scores of U.S. companies and industries are furiously lobbying Congress to add measures to the Trump administration’s massive stimulus package to deal with the economic fallout of the coronavirus pandemic, some of which address issues that long predate the outbreak.…

But for some lobbyists, the package provides an opportunity to score wins for corporate clients and breathe new life into stalled policy proposals unrelated to the crisis.

That lobbying approach has taken hold in Washington in recent years as Congress has approved fewer major pieces of legislation. Each year, industry advocates try to add measures to unrelated bills that have momentum, such as must-pass annual bills to fund the federal government. Now lobbyists see the stimulus bill as an ideal piece of legislation to hitch a ride on.

It is ever thus. In February 2009 I wrote about the lobbying frenzy around the massive TARP and stimulus bills:

The $700 billion Troubled Asset Relief Program (TARP), better known as the Wall Street bailout, was cooked up mostly in secret by the Treasury Department and the Federal Reserve Board. But the bill was no sooner proposed than lobbyists started flooding Capitol Hill and the Treasury to get a piece of it.


Every company and industry wanted to be sure that it would be eligible for some of the money, and members of Congress worked to slip their constituents and campaign donors into the bill’s 451 pages. By the time it passed, it included special provisions for Puerto Rican rum producers, auto race tracks, and corporations operating in American Samoa (such as Starkist, which is headquartered in House Speaker Nancy Pelosi’s district). It required that insurance companies pay for mental health benefits and granted tax benefits for victims of the 1989 Exxon Valdez oil spill and makers of children’s wooden arrows.…


Next up is the nearly‐​trillion‐​dollar stimulus bill. Don’t expect anything different. Already senators are pushing to get their pet projects and home‐​state interests into the measure.

What can we expect? With a federal budget headed toward $5 trillion even before the extraordinary spending now being contemplated, many companies and interest groups see a profit opportunity. It’s worth hiring platoons of lobbyists to get just a small, an infinitesimal, sliver of that pie.

It’s up to Congress and the administration to keep their eye on the ball—sustaining the economy during a sudden and unprecedented shutdown—and not turn it into a Christmas tree for lobbyists.

Perhaps most important in the current circumstances is to remember that this is emergency legislation to deal with an extraordinary and unprecedented situation. It should not become a vehicle for partisan, ideological, and special-interest agendas.

A Senate Republican aide says that Democrats are pushing to insert new collective bargaining powers for unions, increased fuel emissions standards for airlines, and expansion of wind and solar tax credits into the emergency bill. Democrats retort that Republicans added a provision to extend an abstinence education program due to expire. Those are all normal policy proposals in recent years. They should not be slipped into must-pass legislation by a handful of congressional negotiators without debate in committee, on the floor, and in public.

Congress should insist on a bill narrowly tailored to address the current crisis, not another sprawling lobbyists’ spectacular.

Dr. Anthony Fauci called federal coronavirus testing “a failing” and the Wall Street Journal followed up with details on CDC and FDA blunders.

The blunders appear to have stemmed from a “government knows best” mentality that has hobbled the private-sector response. Governments tend to spin messages, erect barriers to private efforts, and act with overconfidence yet fail to deliver. These same sorts of problems exacerbated the damage in other major disasters, such as Hurricane Katrina discussed here.

With coronavirus testing, the federal government appears to have made numerous mistakes. According to the Journal article, government hindered private testing because of concerns about accuracy, yet the CDC’s own test was inaccurate. The CDC told the states its testing capacity was adequate, but that was proved wrong as demand soared. Private labs were required to use the CDC’s testing method, but that resulted in depleting the materials needed for that test. Private labs were dissuaded from pursuing testing by officials who said they had it covered. Finally, the FDA put up bureaucratic barriers to private test development, such as requiring special permissions.

Thankfully, the government has changed course and the CDC and FDA are fixing these problems. America is counting on federal health agencies to succeed in this crisis, so I hope some broader lessons are learned. Top-down controls, misinformation, barriers to private efforts, and treating the private sector as a bit player are common mistakes in disaster response.

Here are some highlights from the Wall Street Journal piece by Christopher Weaver, Betsy McKay, and Brianna Abbott:

While the virus was quietly spreading within the U.S., the CDC had told state and local officials its “testing capacity is more than adequate to meet current testing demands …”

… Federal officials hoped the virus could be contained—even as they disputed alarms from those on the front lines that the CDC’s guidelines weren’t keeping up with the outbreak’s spread …

… CDC officials botched an initial test kit developed in an agency lab, retracting many tests. They resisted calls from state officials and medical providers to broaden testing, and health officials failed to coordinate with outside companies to ensure needed test-kit supplies …

… The Government Accountability Office had warned federal officials in early January that its readiness for something like a pandemic fell short, a GAO official said. GAO investigators found crisis plans didn’t fully account for the huge role the private sector would have to play, documents show.

… The FDA first announced labs seeking to perform testing would have to submit a special application to get permission to start on Feb. 4. That initially deterred some hospitals and other lab operators—which normally aren’t required to submit any application—from developing tests, experts say.

