PPP checks mostly went to the rich
In March 2020 Congress passed the Coronavirus Aid, Relief, and Economic Security Act, also known as CARES Act. The $2.2 trillion spending program contained spending programs to provide relief to the American people.
One of those programs was the Paycheck Protection Program (PPP) –– a low-interest, uncollateralized loan program to help small businesses maintain payroll. PPP distributed approximately $800 billion to small businesses between 2020 and 2021.
One of the biggest questions with PPP loans was whether these loans had been effective. Generally, economic theory opposes government subsidies since they distort markets. But in the case of PPP, these loans were justified since businesses were being crushed to a huge extent due to government-imposed COVID-19 restrictions
This justification, however, does not mean that these loans were efficient or cost effective. Two studies found evidence suggesting that each job saved by PPP cost over $300,000. Not to mention that a huge portion of those funds were lost to fraud.
PPP loans were regressive
But in addition to being uneconomical and and rampant with fraud, new evidence also indicates that PPP loans did not mainly benefit workers as intended. Instead, funds mostly went to rich households.
According to a new NBER working paper, only about a quarter of PPP funds went to workers. The majority of funds went to business owners, shareholders and creditors. Additionally, about three quarters of PPP loans went to the households in the top 20 percent of the income distribution.
This is explained largely by the fact that these loans were not targeted, unlike the other relief programs. Programs targeted at needy individuals, with measures like income cut-offs, are usually better at delivering relief to those needy individuals than expansive programs targeting the general population.
Certainly, the size of the program and the fact that these loans had to be given out quickly contributed to the problem. But we need to remember that these are issues plaguing most government programs.
This is merely another illustration of why government programs fail to help those in need, despite spending so much taxpayer money.