Responding to the coronavirus crisis will take a comprehensive monetary and fiscal policy response. The Federal Reserve is off to a good start by lowering interest rates to zero.
This move will help small businesses and consumers endure the economic impact of the coronavirus. And it will put the economy on a better footing to rebound from when this crisis ends.
I'm hearing from numerous Job Creators Network members that their business revenues have plummeted over the past couple of weeks. This is disappointing but not surprising; small businesses are on the frontlines of every economic battle.
Rohit Arora, president of Biz2Credit, said last week that “widespread panic is setting in among small business owners nationwide across all industries.”
Zero-interest rate policy is necessary during this crisis, which is characterized by a lack of liquidity not underlying problems with solvency. There’s nothing structurally unsound about the existing business models of the nation’s employers.
Rather, small businesses are facing a cash flow crunch from dramatically reduced customer traffic and supply chain disruptions due to coronavirus fears. Diners aren’t frequenting their favorite restaurants, shoppers aren’t popping into stores on main streets, and clients are renegotiating or eliminating contracts due to economic uncertainty.
By lowering the cost of borrowing to essentially nothing, the Fed is helping small businesses cover their many coronavirus-induced cash shortfalls with cheap loans.
Zero-interest rate policy will also increase consumer purchases by reducing the cost of credit. This move will stimulate aggregate demand for the goods and services produced by small businesses, mitigating some of the pain.
By reducing the cost of funding expansion and new projects, zero interest rates will also put the economy on solid footing to return to its historic economic performance enjoyed under President Trump before this black swan event. Especially in a world of low inflation.
But small businesses need more than just monetary relief. Policymakers should include an employer payroll tax holiday in their coronavirus legislation they are debating this week. This tax relief would eliminate a major cost facing employers.
Bernie Marcus, co-founder of The Home Depot and the Job Creators Network, and Andy Puzder, former CEO of CKE Restaurants and chairman of The Job Creators Network, argue in a recent Fox News op-ed that this payroll tax break could be used to pay for employee sick leave:
“Every two weeks, employers are currently required to pay into an escrow account the amount they owe the IRS for withholding and payroll taxes which are due at the end of the quarter. Rather than depositing these funds, the IRS will permit employers who are short on cash to use those monies to cover medical leave payments.”
Such a solution can encourage employees to stay home when they are sick as well as protect small businesses from sick leave burdens that would further reduce their cash flow.
With an assist from good public policy, America’s 30 million small businesses, which employ 60 million people, will keep the economy functioning during this coronavirus turmoil and serve as the platform from which to springboard it back to its great heights when this crisis ends.
Zero interest rates and employer payroll tax holidays are the monetary and fiscal policy ammunition to help small businesses — and the nation — weather this storm.
Alfredo Ortiz is President and CEO of the Job Creators Network, a non-partisan organization founded by entrepreneurs.