> With speed as its strongest imperative, the effort run by the federal Small Business Administration initially lacked even the most basic safeguards to prevent opportunists from submitting fabricated documentation, government watchdogs have said.
> While that may have allowed millions of businesses to keep their doors open, it has also required a massive cleanup operation on the backend.
Frankly, I think that's exactly the right way to do it.
Speed was of the essence here - a lot of small businesses don't have much of a safety margin to go without revenue for even a few weeks. Consequences for abusing it don't have to be fast to work.
Consequences have to actually happen though. I don't see much evidence of that. They'll probably make an example out of the few most flagrant fraudsters but doing that basically screams "we don't care about the fraud as long as it's tactful".
Without consequences for the subtle fraudsters it just becomes a big-dig style feeding trough for the morally bankrupt which is the last thing we should be spending our tax dollars providing.
Because of the deterrent effect? If you set the expectation that $2000 of fraud won't be prosecuted because it costs $3000 to do so, then baddies will start doing tons of $2000 fraud.
Agreed. I think people are already forgetting how frantic the first few months of the pandemic were, despite the fact that it was only a year ago. Governments around the world were placed in a no-win situation: they could do nothing and be criticized for allowing the economy to tank and causing mass unemployment, or they could throw together programs in a hurry without time to build safeguards around them deciding to fix it later. The latter was the right approach, in my opinion.
Here in Canada, we have a national unemployment benefits program (Employment Insurance, or EI). Like most such programs around the world, it was wholly unprepared for the volume of applications due to the March/April 2020 lockdowns. So, the federal government introduced the CERB (Canada Emergency Response Benefit), which was a flat $2000 monthly payment offered to anyone who attested they met the eligibility criteria. There was no verification because there wasn't time to put such a system in place without unacceptably delaying release of benefits. Of course, there was plenty of fraud, which the Canada Revenue Agency (Canadian equivalent of the IRS) is in the process of investigating and cracking down on after the fact.
IMO, this was exactly the right approach: time was absolutely of the essence. Get the money out, deal with the fraudsters later.
My business got a ppp loan within 2 weeks of our “lay off five people” timeline. Any slower ppp process and we would have put a terrible burden on five people. Yes there are better programs we could develop. Don’t let the perfect be the enemy of the good.
But we didn’t. So work towards standing up that infra for the next event (Postal banking, FedAccounts, and better tooling at the Treasury for airdropping fiat) and claw back the PPP funds obtained fraudulently and press criminal charges.
I don't think a less effective program is possible. Using income tax rates means those with the most would benefit the most, while those already barely getting by would be screwed. Those most likely to be harmed by the pandemic are those who would be helped the least.
I wrote "started by refunding". There is no reason we should have stopped there.
We are currently incentivizing many people to not work through unemployment. We should just give them that money unconditionally so that they go back to work.
I think people forgot the mess surrounding PPP. Publicly-traded and other large companies like Shake Shack and Ruth's Chris Steakhouse received millions in PPP loans while many small businesses did not hear back from the SBA until June or July. Bank of America prioritized customers with existing bank loans as if the PPP was a backdoor bailout for a poor small business loan portfolio. Many real small businesses were screwed due to the decision making processes.
Reading about these fake loans is a gut punch. When small businesses that really needed the money were stonewalled for months, many having to shutter, it's hard to believe that oversight would have hurt
That's what direct-to-individual programs are for, though. In Canada we had both types of programs. Businesses qualified for loans of up to $40k, a rent subsidy, and a wage subsidy that covered up to 75% of employee wages. In cases where that was insufficient and employees had to get laid off or significantly had their hours cut, it was backstopped with a program where individuals could apply for a $2000 per month subsidy by attesting they met a list of criteria. We've had a number of lockdowns but we rode through them by having both sets of measures.
My understanding is the US had similar programs to the former, but not like the latter. Other than a couple of general stimulus payments, increased unemployment benefits were delegated to state agencies, many of which were overwhelmed and weren't able to process unemployment in a timely manner.
There are many ways we could have routed money back to businesses without using the byzantine process defined by the SBA.
This system benefitted banks at the expense of taxpayers, just like the last financial crisis.
One fairer approach would have been to just refund everybody's 2019 federal income taxes and let the market figure out how to use it. Instead, we propped up a bunch of businesses that failed anyway. But hey, the banks got a percentage.
Edit:
To add a disclaimer: I run two companies which each received both PPP loans. I benefitted. My employees benefitted. I still think it would have been fairer to give that money to individuals and not to business owners like myself.
