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Fall Economic Statement: Seven takeaways for Canada’s innovation economy

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The federal government tabled its Fall Economic Statement (FES) on Monday, proposing $100 billion in stimulus spending over the next three fiscal years, hoping to create one million jobs and drive an “accelerated economic recovery.”

The FES claims Canada’s economy would look a lot worse without the Liberals’ interventions since the start of the COVID-19 pandemic. The finance department estimates that without federal subsidy, credit and benefit programs, real GDP would have been 4.6 per cent lower this year and 4.4 per cent lower in 2021.

That’s part of the rationale for the government’s continued spending. “This crisis demands targeted, time-limited support to keep people and businesses afloat and to build our way out of the COVID-19 recession,” said the prepared text of a speech Finance Minister Chrystia Freeland will deliver in the House of Commons Monday afternoon. So the FES doesn’t set a new maximum deficit or debt target, instead promising that the government will start to wind down its stimulus measures based on indicators like employment levels and hours worked. This year, Ottawa will run a $381.6-billion deficit, with spending exceeding revenues by $121.2 billion next fiscal year.

For Canada’s innovators and small- and medium-sized businesses, the government unveiled some key policies, with details on changes to how stock options will be taxed, an extension of wage and rent subsidies, and another step towards a digital-services tax. Here are seven ways the economic statement will affect the innovation economy.

Stock options

What: Employees will be taxed at the capital-gains rate for the first $200,000 worth of shares for which they exercise stock options each year; anything above that amount will be taxed at the regular personal-taxation rate—the share of income individuals typically owe, based on their tax bracket.

How much: The government expects to collect an additional $200 million annually from the change.

The fine print: The cap will apply to options granted from July 1, 2021 onwards. The government has long promised the measure won’t hurt startups and fast-growing businesses, which the FES notes use options “as a tool for attracting and retaining talent.” It won’t apply to firms with annual gross revenues of $500 million or less. The changes will also exempt Canadian-controlled private corporations: firms incorporated in the country and majority-controlled by residents. Innovation-economy companies often use the structure, which helps them qualify for the highest rates under the federal scientific research and experimental development tax credit.

The context: The Liberals first proposed a stock-option cap during the 2015 federal election, but backed off the plan the following spring, after opposition from tech executives. The government revived the measure in the 2019 budget, promising this time to exempt “start-ups and rapidly growing Canadian businesses.” Innovation-economy executives expressed concern about how Ottawa would design the carve-out, and the size of the cap. A “reasonable number” for the annual limit would be “into the millions before you get taxed,” Sachin Aggarwal, CEO of Toronto-based health-care technology firm Think Research, told The Logic in October 2019. He also called for provisions allowing employees to be able to defer the amounts they owe. Startup staff don’t typically sell their shares until the company exits, so they don’t necessarily have the cash on hand to pay the tax agency, even if exercising their options makes them look wealthier on paper. The FES does not include such provisions.

The bottom line: Employees at many startups, scale-ups and fast-growing firms will indeed be exempted from the new cap, assuaging executives’ fears that the measure would hurt their ability to recruit and keep skilled workers. But staff at some of the country’s biggest tech companies will have to pay more tax on new options—Shopify, BlackBerry, and Ceridian all had more than $500 million in revenue last fiscal year.

The response: “You can’t tax your way to prosperity, so it’s good to see the government has listened to the leaders of Canada’s high-growth tech sector and understands that stock options are used for talent attraction and retention, and should be kept as competitive as possible,” said Benjamin Bergen, executive director of the Council of Canadian Innovators, a lobby group for scale-up firms.

***

Canada Emergency Wage Subsidy

What: The maximum subsidy rate for the Canada Emergency Wage Subsidy (CEWS) program will increase from 65 per cent to 75 per cent starting December 20, all the way to March 13, 2021. The program had started with a maximum subsidy of 75 per cent, before being scaled down in July. The revenue-drop test for program eligibility will now be the same for both the base amount and the top-up amount (a change in an eligible employer’s monthly revenues year over year, or compared to the average of January and February 2020 revenues).

