How the Cares Act poured millions into corporate hands with no strings attached - The Washington Post

How the Cares Act poured millions into corporate hands with no strings attached - The Washington Post


How the Cares Act poured millions into corporate hands with no strings attached - The Washington Post

Posted: 06 Oct 2020 01:10 PM PDT

The money, which came in the form of a tax refund, helped Antero maintain its lucrative cash dividend payments to investors despite a year of economic upheaval. At the end of April, Antero chief executive Paul Rady and President Glen C. Warren Jr. announced the tax windfall and assured investors that "we're in good shape, and we feel good about it." Days later, the pair sold $114.8 million of Antero stock, according to Securities and Exchange Commission filings. Last month, Rady sold an additional $46.4 million.

Antero Midstream, a $2.5 billion company, is one of at least 133 corporations that received help this year from the little-noticed provision of the Cares Act. By the end of June, the companies reported receiving more than $5 billion in Cares Act refunds, according to the newsletter Tax Notes. And while the bill did not say anything explicit about a fossil fuel bailout, as many as 30 percent of publicly traded oil and gas companies said in corporate filings they planned to use this tax provision, according to researchers at the University of Chicago who reviewed hundreds of filings made between March and May. Oil and gas companies were substantially more likely to use the credit than other companies, the researchers found.

And for many of them, the law turned into a gusher.

Marathon Petroleum expects to cash in an extra $411 million in tax refunds this year. Oil States International will get $41.2 million, and Oklahoma-based oil and gas producer Devon Energy $96 million. Valero, the nation's largest oil refiner, will rake in $110 million.

"Like countless other businesses across the country, including the energy sector which was has been hit especially hard by COVID-related market impacts, Antero Midstream openly and transparently utilized pro-job tax policies within the CARES Act aimed at sustaining jobs during one of the most difficult economic climates in modern history," Antero Midstream said in a statement.

While Antero said it was using the money to "maintain employment levels," the tax refunds do not necessarily add directly to economic activity. Antero Midstream slashed capital spending by 68 percent, according to a Citigroup report. Those cuts hurt oil and gas service companies and pipeline construction companies, which then had to lay off or furlough many of their workers. And Marathon announced Sept. 30 that it would lay off more than 2,000 people, about 12 percent of its workforce.

Some of the largest staff reductions of the year have occurred at companies receiving Cares Act tax breaks. MGM Resorts applied for up to $250 million in tax refunds before announcing on Aug. 28 it would cut 18,000 staffers.

The Cares Act tax breaks highlight this crucial shortcoming of the historic U.S. economic relief effort. Nearly six months after the bill's passage, more people are unemployed than at any time during the Great Recession, and there is little sign that billions of dollars in corporate tax relief have trickled down into the pockets of struggling families.

"The Cares Act tax provisions were too heavily tilted towards large businesses and away from at-risk individuals," said Matt Gardner, a senior fellow at the Institute on Taxation and Economic Policy (ITEP), a Washington-based nonprofit organization.

'Golden age'

Antero's Rady keeps a low profile. He is not as well known as other oil tycoons. But he has a track record as a successful executive, putting together companies that fracked shale rock to unlock valuable oil and gas. Another company he built, Pennaco Energy, was sold to Marathon Oil in 2001 for a half-billion dollars. And Antero sold some of its early land holdings to XTO, now part of ExxonMobil, for $685 million.

In a 2008 interview, Rady said: "We've put in our 20 years of ups and downs and hard times. This really is our golden age and I hope it never ends."

He's shared some of that wealth. Two Colorado universities have named engineering departments after him following $95 million in gifts.

Rady has also been a prolific donor to Republican political candidates. In March, he gave $12,500 to the Colorado Trump Victory Fund and $5,600 to Sen. Cory Gardner (R-Colo.), one of the most endangered Republican senators in this year's election.

