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 — if only the government’s systems could have executed it. After all, would any politician object were every citizen to receive their stimulus payment on the same day? Instead, Democrats have been dismayed by the small business rollout. Republicans have railed against the “super-charged” unemployment benefits. Even now, the technical inability to provide replacement-level unemployment payments remains a key sticking point in negotiations over the next relief bill.
Collectively, these three CARES Act programs account for over a trillion dollars in payments to businesses and individuals. By comparison, individuals will remit roughly the same amount this year safely, cheaply, and near-instantaneously through services like PayPal, Venmo, and Zelle.
Throughout this crisis, emerging technology firms have helped light a path. Tech startups have been among the pioneers in getting funding to the smallest of businesses and supporting families. Kabbage, an Atlanta-based fintech, reports it processed 300,000 Paycheck Protection Program loans — rivaling Chase and Bank of America for the top ranking among lenders. And it addressed many of the nation’s smallest businesses, with an average loan size of just $28,000 versus the program’s overall average of $101,000. Meanwhile, Chime, a digital bank, was the first to offer its customers no-cost advances based on their eventual receipt of stimulus checks.
With a concerted effort, the public sector could surely engineer comparable feats. Homegrown initiatives within the bureaucracy to improve the status quo, such as the U.S. Digital Service and 18F programs, have made headway. But these activities comprise an infinitesimal portion of the federal government’s $90 billion annual technology budget — and are shrinking.
Government has a well-chronicled legacy of technology foibles. The nation’s nuclear arsenal operated with eight-inch floppy disks until last year. The I.R.S.’s core systems are even older. Few have forgotten the political debacle of healthcare.gov.
Yet, in the present moment, the government’s technological gaps are no mere technocratic talking point. At its best, technology can work to create new possibilities for policymakers. Instead, it’s serving to limit them — delaying and complicating aid to families and small businesses when they’ve needed it most.
What’s called for now is to address the problem at the source by modernizing our government’s fintech infrastructure. Not only would strengthened systems better facilitate essential programs like those in the CARES Act, but the more proficient policies they enable could even contribute to a restored public confidence in government.
While we’re all hopeful that new vaccines and treatments will soon bring the coronavirus crisis to heel, there’s also little doubt that government will once again be called upon to execute large-scale relief programs in tight timeframes. We should invest today to provide tomorrow’s leaders with the foundational tools that they’ll need for that task.
Jason Tepperman served as the director of the U.S. Treasury’s Small Business Lending Fund from 2010 to 2014. He currently is managing director of PLC Fund Advisors, LLC, a specialized small business lender. Before entering government, Mr. Tepperman was a venture capital investor with Baker Capital. He holds an MBA with Distinction from Harvard Business School and a bachelors with honors in computer science and ethics, politics, & economics from Yale University.