Also, there is no reason we would have had to stop at refunding income taxes. That is just something that should have been ridiculously easy for the IRS to do quickly.
You're aware that a significant portion of people and businesses in the United States pay essentially no taxes, right? Especially the more vulnerable parts of society?
If the purpose is to keep payroll flowing to individual people for a while, yes, that’s exactly better than a system that is fairer-sounding but doesn’t accomplish the stated goal.
Because one of the concerns that would lead to an economic collapse is 40+% unemployment.
Providing payroll protection is a very targeted measure against that. The last thing I need is for my six-figure 2019 taxes (good investment returns that year) to be rebated back to me for a job I wasn’t going to lose anyway while 1000s of people in my town lose their restaurant and retail jobs. That’s targeted in exactly the wrong direction I think.
I am not interested in the outcome for people like you and I. There could have been a ceiling on the refund.
As I said in an edit to my original comment, I run two businesses which each received both PPP loans. I and my employees benefitted. I still think it was unfair.
My employees should have received money directly and been allowed the agency to determine how to spend that money in a pandemic world. Instead, we propped up businesses that failed anyway and now there is less money to invest in new businesses.
I know of businesses that employed people doing nothing. I also know of businesses that took the loan and still laid people off. This is not good for GDP. It would have been better to stimulate at the individual level.
I think that pausing our economy to the extent possible and allowing people and businesses to pick back up where they left off after the pandemic is incomparably better than screwing over the poorest in our society, yes. I understand that not everyone feels that way.
We are not picking up where we left off. The economy post-COVID is different than the pre-COVID one. We should give as much power as possible to the market to figure that out. Instead, we propped up failing businesses with welfare and extended the economic impact.
> One fairer approach would have been to just refund everybody's 2019 federal income taxes and let the market figure out how to use it.
Wouldn't that mean those with the least income would also get basically no support, and the wealthier, with the greater capacity to create and maintain a slushfund, would make out like bandits?
Yes, it would have been unfair and yet still fairer to the individuals. The system we have benefitted a bunch of business owners more than it did individuals.
I'm not saying that the current system was good, but I don't think your solution helps at all given that it doesn't help those who need it but hands out truckloads of cash to those who don't. There's zero reason to give a huge payment to someone who wasn't in financial distress and who probably never even lost their job. As has been mentioned Canada's CERB, which was a "if you say you need it we'll give you some money now and we can sort it out later" approach helped the poorest the same as the more well off, which makes a lot more sense.
I agree that a refund of income taxes alone is not a good solution. I was thinking we should have also given money to those who did not pay any federal income taxes, just as we are doing with unemployment benefits now.
We could also have capped the size of the refund.
Regardless, I still think giving money directly to individuals is much better than PPP. PPP was offered because it benefitted banks and existing businesses, who have more political power than the poor.
Exactly! When the government starts handing out money, we should expect a mix of legitimate and fraudulent applicants. I’d be shocked if literally anything else happened.
The key is to get the money quickly to the legitimate users and to ensure the fraudsters eventually do not benefit (and ideally suffer).
Eventual consistency is fine for the fraudsters, but you need immediate relief for the legitimate users.
yah, the risk needs to be high enough to hit a tipping point for mass deterrence. currently it’s much more likely (a couple percent iirc) that middle class americans will be audited (for small amounts, largely automated) than the well-off (~0.1% iirc, even though the population is much smaller). we need to flip those percentages (and more), no matter the cost. we are a rich country, and fairness is actually worth paying for rather than mindless bureaucracy and rote compliance.
> In a baffling twist of logic, the intense IRS focus on Humphreys County is actually because so many of its taxpayers are poor. More than half of the county’s taxpayers claim the earned income tax credit, a program designed to help boost low-income workers out of poverty. As we reported last year, the IRS audits EITC recipients at higher rates than all but the richest Americans, a response to pressure from congressional Republicans to root out incorrect payments of the credit.
> On the other hand, auditing the rich is hard. It takes senior auditors hours upon hours to complete an exam. What’s more, the letter says, “the rate of attrition is significantly higher among these more experienced examiners.” As a result, the budget cuts have hit this part of the IRS particularly hard.
> For now, the IRS says, while it agrees auditing more wealthy taxpayers would be a good idea, without adequate funding there’s nothing it can do. “Congress must fund and the IRS must hire and train appropriate numbers of [auditors] to have appropriately balanced coverage across all income levels,” the report said.
my memory is hazy and i might have confused population percentages with cohort percentages, but the real point is that not only is the return greater for higher income audits[0] but it sustains a fairer and more robust economy. we’re currently doing it backwards, and that got worse (in overall funding, tax policy, and audit targeting, at least) under a purported billionaire presidency for obviously self-serving reasons.