But in West Virginia, where Rady's companies are major players in the fracking — or hydraulic fracturing — industry, they have a checkered environmental record. Last year, Antero Resources, the sister company of Antero Midstream, agreed to a settlement with the Justice Department for Clean Water Act violations in 32 sites dating back a decade or more. The Justice Department's 2019 complaint alleged that the company discharged pollutants including dredged material into streams and wetland sites and in some cases built pipelines through streams. In the settlement, the company agreed to pay a fine of $3.15 million and to carry out an estimated $8 million restitution of the affected wetlands.

In a news release Monday, Rady said: "We are dedicated to adapting and leading, and operating ethically and responsibly. This commitment is evident in our performance and culture as we proactively care for our employees, contractors, community and the environment."

Some groups, such as Greenpeace, have complained that the government should take into account environmental violations before giving companies million-dollar tax breaks. Marathon Petroleum, Greenpeace said, has been fined $1.4 billion over environmental, consumer-protection and workplace violations since 2000. That includes a $334 million settlement with the Environmental Protection Agency in 2016 to reduce air pollutants in five states.

Meanwhile, at Antero Midstream, the Cares Act money is also going to help keep both the natural gas and its dividends flowing. With the sharp drop in the company's value, the dividends are paying a rate of more than 20 percent, equal to 98.4 percent of last year's earnings. Yet at the same time, Antero Midstream has pretty much halted its pipeline construction plans, leaving it with a network of 430 miles.

The Cares Act tax provision also helps ease the hit that Antero Midstream took after one of its biggest investments went south. Last year, the company closed a West Virginia water treatment center just two years after it opened, because it failed to operate as expected. The facility, which was supposed to treat water used in fracking so it could be recycled, was costing Antero more money than it saved, so the company suspended the operation and lowered the asset's book value by $457 million.

Now, thanks to the Cares Act, Antero can revise its earlier tax returns to get taxpayers to cover some of those costs.

From losses to tax bonanzas

This is the way, through the magic of modern accounting, companies can turn past losses into immediate tax refunds from the Treasury Department.

To qualify for the new Cares Act tax refund, companies must have net operating losses in the current or prior two years — not unusual for the fast-growing, competitive fracking business or the troubled airline industry. Then the losses can be "carried back" as much as five years to when the corporate income tax rate was higher — 35 percent instead of 21 percent — making the recent losses more lucrative.

Companies can file revised returns for those earlier years and get refunds immediately.

Martin Sullivan, chief economist at Tax Notes, said the difference in rates is "pure gravy, a real bonanza" for companies with losses.

Moreover, in the past, corporations could carry forward losses to shrink their profits by 80 percent in a given year; the Cares Act allows companies to reduce their taxable profits entirely.

The tactic is similar to one used by President Trump, who in 1995 declared a $916 million net operating loss from real estate and casinos that allowed him potentially to avoid income taxes for up to 18 years, according to tax records. Recent reporting by the New York Times based on tax return data also showed that Trump has paid little or no taxes in many of the past 20 years, because he was able to offset income with losses from his businesses.

The cost of the Cares Act provision to taxpayers will be $80 billion this year, according to the Joint Committee on Taxation. However, over a 10-year period, the government would recoup most of that from corporate taxes, reducing the final cost to $25 billion.

It is a modest amount by the standards of the current multi-trillion-dollar rescue programs and deficit-laden budgets. But by comparison, Republican lawmakers have resisted calls to expand food stamp benefits as part of the stimulus efforts amid a growing nutrition crisis. A proposal to expand the limits on food stamps by 15 percent would cost $5 billion, according to an analysis by the left-leaning Center on Budget and Policy Priorities.

Some analysts say the tax provision on net operating losses is the worst way to pump money into the economy, precisely because so few demands are made in return. In addition, the legislation does not zero in on companies or areas of the economy that have been hit hardest by the coronavirus. It also does nothing to incentivize types of behavior. For example, solar and wind tax credits created incentives to build renewable plants.

Instead, businesses that were struggling before the pandemic have received tax refunds for losses incurred in 2018 and 2019 — years in which no U.S. business were affected by the pandemic. The law "doesn't make any distinction between companies that were hurt by the coronavirus and companies that simply lost money for unrelated reasons," ITEP's Matt Gardner said.

