Insufficient PPE and medical equipment to deal with any pandemic, a vulnerable supply chain, and a lack of appropriate federal government planning. That combination resulted in healthcare workers and first-responders dealing with unthinkable circumstances in the country that spends more on healthcare than any other country in the world. Going forward – never again. Healthcare workers and first-responders should never be put in this position again. Another issue that arose in the pandemic – access to healthcare, That issue will likely stay a focus even after the pandemic winds down in the U.S. Access to testing, access to needed medical services, the ability to pay unexpected healthcare bills – particularly if being furloughed or becoming unemployed, the ability to get health insurance, the potential of needing (and paying for) health insurance with a preexisting condition, all these issues will likely be topics of discussion as the country moves forward after the pandemic. Planning for the next pandemic should begin now. For further information: 1. Health care spending by country from the Organisation for Economic Co-operation and Development (OECD) https://data.oecd.org/healthres/health-spending.htm
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What Will Change: Deficits and Government Spending
It’s like nothing that you’ve seen - the pending federal deficit. During the financial crisis, the budget deficit hit approximately $1.4 trillion - a record at the time. According to the Congressional Budget Office (CBO) the budget deficit for fiscal year 2020 (which ends in September) was expected to top $1 trillion before the coronavirus. The tax cuts of 2018 set the stage for record deficits if anything went significantly wrong with the economy. It did. Given the $2 trillion phase III fiscal stimulus and the possibility of another fiscal stimulus, the budget deficit will explode. Unfortunately, the coronavirus will have a double whammy on the economy. Not only will the fiscal stimulus increase government expenditures by almost 50%, tax revenues will contract significantly as corporate and individual incomes decline. In the current economic scenario, an appropriate and large enough fiscal stimulus had to take priority over any deficit concerns. The impact of the coronavirus on the U.S. economy was too detrimental. Without appropriate fiscal stimulus, a recession could turn to depression. However, the likely record-setting deficit will have significant consequences moving forward, and decisions will have to made regarding government spending and tax policy. Generally, an expanding economy leads to a decrease in the U.S. federal government budget deficit as tax revenues increase. However, the 2018 tax cuts changed that – they were different. The economy had over eight years of economic growth; the unemployment rate had declined gradually from approximately 10% in 2009 to nearly 4% at the end of 2017. Contrary to tax cuts in 2003 and 2011-2012, the 2018 tax cuts were implemented when the economy was expanding and the unemployment rate was relatively low. The largest cuts were to corporate taxes. The corporate tax rate was lowered significantly from 35% to 21%. In addition, taxable income could be lowered through capital expenditures (spending on property, plant, and equipment) which could be expensed (a tax deduction in the year of the expense) rather than depreciated (allocating the cost and spreading the deduction over the life of the property). Owners of small businesses also benefitted. Many small businesses are organized as “pass-through” businesses, where the business does not pay tax, but the owners do. Sole proprietorships, partnerships, LLCs, LLPs, and S corps are pass-through businesses. The new tax law allowed pass-through owners to deduct up to 20% of their net business income from their income taxes. Finally, individual tax rates were cut approximately 2-3% in each income bracket, although deductions were limited. According to the Office of Management and Budget, corporate taxes as a percent of GDP fell from 1.5% in fiscal year 2017 to only 1.0% in 2018. Individual income taxes as a percent of GDP actually increased from 8.2% in fiscal year 2017 to 8.3% in 2018. Another effect of the 2018 tax bill was how the resulting split between individual
Center for Business and Economic Insight - CBEI EXTRA!
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