The COVID-19-Related Fiscal Response: Recent Actions and Future Options

INSIGHTi
The COVID-19-Related Fiscal Response:
Recent Actions and Future Options
August 31, 2021
The federal response to the Coronavirus Disease 2019 (COVID-19) pandemic has included programs
providing economic relief to individuals, businesses, and state and local governments. Expiration or
exhaustion of several of these programs has generated congressional discussions on the effect extending
some of these programs could have on the U.S. economy’s short- and long-term performance. This
Insight briefly summarizes the fiscal policy response to COVID-19, highlights some programs that are
near expiration or exhaustion of funding, and discusses underlying economic issues. For a full list of
expiring provisions, see CRS Report R46704, Pandemic-Related Provisions Expiring in the 117th
Congress.
State of the Economy
The COVID-19 pandemic generated a sudden and severe decline in economic activity. The national
unemployment rate rose from 3.5% in February 2020 to 14.7% in April 2020, the highest monthly rate
ever recorded (dating back to 1948). Real GDP declined at an annual rate of 31.2% in the second quarter
of 2020, which was larger than any single quarterly change in real GDP (dating back to 1947).
General economic conditions have improved since the early months of the pandemic. In the second
quarter of 2021, real GDP surpassed its pre-pandemic fourth quarter 2019 level, and the unemployment
rate, while stil elevated, has decreased substantial y from April 2020 and stood at 5.4% in July 2021. The
strength of the recovery moving forward is uncertain. The Delta variant stil poses a public health risk, the
economy has experienced several months of moderately high inflation, and the labor force participation
rate remains below pre-pandemic levels.
Fiscal Policy Response
Fiscal stimulus is short-term spending increases or tax decreases designed to increase short-run economic
output. According to theory and historical evidence, fiscal stimulus can reduce the decline in output and
employment associated with recessions and guide the economy back to the full-employment level of
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output more quickly than would otherwise occur. Fiscal stimulus programs are general y most effective
when they can deliver benefits relatively quickly and support recipients earlier in the economic downturn.
In response to the COVID-19 pandemic, the federal government enacted several laws providing fiscal
stimulus spending for economic relief in 2020 and 2021, summarized in Table 1. In total, the legislative
changes are projected to increase FY2020-FY2031 deficits by $5.12 tril ion. Of that effect, $4.0 tril ion
(about 80% of the budget window total) was estimated to occur in the fiscal year in which each law was
enacted.
Table 1. Projected Deficit Increases from Major Pandemic-Related Legislation
Total Budget
First Year
Date of
Window Deficit
First Year
Increase As a
Pandemic-Related Bill
Enactment
Increase
Increase
% of GDP
The Coronavirus Preparedness and
March 6, 2020
$8 bil ion
$8 bil ion
<0.1%
Response Supplemental Appropriations
(FY2020-FY2030)
(FY2020)
Act (P.L. 116-123)
The Families First Coronavirus Response
March 18, 2020
$192 bil ion
$135 bil ion
0.7%
Act (P.L. 116-127)
(FY2020-FY2030)
(FY2020)
The CARES Act (P.L. 116-136)
March 27, 2020
$1,721 bil ion
$1,606 bil ion
7.8%
(FY2020-FY2030)
(FY2020)
The Paycheck Protection Program and
April 24, 2020
$483 bil ion
$434 bil ion
2.1%
Health Care Enhancement Act (P.L. 116-
(FY2020-FY2030)
(FY2020)
139)
The Consolidated Appropriations Act,
December 27,
$868 bil ion
$737 bil ion
3.3%
2021 (P.L. 116-260) (COVID-related
2020
(FY2021-FY2030)
(FY2021)
provisions)
The American Rescue Plan Act of 2021
March 6, 2021
$1,844 bil ion
$1,164 bil ion
5.2%
(P.L. 117-2; ARPA)
(FY2021-FY2031)
(FY2021)
Source: CBO cost estimates and July 2021 economic forecast.
Note: Table only includes deficit effects of Divisions M and N of P.L. 116-260, which were the portions identified by CBO
as related to the COVID response.
Many of the largest stimulus programs are near—or have already reached—expiration or exhaustion:
 The Payroll Protection Program (PPP), which provided up to a total of $814 bil ion in
forgivable loans to eligible smal businesses and nonprofits, expired on May 31, 2021;
 The federal moratorium on evictions expired on July 31, 2021, and the Supreme Court
rejected a new moratorium from the Centers for Disease Control and Prevention on
August 26, 2021;
 The temporary increase of $600 per week in unemployment benefits expired on July 31,
2021, and was replaced with a $300 per week supplement, which is set to expire
national y on September 6, 2021 (although half of U.S. states ended this benefit early);

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 Direct payments (i.e., “stimulus checks”) to most households included in the CARES Act,
P.L. 116-260, and ARPA, estimated by CBO to make combine payments of $867 bil ion,
have general y al been issued;
 Payments from $150 bil ion in CARES Act al ocations to state and local governments
through the Coronavirus Relief Fund must be disbursed by December 31, 2021, though
ARPA (P.L. 117-2) provided an additional $362 bil ion in general-assistance state and
local government payments that mostly do not require costs to be incurred until
December 31, 2024.
Future Considerations
No consensus exists in the economic or policy community regarding how long or how much stimulus is
appropriate as it relates to recessions general y or COVID-19 specifical y. As the economy continues to
recover, the general need for economic relief wanes, though certain populations and industries that have
felt the impacts of the COVID-19 pandemic more keenly than others may benefit from continued fiscal
stimulus.
The extent to which extending certain provisions or creating new targeted policy would benefit the
economy overal is not certain, even if it would help certain affected groups of individuals or businesses.
For example, some economists are concerned about the growing and historical y large debt-to-GDP ratio.
However, many also believe that stimulus should not be withdrawn until the economy has returned to
normal. Another concern raised about stimulus is inflation. Inflation has been relatively high since March
2021. Some have pointed to certain pandemic-related stimulus as one cause of high inflation and believe
that extending or adding new stimulus would fuel further price increases. That being said, as of June
2021, the Federal Reserve projected that inflation wil be elevated in 2021 but decrease to 2.1% in 2022,
roughly matching the Federal Reserve’s stated long-run inflation target of 2%.

Author Information

Grant A. Driessen
Lida R. Weinstock
Specialist in Public Finance
Analyst in Macroeconomic Policy





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