The benefits tended to go toward companies with big capital spending programs that gambled on cyclical markets — a recipe for losses and gains at big oil and gas companies, airlines and capital-intensive manufacturing.

The tax break meant that Antero Midstream, for example, could take losses it had suffered in the past couple of years and transform them into immediate tax refunds from the Treasury Department. It was money in the bank for a company whose stock price had been sinking for three years, losing three-quarters of its value. Since then, the stock has rebounded somewhat.

But the Cares money also went to companies beyond the energy sector. In some cases it went to companies whose losses were not even in the United States.

Stericycle, a medical waste disposal company based in Lake Forest, Ill., incurred before-tax losses of $275 million in 2018 and $363 million in 2019, mainly because of problems with its Latin American business. At the time, the company said it faced "challenging conditions" in the region, including strong local competition, and disclosed that U.S. authorities had begun investigating Stericycle for possible bribery.

Stericycle wrote down the value of its Latin American business, an accounting loss it could later use to generate a cash refund under the Cares Act. It had furloughed 2,300 employees but has since brought back more than half of them.

Kelly Hilton, a spokeswoman for Stericycle, said the company has provided bonuses and protective equipment to employees throughout the pandemic and brought people back to work as quickly as its business would allow.

'Help for their buddies'

None of this was on the table when Congress and the Trump administration originally drew up the Cares Act.

In March, Sen. Charles E. Grassley (R-Iowa) led a group including other Senate Republicans, Treasury Secretary Steven Mnuchin and White House economic adviser Larry Kudlow that proposed the new tax breaks for past losses as Congress raced to put together the final coronavirus relief bill. Grassley, the chairman of the Senate Finance Committee, said in a March statement that the tax package would "unburden businesses so they can keep employing those who are home caring for their families and helping to prevent the spread of the virus."

Democrats were focused on the cash subsidies to people who had lost their jobs and were collecting unemployment insurance.

"If I had been able to go off on my own, I sure would have written a different bill. I would have written a very different bill," said Sen. Ron Wyden (D-Ore.), the Finance Committee's top Democrat. But he said that while "millions of Americans were on a precipice" with difficulties paying rent, utilities and pharmacy prescriptions, Mnuchin made it clear that the Republicans wanted some kind of tax breaks for corporations.

"They wrote this so they could get help for their buddies across industries," Wyden said. "They wrote this so they can help all their corporate friends and tell them, 'Look at what we got for you.' "

Senate Republicans said they did not want to put a lot of limitations on which companies were eligible and how they could use the money, according to a Republican aide involved in the Cares Act negotiations who was not authorized to comment publicly and spoke on the condition of anonymity.

"If you are looking at the time when we were putting this together, the issue wasn't who was worthy to receive the relief," the aide said. "We didn't know who would end up needing it. We had to assume that everyone would likely need relief."

The aide added that the lawmakers chose the net operating loss provision partly because it had been used in previous economic stimulus measures after the 9/11 terrorist attacks and Hurricane Katrina and during the Great Recession.

The lawmakers looked for "known concepts that we have used before or that we can modify fairly modestly," the aide said.

Spokespeople for Mnuchin and Kudlow did not immediately respond to requests for comment.

Jason Furman, a Harvard University economics professor who was chairman of President Barack Obama's Council of Economic Advisers, said that the juxtaposition of Republicans opposing food stamps while pushing for the business tax break was "galling." But, he said, the tax provision itself was "not a crazy, reckless, insane idea."

But Mark Zandi, chief economist at Moody's Analytics, ranked loss carry-backs dead last in his 2011 list of 22 economic policy levers most likely to help restart a sputtering economy. The tax break, he estimated, would probably generate only 25 cents of gross domestic product growth for every dollar invested; food stamps ranked first, with $1.71 in expected GDP growth for every dollar invested.

Today, Zandi said, nothing has changed. He still sees carrying net operating losses backward as "low on the list" of measures likely to give a boost to the economy. "Those companies that would benefit from this, they are not going to drive the train," he said. "They were already struggling coming into this."