How much: The increase to this subsidy alone is expected to cost the government $14.8 billion. The feds have already dispensed over $50 billion to businesses in CEWS payments to date, and the economic statement estimates a total of $83.5 billion in spending on wage subsidies in 2020.

The fine print: Although the government did not provide an estimate of how many businesses it expected to apply for the CEWS in 2021, it did disclose a provisional estimate for combined spending on the Canada Emergency Rent Subsidy (CERS) and CEWS for the period of April to June 2021, which it expects will exceed $16 billion. It estimated that over 3.9 million Canadian workers have been supported by the CEWS to date.

The context: The CEWS faced some criticism from businesses when it was first introduced because eligible employers were required to have had a 30 per cent revenue decline in any four-week period in which it applied, in order to qualify for what was a 75 per cent subsidy at the time. Tech companies, in particular, argued that revenue losses were not an adequate measure of decrease in business activity, suggesting that the government consider other variables to measure the impact of the pandemic, like declines in billable hours, units shipped, gross bookings or subscriptions. Under new legislation that was ratified in November, any business with a revenue decline would be eligible—the subsidy, however, would still be proportional to revenue losses, but capped at a maximum of 65 per cent. The CEWS is currently set to expire in June 2021, and the economic statement offered no indication the deadline would be extended.

The response: While it welcomed the 75 per cent boost to CEWS, the Canadian Federation for Independent Business (CFIB) noted that when the program was first introduced, firms that had just a 30 per cent revenue loss were eligible for a maximum wage subsidy of 75 per cent. Under the proposed new rules, businesses would need a 70 per cent revenue collapse to qualify. “It is disappointing that the government has not announced further fixes for new businesses and self-employed Canadians, who remain ineligible for nearly all of the key support program,” said CFIB CEO Dan Kelly in a statement.

***

What’s in the FES for small businesses

  • The maximum CEWS subsidy rate will increase from 65 per cent to 75 per cent, starting December 20.
  • The maximum cap of 65 per cent under the CERS rent-subsidy program will be extended to March 13, 2021.
  • The 25 per cent rent subsidy top-up for businesses in lockdown zones like Toronto will be extended to March 13, 2021.
  • A new program—the Highly Affected Sectors Credit Availability Program—will provide low-interest loans of up to $1 million for terms of up to 10 years for businesses of all sizes in sectors like tourism, hospitality, hotels, arts and entertainment.
  • A special procurement pilot program will launch to open bidding opportunities for Black-owned and -operated businesses.

Rent

What: For eligible businesses needing rent relief, the government will now extend the base subsidy rate of 65 per cent in the Canada Emergency Rent Subsidy (CERS) program by three months, meaning that successful claimants who have experienced an income loss of at least 70 per cent will be guaranteed 65 per cent of their rent until March 13, 2021.

How much: The government expects to spend an additional $2.18 billion on the subsidy extension, in addition to the $2.18 billion it had already allocated to the CERS when it was first introduced.

The fine print: The government had previously announced a 25 per cent rent relief top-up under the Lockdown Support program for businesses affected by a full lockdown, until December 19. That is now being extended to March 13, 2021, meaning that some businesses may be able to receive up to 90 per cent in rent relief for the next three-odd months.

The context: The CERS program was introduced as a substitute for the Canada Emergency Commercial Rent Assistance (CECRA), which was widely considered an inadequate measure to help struggling tenants with rent because it relied on the landlord to apply for government aid on a tenant’s behalf. The government had in fact already spent $1.65 billion on the CECRA prior to the introduction of this new rent-subsidy scheme. The CERS is a direct subsidy program, dispensed on a sliding scale. For example, a loss of revenue of between 50 per cent and 69 per cent would qualify a business for a rent subsidy of 40 per cent + (revenue decline – 50 per cent) x 1.25, while a business that has seen its revenue collapse by 70 per cent or more would receive a maximum subsidy of 65 per cent. The CERS itself only began accepting applications for the first subsidy period of September 27 to October 24 on November 23, but will pay out retroactively. Unlike the CECRA, businesses can apply directly for the CERS through a CRA portal.

