The US government doesn’t have a great track record when it comes to equitable disaster relief — from Hurricane Katrina to COVID-19, we’ve seen an incredible lack of thoughtfulness when it comes to race, class, and the perpetuation of long-term structural inequalities in building out our response plans. This translates into concrete policies that enhance the wealth of the privileged and set others back even further. These policies are both born from, and cement, economic structures — a vicious cycle of inequity. One need look no further than the 2008 financial crisis, which despite $700 billion in government aid, actually created more class inequality.
In a critical moment, as Robert Reich lays out, when “33% of COVID-19 deaths are African American despite representing only 14% of the total population in areas surveyed,” “the Navajo Nation has lost more people to coronavirus than have 13 states,” and “four of the 10 largest-known sources of infection in the United States have been correctional facilities,” and at least 40% of Americans can’t handle a $400 financial emergency, the structure of relief must reflect the reality of need. Here’s the top ten ways that inequality was unapologetically built into the CARES Act.
When it came to small business relief:
1. Many formerly incarcerated business owners were not allowed to apply.
On April 3, the Small Business Administration adopted a rule that specifically prevents people who have been convicted of a felony in the last five years, as well as those who are “currently incarcerated, on probation or parole, or under criminal indictment from obtaining a forgivable SBA loan,” according to The Appeal. “With that action, the SBA unilaterally decided some business owners were not worth saving during the pandemic.” This penalizing of entrepreneurs who have created jobs and are now contributing to the small business ecosystem is not only discouraging to those seeking a second chance — but can make the difference as to whether or not these businesses survive.
2. Banks set their own criteria of whom to lend to‚ and were incentivized to choose large clients over small businesses.
It’s no secret that banks were incentivized to prioritize bigger borrowers in their lending decisions. Lawsuits have been filed against financial giants like Wells Fargo and Bank of America for putting big corporations first and leaving small businesses out of the program. As law professor Jason Freeman explains, “banks had greater risk exposure to larger borrowers, in whom they had made more significant investments. Banks stand to be hurt more if those borrowers default, and thus had a greater incentive to ensure that those borrowers were propped up during this time with government-backed PPP funds.” This lack of accountability to the businesses with the greatest need led to the next fact.
3. People of color were significantly left out — but we don’t know exactly how many, as no government data was collected on loan recipients by race or gender.
According to the Treasury Department, the initial $349 billion of the SBA Paycheck Protection Program funded 1.6 million loans — but according to The Washington Post “only several hundred were disclosed publicly, mostly by the companies themselves… the SBA has said it has no way of knowing who the recipients are and cannot make that information public.” What experts do know, however, is that up to 90% of people of color and women owned businesses likely did not have access to the PPP, based on the application criteria and fact that businesses owned by people of color are less likely to have commercial banking relationships. “The lack of a prior relationship with a larger bank should not stand in the way of lending to small businesses that are truly small, unbanked, underserved, minority or woman-owned,” wrote Sen. Ben Cardin, D-Md., and Chuck Schumer, D-N.Y., in a letter to the SBA Inspector General. The right thought, not followed up with nearly enough action.
Ever heard of the term “implicit bias?” It’s when a rule might make no reference to race, gender or another identifier, but when implemented leads to inequitable outcomes for different groups. For instance — technically people of any racial background are welcome at a mobile COVID testing site. But given that the percentage of Black families in America without a car is almost four times as high as those of White families, the application of a “neutral” rule or policy — that you need access to a car to get tested — isn’t so neutral after all.
Well, implicit bias is exactly what happened through PPP mechanisms. According to the Center for Responsible Lending, “Roughly 95 percent of Black-owned businesses, 91 percent of Latinx-owned businesses, 91 percent of Native Hawaiian or Pacific Islander-owned businesses, and 75 percent of Asian-owned businesses stand close to no chance of receiving a PPP loan through a mainstream bank or credit union.”
4. 25% of the initial $2 trillion bill went to big business bailouts.
The CARES Act designated $500 billion for big businesses, where about $58 billion went to airlines and $17 billion was believed to go to Boeing alone. Dan Grazier, national security expert, noted that Boeing was struggling financially long before the coronavirus and now appears to be “leveraging the crisis to help its bottom line.” At least $3 million was allegedly spent on lobbying for the bailout by global investors such as the Carlyle Group and SoftBank. A Softbank representative noted, “the lobbying focus for SoftBank re: CARES Act was to ensure fintech companies were able to participate as a lender in PPP, including SoFi and Kabbage,” and the Carlyle Group has not responded by time of publication.