"The companies that are doing the bulk of hiring, investing [and] growing, they are not laying off workers," he said. "They are not constrained by cash or capital or credit. They've got a lot of all of the above."

Congress could have required companies applying for tax breaks to show that they needed the cash and to promise that they would not distribute it to shareholders or lay off employees, said Dorothy A. Brown, a law professor at Emory University. Instead, the tax breaks were too broad in their applicability, she said, and "you see corporations taking money and laying off employees."

And at a time when climate change is raising concerns about fossil fuels, the Trump administration and Congress could have avoided tilting the assistance toward oil and gas companies.

"You shouldn't have to be a connected oil company or polluter to get taxpayer support to weather this pandemic," said Kyle Herrig, president of the watchdog group Accountable.US. "Unfortunately, the Trump administration has pulled out all the stops for their extractive-industry special-interest allies who had upside-down balance sheets well before the ensuing economic downturn, while small businesses, the unemployed and underemployed have been left to fight for scraps."

Australian budget: businesses to receive asset write-offs and tax offsets - The Guardian

Posted: 06 Oct 2020 02:53 AM PDT

Businesses will be able to write off the full value of any assets they purchase and claw back tax already paid against losses to June 2022 in what the treasurer, Josh Frydenberg, has called the "largest set of investment incentives" ever offered.

The two measures will cost the budget $26.7bn and $4.9bn over the next four years in a bid to create 50,000 jobs and are supplemented by a further $2bn on research and development tax concessions.

The shadow treasurer, Jim Chalmers, said Labor was "inclined to support" the business tax measures but would examine the detail to "make sure that's the right and responsible way to spend so much money".

Earlier, in his budget speech, Frydenberg said with eight out of 10 jobs being in the private sector it was the "engine of the Australian economy" – but during the Covid-19 crisis it "needs a kickstart".

Full expensing

Businesses with a turnover of less than $5bn – all but the top 1% – will be able to deduct the full cost of capital assets purchased after budget night and first used or installed by 30 June 2022. The measure expands the popular instant asset write-off, previously only available to small and medium businesses.

Small and medium businesses will also be able to apply "full expensing" to second-hand assets; businesses earning $50m to $500m will be able to do so for assets of less than $150,000.

Frydenberg said the measure was a "game-changer" that would "unlock investment" and "dramatically expand the productive capacity of the nation".

Although "instant expensing" will cost a massive $26.7bn over four years, the government expects the true cost to shrink to $3.2bn over the medium term of 10 years.

Carry forward losses

Under current rules, companies are allowed to carry forward losses to reduce tax in future years.

Under the new provisions, the government will allow companies to carry back losses from the 2019-20, 2020-21 or 2021-22 income years to offset previously taxed profits in 2018-19 or later years. This can generate a refundable tax offset that can be claimed this financial year or next.

The measure will be available to 1 million companies that employ up to 8.8 million Australians.

Frydenberg said that Covid-19 had turned "fundamentally sound businesses into loss-making businesses" and they should not have to wait to return to profitability to use those losses. "In order to keep their workers, these businesses need our help now," the treasurer said. "They cannot wait years for the tax system to catch up."

The measure will cost $4.9bn over four years, shrinking to $3.9bn over the medium term.

Research and development

The government will also make changes to the research and development tax offset "removing the cap on refunds, lifting the rate and rewarding those businesses that invest the most", Frydenberg said.

Budget papers explain for small companies the $4m cap on cash refunds will be abandoned and the refundable R&D tax offset rate will be increased to 18.5% above the claimant's company tax rate.

Larger businesses with annual turnover of $20m or more will benefit from a more generous non-refundable R&D tax offset.

The cap on R&D expenditure that can be claimed will be lifted from $100m to $150m per year.

Together the three business measures cost $33.6bn over four years, almost double the cost of income tax cuts provided to households ($17.8bn).

Budget papers suggest temporary full expensing and temporary loss carry-back could support $200bn of investment, and increase GDP by $10bn in 2021-22.

The Australian Industry Group welcomed the measures, saying the investment allowance would provide a "critical boost to investment, productivity and job creation".