***

Sales tax

What: Foreign firms that sell Canadian consumers digital products and services, like smartphone apps or video- and music-streaming subscriptions, or that use domestic warehouses to ship orders to Canadian shoppers, will have to collect and remit the federal sales tax. So will Airbnb and other short-term rental platforms, or their hosts—the FES specifically cites short-term-rental accommodation, leaving it to either the property owner or the platform to take and pass on the tax on rentals in Canada.

How much: The FES estimates the expanded sales-tax measures will bring in a combined $396 million in 2021–22, the next fiscal year, rising to $792 million by 2025–26.

The fine print: The new requirements won’t kick in until next summer. Platforms will have to start collecting and remitting on July 1, 2021, giving the government time for consultations.

The context: Foreign digital platforms aren’t currently required to charge sales tax on many of their sales to Canadian shoppers or streamers. Canadian competitors have argued this puts them at a disadvantage, since consumers end up paying more overall when they buy domestic. Buyers are technically supposed to send the Canada Revenue Agency what they’d owe on their purchases, but few do—in 2017, 120 voluntarily registered entities paid a combined $3.6 million on imported taxable supplies, The Logic reported. Quebec and Saskatchewan already require foreign digital firms to collect and remit provincial sales tax.

***

Digital services tax

What: Ottawa will impose “a tax on corporations providing digital services” starting on January 1, 2022.

How much: The FES estimates the measure will bring in $3.4 billion over the next five fiscal years, rising from $200 million in the last three months of 2021–22 to $900 million for the full 2025–26 fiscal year.

The fine print: There isn’t any. The FES doesn’t provide any details about how much the new digital-services tax (DST) will charge, on what revenues or to which companies it will apply. Instead, it promises more information in the 2021 federal budget.

The context: More than 130 countries are currently negotiating an OECD- and G20-fronted plan to change the way multinational corporations are taxed, aiming to prevent firms from moving profits to lower-tax countries and ensuring they pay taxes where they make their revenues rather than in the countries they’re incorporated. Tech giants are a key target. But in October, the OECD said the group wouldn’t reach a deal this year—and it’s not the first time the process has been delayed. “The government remains committed to a multilateral solution, but is concerned about the delay in arriving at consensus,” the FES states; the new DST it proposes is a stopgap measure until Ottawa can implement whatever deal the OECD-led group reaches. The OECD has warned that governments could provoke trade disputes by introducing such country-specific taxes. During the 2019 federal election, the Liberals proposed a three per cent tax on revenue from online advertising and user data for firms making at least $40 million and $1 billion in Canadian and total revenue, respectively.

The response: Bergen said CCI’s members want clarity on how the sales tax and DST proposals could affect them.

***

The green economy 

What: Natural Resources Canada (NRCan) will expand its program of building zero-emission vehicle (ZEV) charging and fuelling stations. The government will also give homeowners up to $5,000 to renovate their properties in energy-efficient ways, and launch a “low-cost loan program” to supplement those grants.

How much: The department will get an additional $150 million over three years for ZEV-charging infrastructure, and $2.6 billion over seven years to fund residential retrofits.

The fine print: The Liberals’ September throne speech promised a 50 per cent tax break and a new fund for companies that develop zero-emission technology. The FES introduces neither. “Targeted action by the government to mobilize private capital will better position Canadian firms to bring their technologies to market, unlocking both the economic and environmental potential of the growing global clean technology market,” it states.

