Tag: Fixing

Fixing government’s trillion-dollar system glitch

As negotiations for a new coronavirus stimulus package heat up, there’s a long-deferred investment that Congress should make room for: funding an upgrade of the government’s antiquated financial systems to meet the modern era.

While much of the technology sector’s attention is drawn toward the advanced science of COVID-19 vaccines and the economy’s overnight digital transformation, it’s important to recognize that the nation’s economic recovery has been hampered by a more prosaic shortfall — the government’s inability to efficiently send cash payments.

Consider, for example, the three largest components of the last stimulus bill, known as the CARES Act — small business support, unemployment benefits, and stimulus checks. In each of these programs, the real-world toll of government’s technical deficiencies has been immense:

Congress crafted the $650 billion small business support program — the Paycheck Protection Program — to funnel payroll reimbursements through banks, sidestepping the more direct wage replacement policies used by many European nations. One key reason: The federal government had no technical means by which to quickly tabulate and send wage payments to small businesses, even though the Internal Revenue Service already collects nearly all of the relevant payroll data.

As a workaround, the CARES Act instead shoehorned wage subsidies into a federally-funded, bank-originated “forgivable loan” — a convoluted policy that provoked much confusion and consternation among the very businesses it sought to help. The program’s online portal crashed repeatedly. What’s more, the government will pay banks $18 billion to administer this effort, even as some have stumbled. Nearly a half-trillion dollars later, research suggests that the complex program yielded little benefit and cost an estimated $290,000 per job saved.

Similarly, the initial goal in augmenting unemployment benefits was to provide full replacement rate income to workers forced to shelter in place. Instead, lawmakers agreed to a $600 flat weekly supplement for all recipients as it soon became clear that many states’ computer systems were incapable of issuing actual replacement-level wages.

This blunt approach led to some workers receiving more in unemployment than they earned on the job, while simultaneously leaving nearly one-third short of the mark. Systems in some states buckled under the pressure of massive claims submissions, depriving many workers of compensation altogether at a time of urgent need. The federal government, meanwhile, had no mechanism for transmitting these funds to workers directly.

The $300 billion allocated to Economic Impact Payments, better known as “stimulus checks,” surfaced yet another systems gap. The I.R.S. could deliver immediate payments only to the half of Americans who filed tax returns with direct deposit information — a group that skews toward wealthier households. The agency’s “Get My Payment” online tool, intended for everyone else, has been bug-ridden. Even now, months after the CARES Act became law, nearly 9 million citizens — including many who could least afford to wait — had not yet received their stimulus payment.

Technological roadblocks like these confer little partisan advantage. Each issue had a straightforward policy solution that would likely have garnered broader acceptance

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