"Without this measure, the anticipated fall in non-mining business investment of 14.5% in 2020-21 would be much greater and the measure is a significant factor in the anticipated rise of 7.5% in non-mining business investment in the 2021-22 year," the chief executive, Innes Willox, said.

The loss carry-back will provide "invaluable cash flow support for many businesses", he said.

The government will also lift the threshold for a "small business" from turnover of $10m to $50m, a move increasing eligibility for some concessions and reducing "red tape".

As Lending Moves Online, Small Businesses Can Still Access Capital - Global Banking And Finance Review

Posted: 07 Oct 2020 12:18 AM PDT

By Ivo Gueorguiev, Co-founder and Executive Chairman, Paynetics

It's not hard to come up with a long list of companies who have disrupted the financial services industry over the last few decades. Mastercard and Visa changed how we interacted with physical cash. Monzo and Starling have changed how we view bank accounts. Klarna, now Europe's largest fintech, has changed how we pay for our online shopping.

Whilst it's true that this disruption has brought us new products and services that we never could have previously imagined, it's also true that disruption is a painful process. Countering the status quo doesn't come without its own stresses for both the challenger and the challenged. And after all, in many ways we are living through the greatest disruption to our lives that most of us have ever experienced. Perhaps the impact of COVID-19 has borne an environment that is less welcoming of the idea of disruption at all.

To take this further, I'm questioning whether the language of disruption is really how we want to frame how all fintech companies move into the financial services market. Many fintechs are actually able to collaborate with those organisations that have an established presence in the market, to drive even more innovation and development and therefore benefit both industry and end-user.

In collaborating, there's still room for change

I'm definitely not implying that we rest on our laurels and allow the industry to fall into stasis. We must acknowledge that many established players in the financial services sector have issues within their businesses which should be looked at, interrogated and improved. Technical debt, legacy technology, outdated compliance systems, infrastructures that are vulnerable to a cyberattack; all of these are examples of things that should be optimised and changed in order to progress.

But these older, more traditional organisations also have a host of strengths that should not be overlooked. Years of investment have created established brands, they have vast pools of resources that can be used to solve problems and, as a result of both of these things, they have trust.

At the other end of the scale, challengers have played a significant role in elevating the need for change, and have taken different paths to attack and disrupt the incumbents and underline this point. In my view, it seems that this is coming to an end and that the most successful approach for driving true change across the sector is not one of challenging, but of collaborating.

And whilst there are pain points to address – a recent study from CapGemini and Efma revealed that only 21% of banks say their systems are agile enough for collaboration and over 70% of fintechs say they are frustrated with the incumbent's process barriers – the potential benefits are huge. Fintechs can match the experience, authority and gravitas that existing players have with their energy, agility and innovation in order to drive the industry forward.

Advances in both technology and regulation can definitely help to support this evolution, and remove the common barriers. The increasing use of APIs and developments in Open Banking and Open Finance will help create a shared set of protocols and processes to aid collaboration, and from this will come innovative new products and services. The global partnership between HSBC and Bud is a great example of how a bank and fintech startup are working closely together to the benefit of their customers, as is Lloyds Bank's collaboration with fintech Xelix.

Regulation, regulation, regulation

To avoid regulation and compliance becoming stumbling blocks for successful collaboration between fintechs and larger corporates, I know from my own experience that fintechs need to actively seek to comply so that what is offered is "institution-class". By definition, fintechs are often unregulated and so when it comes to cooperating with financial institutions there can be a lack of understanding of what is a very complicated regulatory framework.

But a new breed of "regulated fintechs" can remove this headache for corporates that want to build out their partnership network. These companies can bridge the gap between innovation and regulation, and as they can offer the best of both worlds, they can significantly shorten the time to market.

I've also been watching how the entrance of BigTech into the financial services market has proven to be a catalyst for closer collaboration between regulated fintechs and established players. Google will launch its digital banking solution next year, WhatsApp has moved (although somewhat unsuccessfully) into the payments industry, and with the millions of users and gargantuan budgets companies like this have at their fingertips, no one can compete against their offerings alone.