“We had considered developing a test but had been in communication with the CDC and FDA and had been told that the federal and state authorities would be able to handle everything,” Alan Wells, the medical director for the University of Pittsburgh Medical Center’s clinical laboratories, told reporters over the weekend. He said in an interview on Monday that it later became clear the CDC and states were overwhelmed.

Once the CDC launched its initial test in the first week of February, the response was quickly stymied by setbacks, including flaws that forced the CDC to claw back many of the kits it had already sent out to state public-health laboratories, according to the agency and public-health officials.

Jeffrey Singer discusses coronavirus testing failures here.

The coronavirus is battering the U.S economy as businesses cut back and close down. Unfortunately, federal policymakers are pursuing their usual misguided response to all crises—passing a big stimulus bill that will accomplish little except putting the government further into debt. After the financial crisis a decade ago, Congress passed an $800 billion stimulus and we suffered the slowest recovery since World War II.

Government spending to boost demand won’t help the economy when supply chain disruptions and safety fears are restricting production. Rather than stimulate demand, governments should repeal regulations that aren’t in place for legitimate safety reasons.

These articles point to regulations that are being repealed, or should be repealed, to aid the crisis response. Many of the regulations are unneeded even if there were no crisis. CEI, ATR, CNN, and Walter Olson have compiled similar lists.

• Federal protocols that undermine hospital flexibility in hard-hit areas.
• State restrictions on telemedicine. Federal restrictions on telemedicine for Medicare.
• Rules on doctors and nurses practicing across state lines.
• Failed restrictions on virus testing. The FDA has finally moved to allow companies to sell test kits directly to the public. Also, here.
• Certificate of need rules for hospitals to add beds and other equipment. Also, here.
• Expedited licensing of new and retired medical professionals.
• State restrictions on operational flexibility at health facilities.
• Restrictions on alcohol take-out, and also rules on deliveries in alcohol trucks.
• Requirements for certain professionals to work in offices.
• Rules restricting online higher education.
• Rules restricting online education if special education is not fully served.
• Hours of service regulations for truck drivers.
• TSA rules on hand sanitizers.

During Hurricane Katrina in 2005, bureaucracy and regulatory bottlenecks amplified the damage. Let’s hope that governments have learned the lesson and move quickly to repeal rules that stand in way of rapid and efficient private-sector responses.

The rapid spread of coronavirus (Covid-19) is focusing attention on the health agencies that are helping to fight the pandemic. This year, the National Institutes of Health (NIH) will spend about $38 billion on research and the Centers for Disease Control and Prevention (CDC) will spend about $8 billion on controlling infectious diseases and other activities.

The health agency budgets have become a political football in recent weeks with various claims being made regarding spending levels under President Trump. Let’s look at some data.

Figure I shows total outlays on the NIH and CDC in real (or inflation-adjusted) dollars since 1962. The data is from the most recent federal budget released February 10. It includes estimated spending for 2020 and Trump’s proposals for 2021. I used the budget’s deflator to convert spending to real 2020 dollars.

Real NIH spending soared from the mid-1990s to 2011. It was then cut under President Obama but has rebounded under President Trump. Real CDC spending soared from around 1990 to 2010 but has been roughly flat since then. New legislation tackling the coronavirus will increase spending above these levels going forward.

How much should we spend on the NIH and CDC? I don’t know, but there is a stronger argument for government spending on activities that are “public goods,” which are items that create broad benefits but are underprovided by markets. NIH and CDC research into infectious disease and mobilization against pandemics probably fits this category. But other spending by these agencies is more dubious, such as spending on trying to micromanage Americans’ eating, drinking, and smoking behaviors. Also, the sorts of bloat and waste that former Senator Tom Coburn once found at the CDC are not public goods.

In defending the Trump administration’s proposed CDC budget, a spokesman said, “The $4.3 billion funds all of the CDC programs that focus on infectious disease and emergency preparedness activities … This figure reflects that the administration is prioritizing funding for infectious disease and emergency preparedness efforts at CDC, compared to non-infectious activities, like studying the health and safety risks of infrequent bathroom breaks for taxi drivers.”

In a flippant way, the spokesman was suggesting that they are steering the CDC budget toward broad-based public goods and away from narrow-interest spending. The budget (p. 36) says the administration wants “to re-focus the Center for Disease Control (CDC) on its core mission of preventing and controlling infectious diseases and other emerging public health issues, such as opioids. As such, the Budget proposes to reduce funding for non-infectious disease activities.”

It appears (p. 447) that the main CDC activity the Trump administration proposed cutting was grants to state governments, a reform approach that always makes sense. State public health programs should be funded by state taxpayers. For 2021, Trump proposed cutting state grants, but also proposed increasing CDC staffing (p. 447).

However, let’s say that all CDC and NIH spending is for important federal public goods. That spending is only a small fraction of total Department of Health and Human Services (HHS) spending, which mainly goes toward Medicare and Medicaid subsidies. Those subsidies are not public goods. This year, NIH spending is just 2.9 percent of HHS spending and CDC spending is just 0.6 percent, as shown in Figure 2.