The context: Ottawa says its already funded 433 charging and fuelling stations, and another 800-plus are being built with its backing, at a combined cost of $226.4 million. Experts have told The Logic such infrastructure could help drive ZEV adoption, but have also called for more industry-focused measures if Canadian governments hope to achieve their hopes for a domestic electric car-making industry. Meanwhile, cleantech firms might have expected more from Monday’s plan. “Energy R&D and cleantech innovation are particularly vulnerable” due to the pandemic, an internal presentation prepared for then-NRCan deputy minister Christyne Tremblay warned.

***

The rest 

Ottawa will add $250 million in new money over five years to the $3.5-billion Strategic Innovation Fund. It’s already increased the program’s budget during the pandemic, adding $792 million for COVID-19-related R&D and manufacturing projects.

Businesses most affected by the pandemic, such as those in tourism and hospitality, hotels, arts and entertainment, will be able to borrow up to $1 million for up to 10 years via the new Highly Affected Sectors Credit Availability Program. The loans will be federally funded; eligibility criteria and other details will be announced “soon.” Former finance minister Bill Morneau first promised sector-specific support in March.

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The government will also appoint a new taskforce to create an “action plan for women in the economy.” Pandemic-related job losses and the pace of rehiring have left a disproportionate number of women out of work.

Ottawa will put $33 million over three years behind its 50-30 Challenge, announced last month, which aims to increase the share of director and senior management roles at companies, non-profits and academic institutions  held by women to parity and by members of underrepresented groups—including racialized people, Indigenous people, people with disabilities, and LGBTQ2 people—to 30 per cent. The money will pay for “diversity-serving organizations” to work with firms and charities on their strategies for improving representation and to create new online resources.

The federal government will also waive interest on its portion of the Canada Student Loans and Canada Apprentice Loans for the 2021–22 fiscal year, at a total cost of $329.4 million. And it’s setting up a new secretariat to “provide child care policy analysis in support of a Canada wide-system,” with a $20-million budget over four years. Ottawa isn’t funding a national program just yet, however.

Source:- The Logic

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Biden’s Vaccination Goals Could Lift the Economy – Barron's

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This commentary was issued recently by money managers, research firms, and market newsletter writers and has been edited by Barron’s.

Too Much Stimulus, Too Few Shots

Paulsen’s Perspective
The Leuthold Group
Jan. 21: The broad U-6 unemployment rate is currently 11.7%, and the regular U-3 rate is still 6.7%. Unemployment is higher today than about 73% of the time since 1950, so it is understandable why both monetary and fiscal policies remain full tilt.

Economic programs traditionally take time to improve unemployment after a recession. However, the Covid-19 crisis created a unique divergence within the job market that will not be solved by customary economic policies, but instead by vaccinations.

Consequently, with literally a “shot in the arm,” the job market may come back to life much quicker than almost anyone anticipates. Should this occur, policy officials will be left with a nearly fully employed economy and massive, excess stimulus—potentially creating additional problems down the road.

The fastest route to economic recovery—and perhaps the best approach to minimize unintended consequences longer term—is not another round of relief checks, but instead greater resources behind President Joe Biden’s desire to “put shots” in 100 million arms within 100 days.

Nutty Speculation

Investor Advisory Service
ICLUBcentral
Jan. 20: Outside of imperiled commercial real estate, almost no asset class looks cheap right now. Bonds certainly do not impress, with safe yields still near zero while inflation knocks on the door. Equities look better. The Wall Street Journal estimates the S&P 500 index’s forward price/earnings ratio at 25, almost exactly where it stood a year ago at this time. Investors will need to be selective. Corners of the market are clearly in bubble territory. This doesn’t have to end badly for investors, as the 2000-01 “tech wreck” left many stocks unscathed even as speculative stocks fell sharply.