Notably, these firms are part of the broader American Investment Council — an organization who pushed for large businesses to have access to the Small Business Administrations’ Paycheck Protection Program, particularly those backed by private equity firms.
5. Only a tiny fraction was set aside for the most vulnerable businesses and communities.
Of the $2 trillion package, $350 billion was originally intended for small businesses, but resulted in $243.4 million going to large companies. Public outrage over large corporations receiving big payouts, resulted in some companies like Shake Shack to return their $10 million loan. Meanwhile real estate investment company Ashford Hospitality Trust (which owns over 130 luxury hotels including Ritz Carltons, Mariotts, and more) received a total of $92 million — the largest amount given to any PPP borrower. When asked whether they would return the sum, they publicly announced that they will not be returning any of it.
The reason companies are able to do this in the first place is due to a provision in the PPP allowing hospitality and restaurant companies to apply for loans as long as each of their individual restaurants or hotels have fewer than 500 employees. This is very different from the franchisee of a single restaurant: a small business owner that licenses a brand. As a result, Monty Bennett — chairman and a major shareholder in Ashford Hospitality Trust, Braemar Hotels & Resorts, and Ashford Inc. as well as a Trump “megadonor” — was able to apply for $126 million in loans for his conglomerate, and altogether is believed to have received at least $59 million.
Consequently, the first round of the PPP loan only reached 5% of small businesses in the U.S., while giant corporations and associations qualified for the same loans that 30.2 million small businesses are still struggling to access. The Treasury responded to this issue by gently suggesting that PPP borrowers certify their own needs for PPP loans in “good faith,” adding that for borrowers who applied “prior to the issuance of this guidance and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith.” This section of the Treasury’s PPP document (page 11) repeatedly uses the words “good faith” to outline how a business should determine its own eligibility, exhibiting the laissez-faire nature of the program. Until there are more specific guidelines, the Small Business Administration will continue to let banks set their own criteria.
6. Community Development Financial Institutions (CDFIs) — those institutions, historically, with the deepest relationship to vulnerable communities — were barely included.
After the first round of PPP loans largely failed to provide access for CDFIs — where less than 20% of eligible CDFIs had been onboarded onto the SBA system — Democrats and Republicans alike echoed the call of House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer to explicitly add provisions for community-based lenders into the federal funding plan. On April 27th, the PPP Loan was updated to set aside $30 billion for “community financial institutions,” including CDFIs, minority depository institutions, certified development companies (CDCs), microloan intermediaries, small insured depository institutions, and credit unions with less than $10 billion in consolidated assets.
When the loan portal finally reopened Monday morning however, CDFIs widely reported getting “kicked out” with the website crashing repeatedly. And beyond simple technical difficulties, the small number of CDFIs that could meet community needs through the PPP lacked the liquidity and administrative capacity needed to compete with larger, national banks and CDFIs for what was a first-come, first-serve race for capital.
For that reason, lenders like my organization, Candide Group’s Olamina Fund — along with mission-aligned investors Ceniarth, The Schmidt Family Foundation, and The David and Lucile Packard Foundation — pooled funds last week to provide $14m in loans to Rural Community Assistance Corporation— a non-profit that provides training, technical and financial resources, and advocacy to rural Black, Native, and other underserved communities. “We see this effort as an example of how investors can tangibly show up for the most impacted and overlooked communities, in a way that addresses both the need for immediate relief, as well as the need for thoughtful, long-term structural change,” says Olamina Portfolio Manager Leslie Lindo. Ideally the government would’ve done so in the first place — rather than requiring private capital to step in.
When it came to cash relief for individuals:
7. Undocumented immigrants AND their US citizen spouses were barred from getting stimulus checks.
Citizens who file a joint income tax return with a spouse who doesn’t have a social security number were disqualified from getting a relief check. An estimated 1.2 million American citizens are married to undocumented immigrants. But they’re not the only ones who will feel the loss of being passed over for financial support. The cash payments to families are increased depending on the number of children living in each household, so larger families with an undocumented family member are potentially losing thousands of dollars they would have otherwise received for the care of their children as well.
This is telling in who the US government counts as “real Americans”… along with the fact that at this time, the Mayor of San Juan says not a single person in Puerto Rico has received a stimulus check despite their citizenship status. It’s speculated that the delay is the result of no distribution plan being in place, and the Secretary at the Puerto Rico Treasury Department said he received assurance from the IRS that it would send a distribution plan to the Treasury “later this month.”