For farms specifically? Or for most small businesses?
In that environment, what realistically was going to happen if someone didn't have money for a few weeks?
If you couldn't pay your rent - it's not like your landlord would immediately evict you. If you couldn't pay your suppliers, presumably, you wouldn't be able to place more orders - but if you were expecting a major cutback - you were probably planning to cut your orders.
What I don't get is... Everyone acts like it would've been the end of the world if we didn't stuff everyone full of money immediately.
Why would it have been?
I could see it would've been bad if 95% of people would've been able to carry on as usual, and a small number of businesses wouldn't have. They would've got evicted, put into bankruptcy, and so on.
Didn't EVERYONE have an interest in not putting EVERYONE into bankruptcy at the exact same time?
I don't know what the research shows, but my intuition says that especially for people in lower socioeconomic classes, many of these things just don't apply, because of the scarcity of money all around.
A landlord in a lower income housing situation might be themselves strapped for cash and rely more on that income (as opposed to this being their second investment home), so might be less forgiving of you missing your rent. And people live more paycheck to paycheck.
It's hard to remember how much uncertainty there was last spring, about how long this would last, how many would die, or just how catastrophically our economy would collapse.
I don't fault the government at all for hastily putting this together. But as others have said, that doesn't mean they shouldn't go after fraudsters now that we have some breathing room.
Full disclosure: my 2 person company received a PPP loan and it helped us for the period that it did, especially because our city government client took all of our contract's funds for COVID relief.
It's easy to cry "Somebody cheated! So the whole program was worthless." It's rarely true. Sure people cheat. We don't close stores because people shoplift, or shut down the insurance industry when a false claim is discovered.
The appeal to indignation is powerful, and the first tool used by bloggers and pundits.
I know of a business that asked for $15k, got 10% of that, and was gone within a month back when this stuff opened up. They needed $50k but they were trying to have civic awareness and dharma.
"Corruption" used to be understood as corrosive to society...
Everyone is defending the gov here. Fair enough. But I think most of you are being optimistic about the enforcement side of things. Probably billions of dollars of fraud were committed. They won't charge or prosecute even 1% of the fraudsters, either by capita or volume of fraud. We have a serious enforcement problem, and the root of that is that the gov is dealing with OPM (other people's money).
50 comments
[ 3.1 ms ] story [ 113 ms ] thread> While that may have allowed millions of businesses to keep their doors open, it has also required a massive cleanup operation on the backend.
Frankly, I think that's exactly the right way to do it.
Speed was of the essence here - a lot of small businesses don't have much of a safety margin to go without revenue for even a few weeks. Consequences for abusing it don't have to be fast to work.
Without consequences for the subtle fraudsters it just becomes a big-dig style feeding trough for the morally bankrupt which is the last thing we should be spending our tax dollars providing.
Here in Canada, we have a national unemployment benefits program (Employment Insurance, or EI). Like most such programs around the world, it was wholly unprepared for the volume of applications due to the March/April 2020 lockdowns. So, the federal government introduced the CERB (Canada Emergency Response Benefit), which was a flat $2000 monthly payment offered to anyone who attested they met the eligibility criteria. There was no verification because there wasn't time to put such a system in place without unacceptably delaying release of benefits. Of course, there was plenty of fraud, which the Canada Revenue Agency (Canadian equivalent of the IRS) is in the process of investigating and cracking down on after the fact.
IMO, this was exactly the right approach: time was absolutely of the essence. Get the money out, deal with the fraudsters later.
We are currently incentivizing many people to not work through unemployment. We should just give them that money unconditionally so that they go back to work.
Reading about these fake loans is a gut punch. When small businesses that really needed the money were stonewalled for months, many having to shutter, it's hard to believe that oversight would have hurt
Or they could purposefully close the economy with "stay at home orders" having the same consequences, which many states in the US did.
My understanding is the US had similar programs to the former, but not like the latter. Other than a couple of general stimulus payments, increased unemployment benefits were delegated to state agencies, many of which were overwhelmed and weren't able to process unemployment in a timely manner.
This system benefitted banks at the expense of taxpayers, just like the last financial crisis.
One fairer approach would have been to just refund everybody's 2019 federal income taxes and let the market figure out how to use it. Instead, we propped up a bunch of businesses that failed anyway. But hey, the banks got a percentage.