Some of the stories we are witness to right now can scarcely be believed. The CEO of a fashionable growth company with a P/E over 1,000 and a market cap of almost $1 trillion recently tweeted his support for a social-media upstart called Signal. Investors responded by blasting money into an unrelated penny stock called Signal Advance, which saw its share price increase from $0.60 per share to a high of $70.85. Again, this is a totally unrelated company with a similar name. The stock cooled off somewhat, but as of this writing, Signal Advance remains up more than 1,000% from its unaffected price. The market is littered with similar stories of rampant, uninformed speculation.

Investors who stick to reliable companies backed by solid fundamentals still have a good chance to grow their purchasing power over time, even in an elevated market. Investors who throw their money into the wind will lose it. It is as simple as that.

Goodbye, Financial Crisis Funk

2020 Fourth Quarter Investor Letter
Pelican Bay Capital Management
Jan. 14: We believe that the theme for 2021 will be optimism. Society is poised to emerge from isolation and deprivation wrought by the pandemic. We collectively faced a crucible, and while it still may be hard for many to recognize it, we are all stronger and better prepared for the future….

Looking back at the pandemic, it may prove to be a blessing for society, providing the trigger that shakes us out of the funk we have found ourselves in since the financial crisis. The digitization of work and productivity is a boon for workers everywhere, as many are finally free of the 9-to-5 grind and daily commute to a large, stuffy office building. The interior of the country will have a renaissance, as high-quality jobs no longer require a cubicle in unaffordable city centers along the coasts. Suddenly, the immense challenge and costs of reversing climate change seem less daunting. Most important, we have unlocked a medical miracle that will have a profound impact on health care and longevity, akin to the engineering gains ushered in by the space race of the 1960s.

Covid Relief Could Shrink

Special Commentary
Wells Fargo
Jan. 22: We view Biden’s $1.9 trillion proposal [for Covid-19 relief] as an opening bid and not necessarily an outline that will be translated into bill language verbatim. But, the 19-page outline is fairly detailed for an opening bid, and it firmly signals that another Covid relief deal will be a day-one legislative priority for the Biden administration.

Our expectation is that a deal will eventually be struck, probably in March, but that the final legislation will be much smaller than what is in Biden’s proposal and more along the lines of the $900 billion package that was enacted in December.

We think that the balance of risks is skewed towards a smaller deal, or no deal at all, rather than a bigger deal closer to the initial Biden proposal. That said, when paired with the $900 billion package enacted at the end of December, this should be plenty of fiscal support to see the U.S. economy through to the summer when, hopefully, vaccine distribution is well on its way to completion.

Needed: More Houses

December Existing Home Sales
Amherst Pierpont
Jan. 22: Existing-home sales ended the year in a familiar place—stronger than expected. The December sales pace increased to 6.76 million units, up slightly from November though down somewhat from October’s 14-year high. For the year, existing-home sales totaled 5.64 million, up by more than 5% from 2019. It would have been hard to foresee that back in April!

The release strikes an optimistic tone, as the National Association of Realtors, or NAR, expects demand to remain robust in 2021, which seems like a good bet to me, as well. The biggest impediment to higher sales at this point is a dearth of available supply. The number of existing homes on the market fell by 16% from November and by 23% from a year ago. The months’ supply figure dropped to 1.9%, the first time ever below two months (going back to 1982). The NAR release applauds the sharp increase in housing starts in recent months but argues, as I have, that starts will probably need to remain vigorous for at least another year or two to catch up to the once-in-a-generation rise in demand for homes that occurred in large part because of the pandemic.

In Japan, Ouch!

Daily Notes on the Global Economy
High Frequency Economics
Jan. 22: Here is more bad news about Japan’s overall economic situation: National department-store sales in December were 13.7% lower than a year ago, according to figures this morning from industry association JDSA. In November, they were 14.3% lower than a year ago. Sales are not only depressed by public health measures, but also the population is aging fast and shrinking. That means fewer young households establishing new homes and families, and fewer customers for large-scale retail stores overall. Declining retail spending as the nation depopulates is a secular crisis, upon which the pandemic has been overlaid. Ouch!

