Clarity Capital Management Weekly Notables - March 24, 2020
It's been quite a week again, with the news flow coming in fast and furious. With the virus continuing to spread and the economic impact becoming clearly visible, Washington and the Federal Reserve has been quick to respond in forms of stimulus. In fact, this morning, the initial jobless claims for the week was a mind blowing 3.28 million. That is a historical record of jobless claims, and goes to show the severe and sudden impact of self quarantining needed to slow the spread of the virus. With the economic impacts growing, there has been ongoing announcements regarding additional monetary stimulus by the Federal Reserve. They've essentially committed to unlimited quantitative easing through their bond buying program, meant to provide liquidity to the marketplace. In the past, they've outlined a dollar threshold for these purchases, but given the impacts that the country is facing, they've left that dollar figure open ended.
The biggest announcement this week was the Senate's passing of a major fiscal stimulus bill. As of this writing, the Senate has passed the bill with a 96-0 vote. It will now go to the House for a vote, which should happen prior to the end of the week. This is the largest economic rescue package in US history. The main portions of the bill are estimated to cost about $2 Trillion! To put that into perspective, it amounts to about 10% of the entire US GDP. We'll see if its enough going forward, and if additional stimulus is needed in coming weeks.
Here are some of the provisions.
- Big Businesses: About $500 billion can be used to back loans and assistance to companies, including $50 billion for loans to U.S. airlines, as well as state and local governments.
- Small Businesses: More than $350 billion to aid small businesses.
- Hospitals: A $150 billion boost for hospitals and other health-care providers for equipment and supplies.
- Individuals: Direct payments to lower- and middle-income Americans of $1,200 for each adult, as well as $500 for each child. Senate Minority Leader Chuck Schumer said checks would be cut April 6.
- Unemployed: Unemployment insurance extension to four months, bolstered by $600 weekly. Eligibility would be expanded to cover more workers.
- Restrictions on Business Aid: Any company receiving a government loan would be subject to a ban on stock buybacks through the term of the loan plus one additional year. They also would have to limit executive bonuses and take steps to protect workers.
- Transparency: The Treasury Department would have to disclose the terms of loans or other aid to companies, and a new Treasury inspector general would oversee the lending program.
- Democrats: Won language that would bar any business owned by President Donald Trump or his family from getting loans from Treasury. Businesses owned by members of Congress, heads of executive departments and Vice President Mike Pence also would be blocked.
Here are more of the details as it relates to individuals, with the caveat that this particular bill is a staggering 883 pages long, so its impossible for me to go into that depth here! So i'll stick with some bigger takeaways.
- Checks - The US Treasury will be sending checks to individuals of $1200 and joint filiers $2400. Taxpayers will also receive an additional $500 for each qualifying child.
- Joint filers with income under $150K, HOH under $112.5K and everyone else under $75K, will receive the full amount. For ever $100 over the applicable threshold, you lose $5 of the rebate.
- Joint filers over $198K, HOH over $136.5K and everyone else over $99K get nothing.
- This is based upon 2019 tax returns, if they've been filed. If your 2019 return has not yet been filed, they will base it upon 2018 returns.
- Those receiveing Social Security retirement and disability would be entitled to the cash payment as well.
- This morning, Treasury Secretary Mnuchin hinted at checks being sent within 3 weeks. Its still unclear to me if they will send physical checks, or direct deposit using banking information from your tax return (which would present its own possible problems!)
- RMD's - Required Minimum Distributions from retirement accounts have been waiver for 2020
- There is some nuance in this one, but I will leave the main point for now
- Retirement Withdrawal Penalties - 10% IRS premature distribution penalty waived for retirement account distributions of up to $100k taken in 2020 (still taxable, just no penalty).
- Income is allowed to be spread over the 3 years, unless elected to be taken all in 2020. There are some eligibility requirements (having to do with the virus as you could imagine), but I won't go into the specifics here.
- Charitable Contributions - The bill includes a completely new above-the-line deduction for certain taxpayers who make charitable contributions of up to $300.
- Above the line means it is deducted to calculate an individual's adjusted gross income (AGI). This means you do not have to itemize in 2020 to capture this benefit!
- contributions must be made in cash, and cannot be used to fund a Donor Advised Fund or 509(a)(3) supporting organization.
- Student Loans - Loan payments are suspended for Federal loans through 9/30/2020, during which time no interest will accrue, and voluntary collections will also be suspended.
- One very important point for those working towards PSLF! Suspended months COUNT towards the loan forgiveness programs! that is amazing!
- I would stay on top of your loan servicer to make sure this is all done as it should be.
- Unemployment Benefits - While this could yet change, the plan is for expanded unemployment benefits - possibly up to an additional $600 per week in expanded benefits.
- The amount a person could receive will vary by state. However, benefits are aimed at expanding the amount received to try and match the average workers paycheck. We'll see how this shakes out.
- These benefits would also apply to self-employed invidivuals. Benefit amounts would be calculated based on previous income, using a formula from the Disaster Unemployment Assistance program.
- Businesses - More than $350 Billion in aid to small business. There's a lot to unpack on this one, so i'll keep it light and not go into detail.
- Employee Retention Credit - short answer - worth up to 50% of qualifed wages paid with respect to each employee and it goes towards employment taxes. Longer answer - there's much more to it!
- Deferred employment taxes for businesses that don't qualify for the above. Deferred from the date of enactment, with half of deferred tax due 12/31/21 and other half due 12/31/22.
- Net Operating Losses from 2018 - 2020 can be carried back up to FIVE years and fully offset income.
- As mentioned in previous weeks, tax filing deadline and payment deadline pushed out until July 2020.
- This also means IRA, HSA, etc. contribution deadline is also pushed out until July.
This week has also seen some major moves in the stock market, albeit on the upward trajectory this time. Tuesday saw a rally of nearly 10% on the S&P 500, with more follow through on the updside yesterday and today (as of this writing). Its likely that we'll continue to see more volatility in the markets as more and more data is released in the coming weeks, both in regards to the virus, but also in regards to the economy and companies as earnings are released, jobless claims and monthly employment numbers are released. Its always possible the market could move quickly in either direction in the near-term, so the same chorus continues to be sung. Be prepared for more volatility in the coming weeks until we can begin to receive more certainty around this virus.
To Sum It Up
- The coronavirus situation is rapidly evolving
- It seems inevitable that there will be at least a short-term, negative impact on the economy, which we're already witnessing
- We are monitoring the situation and Client portfolios on a constant basis.
- We’ll make portfolio changes (i.e. rebalancing) as becomes necessary as part of our normal portfolio management process.
- Continue to keep a long-term perspective, as we will eventually get through this!
The best response is to acknowledge what you’re feeling, reach out at any time if that would be helpful, and have confidence that we are on top of the situation.
Stay healthy and stay sane!
Ryan Mohr, CFP®
FAQ on Stimulus Checks, Unemployment and the Coronavirus Bill
The Senate relief bill would send money to Americans and greatly expand unemployment coverage.
IRS Filing and Payment Deadlines Questions and Answers
In Notice 2020-18 (PDF), the Treasury Department and the Internal Revenue Service (IRS) announced special Federal income tax return filing and payment relief in response to the ongoing Coronavirus Disease 2019 (COVID-19) emergency.