Coronavirus Dos and Don’ts for a Healthy Maryland Economy: Invest in Essential Services, Improve our Tax Code, and Steer Clear of Harmful Cuts

Photo by Miguel Montejano

As policymakers take increasingly aggressive steps to slow the spread of coronavirus, business closures and layoffs have amplified fears of an economic downturn. While policymakers’ immediate focus must be to protect Marylanders’ health, it is also vital to take effective steps to minimize the economic damage—and to avoid harmful missteps. Swift action to protect Marylanders who face the greatest health and economic risks can minimize the immediate damage, while protecting basic investments like education and transportation is essential to a strong recovery. As working families struggle to pay bills and local businesses watch sales plummet, the most prudent way to support needed investments is by asking large corporations and wealthy individuals to pay their share.

It doesn’t require any special expertise to know that the coronavirus pandemic threatens Maryland’s economy. Business and school closures, furloughs and layoffs, and a plunge in consumer spending all naturally lead toward lower incomes and more financial insecurity for Maryland families. The economic fallout is likely to be especially severebecause of the rapid pace of societal adjustment and the outsized impacts on low-wage service industry workers. The state should respond prudently to protect Marylanders’ health as well as their financial security.

The good news is that many of the steps policymakers can take to mitigate the pandemic’s health impacts can also help reduce its economic toll:

• Guarantee all Marylanders meaningful access to medical care.This is essential to protect Marylanders who currently face obstacles to getting the care they need, to contain the virus’s spread, and to support local economies. The state should suspend any redeterminations or terminations of Medicaid eligibility and extend Medicaid coverage to low-wage workers who provide essential services such as home care and child care, who aren’t able to work from home or take preventive time off—even if their income exceeds the eligibility threshold. The state should also remove some of the highest health barriers Marylanders face. This includes making testing, medical care and healthy emergency housing readily available to Marylanders experiencing homelessness, prohibiting immigration enforcement at testing or health care sites, and suspending any copays or other costs incarcerated Marylander may face when accessing health care.
• Improve Maryland’s unemployment insurance program.Unemployment insurance protects workers who lose their job amid a downturn and cushions the accompanying drop in consumer spending, but Maryland’s unemployment insurance system could be more effective. We should extend the current benefits time limit (currently 26 weeks) to ensure that the prospect of a prolonged public health crisis doesn’t push families off a financial cliff. We should expand eligibility to include certain part-time and low-wage workers who currently fall through the cracks—and who, if they work at restaurants, bars, or similar businesses, face the greatest risk of job loss. Finally, we should suspend the requirement that unemployed workers prove they are actively looking for a job. With large swaths of the economy shut down to contain the pandemic, requiring displaced workers to show evidence of a job search is both unreasonable and dangerous for public health. An effective unemployment insurance system is especially important to protect Marylanders of color who often face barriers in the labor market and are therefore hit hardest during a downturn. Even as job growth accelerated in 2014, Maryland’s unemployment rate among Black workers was still 4.3 percentage points above its pre-recession level, compared to 2.5 percentage points among white workers.
• Ensure access to basic necessities. The state has taken positive steps to prevent evictions and utility shutoffs that would worsen economic hardship and threaten public health. We should go further by suspending debt collection by public agencies as well as benefit terminations or reductions for Marylanders who rely on food assistance, income assistance, or other investments in economic security. Taking away lifelines when families need them most would only dig us into a deeper downturn.
• Protect public health by strengthening worker protections. It is even more clear now that lawmakers made the right choice in guaranteeing most Maryland workers the opportunity to earn paid sick days. Forcing workers to choose between their health and their livelihood imposes precisely the wrong incentives amid a public health crisis. We should strengthen these protections to include workers who are left out under current law, enable workers to take 14 days of paid sick leave per year while the pandemic is at its peak, and guarantee that workers can use sick days for child care during a school closure or other urgent situations.

Another key to softening the pandemic’s economic blow is to protect and strengthen bedrock public investments such as education and transportation:

• Maryland state and local governments employed nearly 350,000 people as of 2018 and paid $20 billion in salaries and wages altogether. Protecting public services is essential to avoid increasing unemployment further and sapping demand from local businesses.
• Moreover, evidence suggests that state and local services are among the most effective tools to sustain the economy during a recession. While the majority of research on the effectiveness of fiscal policy during a recession focuses on the federal government, this research has found that aid to state and local governments has a greater bang for the buck than most other approaches.
• According to the nonpartisan Congressional Budget Office, federal aid for state and local infrastructure investments is the second-most effective approach to fight a recession (after federal purchases of goods and services) and operating aid to state and local governments is the fourth-most effective approach (after transfer payments to individuals).

While the federal government can and should borrow during a recession to support the economy, the state must fund most services using current tax receipts. Fortunately, evidence makes clear that we can maintain essential public services, protect billions in wages for working families, and strengthen our economy by asking more of large corporations and wealthy individuals. Most immediately, lawmakers must get fair corporate tax reform over the finish line before the legislature’s early adjournment this week.

• During a recession, the most effective way to protect jobs and incomes is to put money into the pockets of people who will immediately spend that money on necessities, supporting local businesses.
• Low- and middle-income families—such as teachers, health care workers, sanitation workers and other people whose livelihood depends on state investments—are likely to quickly turn an infusion of cash into sales at local businesses. This is especially true for the low-wage workers who are hit hardest by the coronavirus response, many of whom live paycheck to paycheck.
• Meanwhile, wealthy individuals who face softer spending constraints are more likely to save or invest additional income rather than spend it at local businesses.
• The same is true of large corporations, many of which will squirrel additional income away or put most of it to work in other states.
• The nonpartisan Congressional Budget Office finds that tax cuts for wealthy individuals are the number-one least effective way to boost the economy during the recession. Moody’s Analytics has found that corporate tax cuts are equally ineffective.

In light of this research, it is clear that meeting Marylanders’ health care and other basic needs, protecting essential services, and asking wealthy individuals and large corporations to pay their share is the right choice for our economy. On the other hand, prioritizing special-interest tax breaks and allowing public investments to erode will only worsen our economic situation.