To be considered for this section, material, with the author’s name and address, should be sent to MarketWatch@barrons.com.

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What does the economy need now? 4 suggestions for Biden's coronavirus relief bill – The Conversation US

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Editor’s note: The Biden administration has made it clear it wants to inject more money into the U.S. economy and provide more aid for priorities like vaccines, reopening schools and state governments. We asked four economists to share what’s on the top of their wish lists for Biden and Congress, and why.

A better way to save businesses while helping workers

Steven Pressman, Colorado State University

Since March, 20,000 U.S. businesses have failed every month, on average. Small companies, which employ nearly half of all workers, have been hit hardest. The U.S. economy will struggle to recover without significant support for small businesses and their workers.

One way Congress addressed these problems back in March is by offering small companies forgivable loans if they kept workers on their payroll for 10 weeks. While helpful, the Paycheck Protection Program came with major flaws, such as a design that led to lots of fraud. In addition, billions of dollars went to companies that didn’t need it, while some of those in greatest need couldn’t secure adequate funds.

The U.K. had a different solution. Its government created the Coronavirus Job Retention Scheme, a form of wage and job insurance for workers. The government pays up to 80% of usual wages – subject to an income cap – to furloughed workers that companies retain as employees. Companies cover another 20% of usual wages. Low-income workers also receive additional monthly payments of up to the equivalent of about US$500.

Workers can be partially furloughed, working three or four days per week rather than five. This solves the problem of what to do about workers whose hours get cut or who go from full-time to part-time status.

The plan has helped companies reduce their labor costs, while maintaining flexibility to bring workers back when conditions allow. Importantly, aid goes to workers – not companies – which has ensured workers and their incomes have been protected throughout the crisis. And aid goes only to workers whose companies experience problems due to the coronavirus pandemic.

Unemployment rates in the two countries tell part of the British success story. In the U.K., unemployment increased gradually last year from 4% pre-pandemic to 4.9% in October. U.S. unemployment, in contrast, almost doubled from 3.5% to 6.7% in the that same period, peaking at nearly 15% in April.

The U.K. program has provided support to workers throughout the pandemic’s ups and downs. The Paycheck Protection Program was meant to be temporary, although more funds were added in December.

In the U.K., fraud has been limited because companies don’t get the money. And the government has encouraged workers to become whistleblowers, while imposing large penalties on the officers of companies engaged in fraud.

Rather than continuing to fund the Paycheck Protection Program, Congress and the president should switch gears and enact a program like the U.K.‘s that will see America through the crisis, however long it lasts.

Protesters display placards during a demonstration to support for tenants and homeowners at risk of eviction in Boston on Oct. 11.
An eviction crisis looms for the Biden administration.
AP Photo/Steven Senne

Addressing the eviction crisis

Melanie Long, College of Wooster

The sharp rise in unemployment due to the pandemic has left many Americans struggling to pay the bills. Renters have been among the most vulnerable.

Compared with homeowners, renters are more likely to be poor, young and either Black or Hispanic – the exact same demographic of those who have suffered the most from the pandemic’s economic fallout.

The result has been a looming eviction crisis that has been staved off by a patchwork of federal, state and local moratoriums. Millions of renters could face homelessness once existing moratoriums expire and accumulated back rent comes due.

About 9 million households have fallen behind on rent payments, with over 1 million estimated to owe $5,000 or more. This could also worsen the public health situation and slow the economic recovery.

To address this crisis, I believe Congress needs to both provide short-term solutions and long-term fixes.

For starters, it’s vital that the Centers for Disease Control and Prevention’s eviction moratorium continue. On Jan. 20, Biden extended the moratorium – which was set to expire at the end of January – to March 31. But that will likely need to be extended further.

Another critical need is rental and housing assistance. Biden’s proposed stimulus package already includes $30 million to help renters and support struggling landlords. Adding even more assistance could have major economic benefits as low-income beneficiaries especially are likely to spend every extra penny on food and other goods, stimulating the economy.