I have no doubt that BigTech will either dominate or be important players in the 'bread and butter' financial services space, if allowed by the regulators of course. But I do not believe that they can be competitive in the more sophisticated and intricate products, which is where the finance industry can lean on the specialisms of fintechs who have that deep domain knowledge. In the same vein, BigTech companies have become very large ships that are difficult to manoeuvre, and for which payments will only ever be a side business. Again, fintechs can offer that agility and complete focus on bringing cutting-edge solutions to market in a much more efficient manner, and in line with rapidly changing customers behaviour and demands.

I'm hopeful that there will be an adequate regulatory and supervisory reaction to their ambitions, and in the meantime any successful competitive responses will require collaboration from all areas of the financial services industry.

If fintechs recognise that the true value that they can bring to the table in their partnerships is both their agility but also a deep understanding of the regulatory landscape that they are bound to, we'll continue to drive meaningful change as an industry. In our uncertain times, we shouldn't look to needlessly reinvent the wheel and disrupt everything we know to be true. Instead, real change will come from considered collaboration.

Twisted Bailout Economy: Chapter 11 Bankruptcies Surged, But Commercial Chapter 13 Bankruptcies Plunged. 420000 Small Businesses Closed Quietly, Highest Rate Ever - WOLF STREET

Posted: 06 Oct 2020 09:27 PM PDT

Stimulus and bailouts had a huge impact, for those that got them, and for those that didn't.

By Wolf Richter for WOLF STREET.

In the world of struggling businesses, debt defaults, bankruptcies, and closures, there is now a clear dividing line.

On one side are those businesses that got bailed out by the government, whether they needed it or not, such as the $25 billion in grants and loans for a handful of airlines, or the $525 billion in PPP loans handed to 5.2 million business entities, from minuscule to large, and some fraudulent. On the same side are businesses with access to the capital markets that got bailed out by the Fed whose corporate bond buying programs drove credit markets into frenzy, eager to fund nearly anything.

But on the other side, are those businesses who didn't get any of this – neither from the government, nor from the Fed, nor from the frenzied credit markets; and those businesses, often already limping for a while, got run over by the Pandemic.

In terms of publicly traded companies.

In September, another 54 large companies filed for bankruptcy, after 54 had already filed for bankruptcy in August, according to S&P Global Market Intelligence, bringing the total for the year as of October 4 to 509, the highest for the same period since 2010.

These are companies that are either publicly traded (minimum $2 million in assets or liabilities), or are private companies with debt that is publicly traded (minimum $10 million).

The largest bankruptcy filers in September included two Texas-based oil and gas producers: Oasis Petroleum, with over $3 billion in liabilities; and Lonestar Resources with $626 million in liabilities.

Energy companies were only in third place among the sectors with the most bankruptcy filings year-to-date. Here are the S&P's top five bankruptcy sectors, with the number of filings so far:

  • Consumer discretionary: 103
  • Industrials: 70
  • Energy: 58
  • Healthcare 47
  • Consumer staples: 27

The long list of chain-store retailers that have filed for bankruptcy during the Pandemic got longer in September with filings, among others, by off-price department store Century 21 (Sep 10), candy-seller It'Surgar (Sep 23), and Forever 21 (Sep 30).

Many retailers, when they file for bankruptcy, end up getting liquidated.

The Federal Reserve Bank of San Francisco, fretting about over-indebted companies becoming even more over-indebted during the Pandemic, said that the number of companies that have defaulted on their debt this year so far "is on course to be the highest since 2009."

Commercial Chapter 11 bankruptcy filings surge.

This type of filing occurs when a business attempts to restructure its debts while continuing operations, usually with shareholders losing the company, and with creditors taking it. Chapter 11 filings are seasonal, spiking during tax season in March or April. With the tax-filing deadline moved to July 15 this year, the spring spike stretched out over five months. And you would expect, given seasonal patterns, that filings would then taper off. But that's not what happened.