After the current crisis, if policymakers decide to permanently increase infectious disease spending, they should match it with cuts to the vast subsidies in the $1.4 trillion HHS budget.

How do the U.S. public’s beliefs about the federal debt affect their attitudes to government spending and taxation?

That is the question a new paper by economists Christopher Roth, Sonja Settele, and Johannes Wohlfart seek to answer, using a range of online experiments for a representative sample of the population. Using four different experiment designs, they first elicit people’s beliefs about the debt-to-GDP ratio compared to various historical or international averages. Then they tell a sub-sample what the actual debt-to-GDP ratio is and compare this treatment group’s attitudes towards government spending and tax with a control group, as well as assessing the treatment group’s relative propensity to donate to Cato or sign a petition for a balanced budget amendment.

The results are interesting:

• Most people underestimate the degree of indebtedness of the US government. The median estimate is around 60 percent, far below the actual debt-to-GDP (104 percent at the time). More than 90 percent of respondents understated the level of debt, even when given a historical or international “anchor.”
• People who are told the true level of debt become more likely to consider current government debt too high and be supportive of cutting it. The relative preference for debt reduction in the treatment group compared to the control group is equivalent to 91 percent of the greater support for debt reduction among Republicans than among Democrats.
• Respondents with prior beliefs of a low debt-to-GDP ratio below 50 percent respond most strongly to the information in terms of their views on debt reduction and government spending.
• Data from a four-week follow up survey suggests that people update their beliefs about the debt given the information: the median belief in the treatment group is that the debt-to-GDP ratio is 75 percent. What’s more, beliefs are more precise for both people that under- and over-estimated the debt, suggesting genuine learning.
• The treatment group which learns about the true level of government debt becomes significantly less supportive of government spending, including in all subcategories – defense, infrastructure, schooling, social security, social insurance, health and the environment. Looking at a joint spending index, the information shifts policy preferences by one third of the preference gap for overall spending between Republicans and Democrats.
• Though people who learn about the debt become more likely to back higher taxes in theory, support for specific tax increases – income tax, wealth tax, and estate tax – are weaker and less robust. The authors conclude that the extra knowledge does not strongly change support for tax increases.
• The treatment group are more likely to donate a higher amount to the Cato Institute from an endowment of funds they are given. But treated respondents do not become significantly more willing to sign a petition in favor of introducing a balanced budget rule.
• The treatment group’s beliefs about the amount of government debt and their attitudes towards debt reduction and government spending persist in a four-week follow up to the study.
• Respondents who receive information about the level of government debt become significantly more likely to agree that the current public finances are not sustainable.

The authors conclude:

our findings indicate that information about statistics that are relevant for future government spending and taxation can persistently change people’s attitudes towards current levels of spending…our finding that voters demand higher levels of spending when they underestimate the level of debt suggests that biased beliefs could contribute to the accumulation of high levels of debt as observed in many industrial countries. Finally, our results suggest that support for spending increases could diminish during times in which voters update their beliefs about government debt…

This might explain one puzzle from recent years. The results suggest that the decline in the salience of the debt issue doesn’t so much reflect an ease among the public with increased borrowing as the opposite: a lack of focus on the high relative level of debt has fed through into beliefs about debt levels that are biased downwards, making people tolerant of higher spending.

Democrats running for the White House are pushing all kinds of tax increases. One bad idea supported by all the leading candidates is to hike the top capital gains tax rate. Capital gains taxes may seem obscure to many people but limiting them is crucial to long-term economic growth.

Congress has kept capital gains tax rates below ordinary rates for most of the past century, and nearly all other advanced economies provide favorable rules for gains. Inflation, double taxation, and international competitiveness need to be considered, as I discuss in a new op-ed in The Hill.

I am particularly concerned about the negative effects of a capital gains tax increase on entrepreneurial finance. The reward that angel investors receive for putting their time and money into risky startups is a capital gain 5 or 10 years down the road. The angel role is crucial because the economy needs a diversity of startups to discover new products and technologies.

Raising the capital gains tax would induce angels to shift their money to safer investments and the economy would be starved of the funding that high-growth companies and technology industries rely on.

Higher capital gains taxes would also reduce entrepreneurship. People considering launching startups would instead take safer wage jobs. The chance to earn a capital gain from a high-growth startup would not be worth all the extra stress, risk, and hard work.

Some Democrats used to understand the importance of startup financing. Arguing in favor of a capital gains tax cut in 1978 hearings, Senator Lloyd Bentsen of Texas said, “This country has prospered because we have had a free enterprise system that has encouraged the entrepreneur, the small businessman, to take a risk with the understanding that he was going to be able to keep some of it, if he won.”

What is the best capital gains tax policy? Federal Reserve chair Alan Greenspan got it right at 1997 Senate Banking Committee hearings: “While all taxes impede economic growth to one extent or another, the capital gains tax is at the far end of the scale.” The proper rate for capital gains taxes, Greenspan concluded, is zero.

These ideas are discussed further in The Hill and in this Cato report.