Access to affordable housing has been worsening for years, especially in communities of color. The gap between black and white homeownership rates has widened since the 1960s. The fact that only 42% of Black Americans own their homes, compared with 72% of their white peers, means most of them are renters, making them more vulnerable to losing their homes. It’s also largely to blame for the stark racial wealth gap in the U.S., which in turn reduces economic growth.

Congress could begin to address these deeper problems by providing down payment assistance in historically redlined communities, which would help households that are not currently on the edge of a financial cliff take advantage of historically low interest rates as so many others have.

A woman tries to work on her computer while two young girls try to get her attention.
Women have borne the brunt of increased child care needs during the pandemic.
MoMo Productions/DigitalVision via Getty Images

Helping women get back to work

Veronika Dolar, SUNY Old Westbury

During the pandemic, unemployment has been felt most acutely by women.

Women in the U.S. lost a total of 156,000 jobs in December, even as men gained 14,000. There were nearly 2.1 million fewer women in the labor force at the end of 2020 than there were pre-pandemic.

One reason for this is that women are more heavily represented in sectors that saw the biggest job losses in December, such as hospitality and private education. But another important one is that women generally have been expected to increase their already disproportionate share of household child care duties after COVID-19 shut down schools.

All of this could lead to a significant decline in women’s total wages over time – one estimate puts it at $64.5 billion a year. This would result in a sharp drop in economic activity and billions in lost tax revenue for state and federal budgets.

But Congress could help offset this outcome in several ways.

One of the most critical is helping parents find affordable child care facilities. More than a quarter of child care centers in the U.S. remain closed because of the pandemic, and those that are open are often unaffordable. Child care costs have increased 47% during the pandemic.

Biden wants to address this by providing $25 billion to directly support child care providers and $15 billion to help low-income families afford care.

While this funding would go a long way to ensuring mothers have access to affordable child care, the lack of flexibility at most providers means women with uncertain work hours or who need other accommodations will still struggle. A more comprehensive plan should include some support to hire babysitters or even child support vouchers that could be spent as needed.

The other side of this issue is ensuring new mothers and fathers can take time off work to care for their children themselves. Biden’s proposal includes up to 14 weeks of paid family and medical leave, which will help ensure women don’t have to choose between a new baby and their career.

Unemployment insurance reform

R. Andrew Butters, Indiana University

Millions of Americans who have lost their jobs as a result of the pandemic have relied on the unemployment insurance system to pay for bills, rent and food.

But that system, in terms of staffing and technology, wasn’t designed to handle the unprecedented need seen today. About 5 million people made continuing claims for jobless benefits in January. That’s down from a record 25 million in May but still near the highest the figure had ever been previously.

Aid packages passed in March and December extended the benefits to people who don’t normally receive them – such as gig workers and part-time employees – and included a federal supplement. But these changes added strain to the system and made it more difficult to prevent fraud and process legitimate claims.

[Deep knowledge, daily. Sign up for The Conversation’s newsletter.]

Keeping unemployment benefits flowing to people out of work due to the pandemic is essential to the economic recovery, both so that the unemployed can afford to live and also for the broader economy, which depends on consumer spending.

But this requires ensuring the system is effective and reaches everyone who needs help. Lawmakers could begin to do this by making some temporary changes permanent.

For example, traditionally, independent contractors, part-time employees and some other categories have been ineligible for unemployment benefits. In March, Congress created two programs that specifically provide them with benefits. But those programs expire in March. Lawmakers shouldn’t simply extend them again but ensure these growing segments of the workforce always have access to benefits.

Lawmakers could also make sure extended benefits – that is, allowing the unemployed to receive up to 50 rather than only 26 weeks of insurance – don’t expire in the March.

And I believe the relief package should also consider investing to help state offices hire more workers, update their technology infrastructure and coordinate more effectively with other states. This should lead to timelier and more accurate payments and protect against the most sophisticated attempts at fraud.

