Fed report: 75% of $800 billion Paycheck Protection Program didn’t reach employees

Wikimedia Commons/JP Valery

“[Paycheck Protection Program] was poorly targeted, as almost three-quarters of its benefits went to unintended recipients, including business owners, creditors and suppliers, rather than to workers. Due to differences in the typical incomes of those varied constituencies, it also ended up being quite regressive compared with other major COVID-19 relief programs, as it benefited high-income households much more.”

By Joe Mueller | The Center Square

Taxpayers paid $4 for every $1 in wages and benefits received by workers in jobs saved by the federal government’s pandemic Paycheck Protection Program (PPP), according to a new study by the Federal Reserve Bank of St. Louis.

The Fed study also found PPP didn’t support jobs at risk of disappearing, and money flowed disproportionately to wealthier households.

“The PPP was a very large and very timely fiscal-policy intervention, saving about 3 million jobs at its peak in the second quarter of 2020 and distributing $800 billion well within two years of the onset of the COVID-19 crisis,” authors William Emmons and Drew Dahl concluded in their study, “Was the Paycheck Protection Program Effective?”

“But it was poorly targeted, as almost three-quarters of its benefits went to unintended recipients, including business owners, creditors and suppliers, rather than to workers. Due to differences in the typical incomes of those varied constituencies, it also ended up being quite regressive compared with other major COVID-19 relief programs, as it benefited high-income households much more.”

When COVID-19 pandemic-induced executive orders forced small businesses to stop or reduce operations, the PPP was created as a temporary program under the Coronavirus Aid, Relief and Economic Security (CARES) Act. Forgivable loans began on April 3, 2020, one week after President Donald Trump signed the legislation and three weeks after a national emergency was declared. The low-interest loans could be made without collateral for up to $10 million to businesses with fewer than 500 employees. The loans were forgivable if businesses maintained employment and wages at pre-pandemic levels for two to six months following acceptance of the funds.

The Small Business Administration reported 90% of the nearly $800 billion in PPP loans were forgiven by last month, according to the study.

The Fed report quoted research published in the Journal of Economic Perspectives estimating PPP loans saved 2.97 million jobs per week in the second quarter of 2020 and 1.75 million per week during the fourth quarter of 2020. The research also found the cost per job saved for one year was $169,000 to $258,000. The average wage and benefits for a small business employee was $58,200 in 2020.

Small business owners spent $3 out of every $4 in PPP to pay suppliers and meet other expenses, according to the Fed report. The research found that 72% of PPP funds went to households with incomes in the top 20% of the national distribution. Comparatively, 20% to 25% of the federal government’s unemployment insurance went to households in the top 20%. Approximately 10% to 15% of stimulus checks – up to $1,200 per adult and $500 per child – went to households in the top 20%.

Image courtesy of Wikimedia Commons/JP Valery
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6 thoughts on “Fed report: 75% of $800 billion Paycheck Protection Program didn’t reach employees

  1. No surprise here. I own a small business and set up a separate account with the funds for payroll only. I was able to keep most of my employees and still have the most of them today, 2 years later. That’s what it was intended for, but as for anything the Government does is mostly wasted money.

  2. oh my yes……nobody in our current admin has a clue what anyone else is doing…..been going on since 911; actually well before that…..
    TOO BIG for its britches my grands would have said…….
    2-4 months……hello, so comply with the 2 months and then good to go…….spend away
    and my biggest beef……..is a “small business” classified as 500 or less employees
    how many small businesses in Vt were lost with less than 10, 6, 3…………
    Vermont sees small as 50 or less………thats a darn site bigger than alot of businesses I know of in north central-northern Vt……..that is alot of franchises…….me thinks
    Sick Sick……..handing out money like that with no way to track………

  3. I have a suspicion that the failure of the PPP was intentional at high levels, and the scams, thefts, and graft were foreseen, and subsequently ignored. This is a classic opportunity for an investigation following “Qui Bono” guidelines into who really profited from this terribly mismanaged program, but with the current administration, that won’t happen…

  4. As we look at the current state of the economy and employment levels, do we think that government has learned any lessons about the consequences of giving away too much free money and services?

  5. What a fiasco ! The US government is so dysfunctional that it cannot even hand out free money efficiently without royally screwing things up. Congress created and walked away from another tax boondoggle, something they have become experts at for the last quarter-century.

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