Edit:
To add a disclaimer: I run two companies which each received both PPP loans. I benefitted. My employees benefitted. I still think it would have been fairer to give that money to individuals and not to business owners like myself.
Also, there is no reason we would have had to stop at refunding income taxes. That is just something that should have been ridiculously easy for the IRS to do quickly.
That sounds incredibly unfair.
The focus on payroll is exactly why corporations benefitted at the expense of people.
Providing payroll protection is a very targeted measure against that. The last thing I need is for my six-figure 2019 taxes (good investment returns that year) to be rebated back to me for a job I wasn’t going to lose anyway while 1000s of people in my town lose their restaurant and retail jobs. That’s targeted in exactly the wrong direction I think.
As I said in an edit to my original comment, I run two businesses which each received both PPP loans. I and my employees benefitted. I still think it was unfair.
My employees should have received money directly and been allowed the agency to determine how to spend that money in a pandemic world. Instead, we propped up businesses that failed anyway and now there is less money to invest in new businesses.
I know of businesses that employed people doing nothing. I also know of businesses that took the loan and still laid people off. This is not good for GDP. It would have been better to stimulate at the individual level.
Wouldn't that mean those with the least income would also get basically no support, and the wealthier, with the greater capacity to create and maintain a slushfund, would make out like bandits?
We could also have capped the size of the refund.
Regardless, I still think giving money directly to individuals is much better than PPP. PPP was offered because it benefitted banks and existing businesses, who have more political power than the poor.
The key is to get the money quickly to the legitimate users and to ensure the fraudsters eventually do not benefit (and ideally suffer).
Eventual consistency is fine for the fraudsters, but you need immediate relief for the legitimate users.
How strong is this expectation? eg. for social security or tax refund fraud, what's the conviction/recovery rate?
> In a baffling twist of logic, the intense IRS focus on Humphreys County is actually because so many of its taxpayers are poor. More than half of the county’s taxpayers claim the earned income tax credit, a program designed to help boost low-income workers out of poverty. As we reported last year, the IRS audits EITC recipients at higher rates than all but the richest Americans, a response to pressure from congressional Republicans to root out incorrect payments of the credit.
https://www.propublica.org/article/irs-sorry-but-its-just-ea...
> On the other hand, auditing the rich is hard. It takes senior auditors hours upon hours to complete an exam. What’s more, the letter says, “the rate of attrition is significantly higher among these more experienced examiners.” As a result, the budget cuts have hit this part of the IRS particularly hard.
> For now, the IRS says, while it agrees auditing more wealthy taxpayers would be a good idea, without adequate funding there’s nothing it can do. “Congress must fund and the IRS must hire and train appropriate numbers of [auditors] to have appropriately balanced coverage across all income levels,” the report said.
[0] just one quick link on this: https://www.cbsnews.com/news/treasury-sec-larry-summers-says...
In that environment, what realistically was going to happen if someone didn't have money for a few weeks?
If you couldn't pay your rent - it's not like your landlord would immediately evict you. If you couldn't pay your suppliers, presumably, you wouldn't be able to place more orders - but if you were expecting a major cutback - you were probably planning to cut your orders.
What I don't get is... Everyone acts like it would've been the end of the world if we didn't stuff everyone full of money immediately.
Why would it have been?
I could see it would've been bad if 95% of people would've been able to carry on as usual, and a small number of businesses wouldn't have. They would've got evicted, put into bankruptcy, and so on.
Didn't EVERYONE have an interest in not putting EVERYONE into bankruptcy at the exact same time?
A landlord in a lower income housing situation might be themselves strapped for cash and rely more on that income (as opposed to this being their second investment home), so might be less forgiving of you missing your rent. And people live more paycheck to paycheck.
It's hard to remember how much uncertainty there was last spring, about how long this would last, how many would die, or just how catastrophically our economy would collapse.
I don't fault the government at all for hastily putting this together. But as others have said, that doesn't mean they shouldn't go after fraudsters now that we have some breathing room.
Full disclosure: my 2 person company received a PPP loan and it helped us for the period that it did, especially because our city government client took all of our contract's funds for COVID relief.
The "technical unemployment" system used in done places in Europe is slightly more robust to these things, but only slightly.
I'm glad the governments acted quickly even with fraud as a result.
Half of our city's daycares went out of business, I now pay an extra $5000/year.
And flattening the curve didn't save my 80 year old relatives.
Both red and blue team should be fired. Elect scientists that won't overreact at fractions of a percent.
The appeal to indignation is powerful, and the first tool used by bloggers and pundits.
"Corruption" used to be understood as corrosive to society...