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Biden's rescue plan will give U.S. economy significant boost: Reuters poll – The Guardian

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By Indradip Ghosh and Richa Rebello

BENGALURU (Reuters) – U.S. President Joe Biden’s proposed fiscal package will boost the coronavirus-hit economy significantly, according to a majority of economists in a Reuters poll, and they expect it to return to its pre-COVID-19 size within a year.

Biden has outlined a $1.9 trillion stimulus package proposal to jump-start the world’s largest economy, which has been at the epicenter of the COVID-19 pandemic having lost over 400,000 lives, fueling optimism and sending Wall Street stocks to record highs on Thursday.

Hopes for an upswing in U.S. economic growth, helped by the huge stimulus plan, was reflected in the Jan. 19-22 Reuters poll of more 100 economists.

In response to an additional question, over 90%, or 42 of 46 economists, said the planned fiscal stimulus would boost the economy significantly.

“There are crosswinds to begin 2021 as fiscal stimulus helps to offset the virus and targeted lockdowns. The vaccine rollout will neutralize the latter over the course of the year,” said Michelle Meyer, U.S. economist at Bank of America Securities.

“And upside risks to our…growth forecast are building if the Democrat-controlled government can pass additional stimulus. The high level of virus cases is extremely disheartening but the more that the virus weighs on growth, the more likely that stimulus will be passed.”

For a Reuters poll graphic on the U.S. economic outlook:

https://fingfx.thomsonreuters.com/gfx/polling/oakveynqovr/Reuters%20Poll%20-%20U.S.%20economy%20outlook.png

The U.S. economy, which recovered at an annualized pace of 33.4% in the third quarter last year from a record slump of 31.4% in the second, grew 4.4% in the final three months of the year, the poll suggested.

Growth was expected to slow to 2.3% in the current quarter – marking the weakest prediction for the period since a poll in February 2020 – amid renewed restrictions.

But it was then expected to accelerate to 4.3%, 5.1%, 4.0% in the subsequent three quarters, a solid upgrade from 3.8%, 3.9% and 3.4% predicted for those periods last month.

On an annual basis, the economy – after likely contracting 3.5% last year – was expected to grow 4.0% this year and 3.3% in 2022, an upgrade from last month.

For a graphic on Reuters Poll – U.S. economy and Fed monetary policy – January 2021:

https://fingfx.thomsonreuters.com/gfx/polling/azgpoljbkvd/U.S.%20economy.PNG

Nearly 90%, or 49 of 56 economists, who expressed a view said that the U.S. economy would reach its pre-COVID-19 levels within a year, including 16 who expected it to do so within six months.

“Even without the stimulus package, we had already thought the economy would get back to pre-COVID levels by the middle of this year,” said Jacob Oubina, senior U.S. economist at RBC Capital Markets.

“With the new stimulus package there will be more direct money in people’s pockets, easily boosting the economy, provided a vaccine rollout progresses in a constructive manner.”

But unemployment was not predicted to fall below its pre-pandemic levels of around 3.5% until 2024 at least.

When asked what was more likely for inflation this year, only one said it would ease. The other 40 economists were almost evenly split between “a significant pickup” and price pressures remaining “about the same as last year.”

Still, the core Personal Consumption Expenditures (PCE) price index – the Federal Reserve’s preferred inflation gauge – was forecast to average below the target of 2% on an annual basis until 2024 at least, prompting the central bank to keep interest rates unchanged near zero over the forecast horizon.

“I don’t think it will be an increase in underlying (inflation) trend, it is sort of a rebound in prices that have been depressed during the pandemic,” said Scott Brown, chief economist at Raymond James.

(For other stories from the Reuters global long-term economic outlook polls package:)

(Reporting by Indradip Ghosh and Richa Rebello; Additional reporting by Manjul Paul; Polling by Mumal Rathore; Editing by Rahul Karunakar and Hugh Lawson)

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