8. Non-minor dependents were entirely left out.
There’s some contradiction in how this system is set up when it comes to tens of millions of adult dependents. Adults 18-24 years old can be claimed as dependents, even if they file their own taxes, and consequently cannot access the $1,200 stimulus check as they do not file their own tax returns. Students, for example, are often incentivized to file as dependents in order to qualify for federal student aid or access healthcare benefits, even when they live independently. A 2019 census study shows that 54% of 18-24 years olds do not live with their parents, and due to college campus closures, many now face displacement and lack access to other basic necessities such as food and healthcare. On top of this, young adults in this age group face particular vulnerability to coronavirus related layoffs, since nearly half work in service-sector jobs, and make up 24% of workers in higher-risk industries overall.
9. Many low-income people, veterans, and people with disabilities were missed by the stimulus bill.
Millions of peoples’ incomes are either so low that they are not taxable (i.e. their Adjusted Gross Income is under $12,200 or $24,400 for married couples) or mainly come from untaxed sources such as veterans benefits, disabilities benefits, or Social Security. Without a 2019 tax return, these vulnerable groups are unable to access a stimulus check unless they fill out this form — which is a huge barrier for the millions of Americans who do not have access to the internet, or for individuals with disabilities who need in-person help.
When it came to tax relief:
10. The 1% received new tax benefits—to what social benefit?
According to a new report by the Institute for Policy Studies, over 22 million people lost their jobs between March and April, while during the same three week period, U.S. billionaire wealth increased by $282 billion. So it seems like an odd moment to provide more tax breaks for the wealthiest members of society, but that’s exactly what the CARES Act did.
Investors have long been able to use “losses” to essentially erase part of their income on paper to minimize the taxes they pay, but a 2017 tax reform bill limited this to an extent. The CARES Act has now lifted that cap for households earning more than $500,000 a year (i.e. the richest 1%), making it possible for some to live tax free. The change also applies to taxes filed in 2018 and 2019, such that people could be eligible for millions in tax refunds as well. As these losses depreciate over the next 10-20 years, the New York Times has projected this could amount to at least $170 billion in lost tax revenue just in the real estate sector.
It must be said that there are people with wealth who advocate for higher taxes — Responsible Wealth is a great example of this, where business leaders, investors, and inheritors in the richest 5% of wealth and income in the U.S. support fairer and more equitable policies. So while there are some who actively try to fight unfair structures — just like the many people who donated their stimulus checks to those in greater need — we are again relying on individual goodwill over more equitable government policies.
So what do we do?
As we remain in this crisis (and beyond), it’s an important reminder to advocate for more inclusive and thoughtful policies in real time. Here are some actions individuals can take:
1. Call your reps and advocate for the proposals you care about.
The federal government can still do more with the targeted programs being proposed, such as the following laid out by Forbes Contributor Ryan Guina:
- “The Emergency Money for the People Act would provide a $2,000 monthly stimulus check for up to one year
- The Rent and Mortgage Cancellation Act would cancel rent and mortgage payments for up to one year
- The Getting America Back to Work Act would provide a payroll tax rebate that covers 80 percent of payroll expenses, enabling businesses to more easily hire and retain employees.”
You can show your support of these programs by emailing or calling your representatives to demand that they support these proposals.
2. Push your city to prioritize local communities of color.
In their latest article, Andre Perry and Nathalie Molina Niño present great ideas on how cities and states can take action. They can create funds for businesses of color based on their existing investments, operating them as “publicly owned private equity funds.” They can additionally create job training programs, like in the case of Michigan’s New Job Training Program which helps employers fund training and education for workers through community colleges. Perry and Molina Niño also advocate that city governments can commit to helping underserved communities by ensuring that “at least 30 percent” of city-related funds and public assets be managed by women and people of color.
3. In addition to using your voice and calling your elected officials today… make sure you’re ready to vote in November.
Here’s how to sign up to vote by mail in your state. You can also, as I have, support organizations like the Movement Voter Project that focus on voter access, empowerment and education across the country.
Thanks to Sandrine Demathieu and Jasmine Rashid for their contributions to this piece. Full disclosures related to my work available here. This post does not constitute investment, tax, or legal advice, and the author is not responsible for any actions taken based on the information provided herein.