From Survival to Revival: How to Help Small Businesses through the COVID-19 Crisis, Policy Proposal 2020-14, The Hamilton Project

By Steven Hamilton (Assistant Professor of Economics, George Washington University; Visiting Fellow, Tax and Transfer Policy Institute, Australian National University)

The COVID-19 pandemic poses an existential threat to small businesses, with more than 400,000 lost since the crisis began. Many small businesses are financially fragile and not equipped to weather a prolonged period of substantially reduced revenues. Further widespread business failures would destroy jobs and firm-specific capital, and hamstring the recovery. The main existing source of support, the Paycheck Protection Program, has had mixed success, and is not well suited to what now looks to be a prolonged contraction. In its place, we should significantly expand the Employee Retention Credit to help cover small businesses’ payroll costs, and introduce a new Small Business Survival Credit to help cover small businesses’ fixed costs. Looking to the future, we should significantly invest in the capabilities of the IRS so it may better support small businesses in future crises.

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