In September, commercial Chapter 11 filings jumped by 78% year-over-year to 747 filings, the highest since the seasonal spike in March 2018, and beyond that the highest since 2012, according to data released today by the American Bankruptcy Institute. It was the seventh month of double-digit year-over-year increases. From March through September, commercial Chapter 11 filings jumped 40%, compared to the same period last year. Clearly, these companies didn't get any bailouts:

Most small businesses, when they file for bankruptcy, do so either under Chapter 7 (for corporations, partnerships, LLCs, and sole proprietorships) or under Chapter 13 (individuals only, such as sole proprietorships).

Commercial Chapter 13 bankruptcy filings.

The ABI separates out "commercial" Chapter 13 filings from personal Chapter 13 filings. Commercial Chapter 13 filings are filed by individuals whose sole-proprietor business could no longer pay its obligations, such as bank loans, shop rent, goods suppliers, etc.

But here is the thing: The owners of these small businesses were among the recipients of the PPP loans, and among the recipients of the federal unemployment program for the self-employed (PUA) and then the extra $600 a week in unemployment benefits.

A record number of small businesses "quietly" shut down (more on that in a moment), and many of the owners didn't need to file for bankruptcy because the inflow of government cash allowed them to pay their obligations, work out a deal with the landlord, and shoulder the remaining burden. So commercial Chapter 13 bankruptcy filings plunged in April to just 332, the lowest in the ABI data going back to 2006, and have ticked up only a little since then, with 377 filings in September – an amazing sight during an economic crisis:

Commercial Chapter 7 filings.

These filings by corporate entities, partnerships, and individuals (sole proprietorships) dropped in April to the lowest since 2015, and have since then zig-zagged higher, but remain low, with 1,503 filings in September. These types of businesses too were among the recipients of the PPP loans, if they continued operations; and most recipients of PPP loans didn't file for bankruptcy. And many of the individuals who shut down their businesses were among the recipients of PUA benefits and the extra $600 a week and could pay off their creditors and shoulder the rest.

Consumers are still flush with government cash.

Consumer bankruptcy filings fell 36% in September, compared to a year ago, to 37,024 filings, as consumers were still flush with government stimulus money and the extra unemployment benefits of $600 a week through July, and the $300 a week for at least four weeks afterwards, much of which was processed late and arrived in lump-sum payments weeks or months late, therefore dragging into the fall. We have seen this stimulus money play out in record retail sales and record reduction in credit card debt.

Small businesses closed quietly.

From March through mid-July, over 420,00 small businesses – or 7.1% of all small businesses – permanently and quietly closed their doors, more than typically in an entire year, according to a study by Brookings, released in September.

The analysis found that "many small businesses are financially fragile and not equipped to weather a prolonged period of substantially reduced revenues":

  • 47% rely on personal funds of the owner to fill a two-month revenue drop.
  • 88% rely on the personal credit score of the owner (such as working capital funded by personal credit cards).
  • Only 44% have had a bank loan over the past five years.

Small businesses account for about 99% of all businesses in the US and about 47% of jobs in businesses. If these 420,000 businesses are representative of national employment, "this means we have lost at least 4 million jobs that will only return with the creation of new businesses," the report said.

Small businesses are prone to failure. But also many new small businesses are being created. This process of new businesses being created has now restarted strongly, but has been far outstripped by the tsunami of business closures. The report:

Even if for the remainder of the year losses simply keep pace with those in previous years, we will see a doubling of the ordinary annual rate of small business losses to more than 700,000 (or 12 percent).

That likely optimistic scenario would see around 50 percent more business losses than at the peak of the Great Recession, and the largest loss of small businesses since records began in 1977.

This speaks of the large-scale damage to American businesses. While some businesses massively benefited from the crisis, many more took on heavy damage; and of them, many already shut down, and more will shut down – most of them quietly, and only some with bankruptcy filings.

And without all this stimulus and bailout money?

The biggest programs have ended: the PPP loans for smaller businesses, the Payroll Support Program for larger businesses, the extra $600 a week in unemployment benefits, and the extra $300 a week in unemployment benefits. President Trump, in a series of tweets just now, pulled the rug out from under bailout negotiations until after the election. So for now, it looks like businesses will have to deal with this economy on their own.

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