CARES Act funds belong in the private sector

By Aaron Rice
May 12, 2020

Thanks to government action, and through no fault of their own, private sector companies have taken it on the chin for two months now. 

Mostly, those have been small companies. Mostly, these are companies that don’t employ lobbyists and don’t hold valuable government contracts. Some of these companies don’t even have employees – beyond owners who derive their incomes through profits, not salaries.

Many of them did not get a Payroll Protection Program loan from the SBA. These are the entrepreneurs, small business owners, and self-starters we should take care of immediately. They display the kind of personal responsibility and resilience we should hold up as an example to the rest of the world.

The small business owners and entrepreneurs are the lifeblood of thriving economies. They focus on serving consumers and developing superior business models in highly-competitive environments. Sometimes, they even create whole new categories with their creative ideas and execution. 

They don’t line up for government grants, tax incentives, or contracts. They don’t spend time trying to entertain or seek favors from our elected representatives. These are the folks on the front lines. They are creating new products and services to serve their fellow citizens. They are risking their own capital or the capital of private investors or banks. In other words, these small business owners know best how to get the greatest return on their money – because they have to. 

Let’s make sure they are the ones who receive not only the first monies allocated by the legislature, but also the largest portion of it.

According to the Tax Policy Center, Mississippi leads all of the Southeast in terms of its local tax burden as a percentage of personal income. It has been hovering at or above 10% since 1997, putting Mississippi on par with high tax states like California, Illinois, Minnesota, and New York. In terms of local business taxes, Mississippi companies contribute about 75% of the local tax revenue, which is higher than all of our surrounding states and roughly 50% more than the national average. This acts as a damper on small business development, expansion, and start-ups.

While we’re putting a “restrictor plate” on small businesses and the private sector not directly engaged with government, we double down on government spending. According to a 2018 study from the Cato Institute, Mississippi has the nation’s highest percentage of state and local spending as a percentage of GDP. Over the last three decades, the percentage of state and local spending has increased. Today, it stands at roughly 21% of our GDP. 

According to most economists who study it, that’s about twice the optimal rate of government spending in order for a state to maximize economic growth.

The federal government has sent Mississippi $1.25 billion, through the CARES Act, to be used to address the economic damage from COVID-19. The legislature and the governor have agreed, in some way, to work together on the allocation of that money. 

The devil will be in the details. 

I’m worried by some of the things I’ve heard about the initial plans. Right now, it looks like $100 million, or eight percent of the funds, will be designated for small businesses who got no relief from the PPP funds in April. I’ve heard the plan is to send as much as $300 million, or 24% of the total, to small businesses. It’s a nice start and the right place to begin helping the economic recovery. 

However, what are the plans with the other 76%, representing $950 million in relief funds? Keep in mind, healthcare facilities have already received federal monies, as have airports and the Mississippi Department of Education.

I’m hearing certain government agencies, counties, and cities are looking for money from the CARES Act funds. State and local governments should be the last to receive such funds and only after they can demonstrate pandemic-caused expenses to be reimbursed. Personally, I would recommend we ask State Auditor Shad White and his team of auditors to oversee the verification process. 

Keep in mind, almost all government workers continued to get paid during the shutdown. And those who were furloughed are eligible to receive unemployment or to receive back pay. Some legislators are even talking about providing “hazard pay” to certain government workers. While we appreciate and value the work of many civil servants, we need to appreciate the fact that most of our private sector members of the workforce didn’t go on unemployment, won’t get back pay or hazard pay, and don’t even know what a pension is.

Putting fairness aside, one of the most important reasons for allocating the majority of the funds to the private sector is because we have an overwhelming amount of evidence that shows us the private sector allocates money more efficiently and effectively than the public sector. If anyone doubts that rule applies in Mississippi, they only need to look at the way the Department of Human Services deployed resources it received from the federal government.

As this healthcare catastrophe winds down and our economy begins to wind up, let’s not prolong our economic pain by continuing to rely too much on government for our solutions. 

Let’s insist government stay limited to the functions it does well and allow small businesses, entrepreneurs, competition, and consumer choice to lead the way. Recognizing that private sector participants are in need, not government, and that small businesses are a core part of the path to economic recovery, we strongly support allocating a majority of the CARES Act funds to support recovery through the private sector.


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