The Devil in the PPP’s Bailout Details

Of all the actions the U.S. government has taken during the coronavirus pandemic, the Paycheck Protection Program (PPP) has been one of the most effective in achieving its desired results.

The PPP provided $510 billion in emergency loans to small businesses to let them continue paying the incomes of their employees as they were shuttered by their state or local government’s coronavirus-related lockdown orders. As emergency spending programs go, it appears to have succeeded in keeping millions of Americans from becoming unemployed.

But most of the billions borrowed by businesses through the PPP program will almost certainly never be paid back. That is because the program allows the loans to be forgiven. So long as business owners can show they used at least 75% of the funds they received to sustain their payroll, they will never be required to repay the money.

Since the U.S. government itself had to borrow $510 billion to fund the emergency spending program, that means American taxpayers are the ones who will ultimately shoulder its cost, plus interest. That is the best case scenario.

Because the U.S. Treasury Department declined to provide full transparency into which businesses received the PPP’s emergency loans, the program almost certainly benefited firms that were either ineligible to receive funds or that were able to secure its benefits ahead of more deserving applicants using their political connections.

This matters because thousands of businesses were unable to benefit from the program due to the limited quantity of money to fund the “loans.” Now, many deserving but unlucky companies will now be forced to face bankruptcy instead.

The limited amount of information the Treasury Department and the Small Business Administration have made available about the borrowers indicates PPP loans went to private-equity backed enterprises (businesses funded by millionaires and billionaires that don’t rely on revenues from their operations to stay afloat) and businesses owned by members of Congress or their family members.

In the incestuous world of Washington, D.C., politics, those groups often overlap, which doesn’t even include the ripe potential for outright fraud. All of which makes the program more costly and less effective for American taxpayers than it needs to be.

Perhaps the scariest thing is that the PPP program is currently considered to be a successful federal emergency spending program. It may be an unofficial rule of thumb, but for every “successful” government program you hear about, there are at least ten other programs that should be considered failures.

Until it is operating with full transparency, the PPP should not be considered any kind of success for government accountability and fair play.

Craig Eyermann is a Research Fellow at the Independent Institute.
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