AEG COVID-19 Analyses: March, 2020 (archive)

AEG’s March COVID-19 Analysis

Memo to Michigan’s Governor: Covid-19 Progression and Michigan’s economy (revised 4/22)

March Releases and Other Analysis:

• March 25, 2020: 5 Points on Tax Revenue Impact
• March 19, 2020: Over 100 Million US Workers Will Likely Lose Income in April 2020

Current Commentary and Charts

5 Points on Tax Revenue Impact

3-25-20: Immediate impact on state and local tax revenue, corona-recession:

• Income tax revenue for states where “stay at home” orders are in place and closures of bars and restaurants have occurred will “fall off a cliff.” That includes Michigan, Illinois, New York, and California. AEG estimates from last week were that between 800K and 1.4M Michigan workers would lose 2 days’ wages or more over the next month and a half. Given the “stay at home” order and the closure of Detroit 3 assembly plants, these losses are likely to grow.

This drop in income—and income tax—will be particularly acute for small businesses organized as S-corps, LLCs, and partnerships, where income tax is paid on the business through the owners’ tax return.

“None of those restaurants, taverns, and small businesses that were forced to close are  going to be paying income tax for the next couple of months.”

• Sales tax revenue will take a significant hit, especially on sales of big-ticket items. However, people are still buying for their home consumption.

Some products and services—notably home-delivery food, home-use electronics, and services that let workers be productive at home—are going to increase.

• Property taxes are a big risk for the fall and winter. There is no question that property values will fall, especially for businesses—affecting next year’s revenue. I also expect many taxpayers that are seeing schools closed and their own employers shuttered will be unhappy about paying property taxes later this year.

Because Michigan and many other states collected most of its Winter taxes in January and February, this is an issue that we will face starting in the Fall.

• Gas tax revenue will also be dropping, as will registration fees on new vehicles. Gas tax revenue tracks usage of roads very closely, and commuting traffic has also nearly dropped off a cliff. Gas and diesel tax revenue from trucks, however, will not be affected nearly as much.

“Many delivery drivers will be working overtime, putting a lot of miles on the road, and a lot of dollars into tax revenue.”

• Marijuana excise tax revenue will grow. This will be a drop in the bucket for state governments, and it will make people scratch their head and ask, “why is it illegal for me to go to work, but ‘essential’ that marijuana dispensaries stay open?”

“I think pretty soon we will need a better answer to this question than ‘flatten the curve.’” –Patrick L. Anderson

Updated COVID-19 Analysis: Over 100 Million US Workers Will Likely Lose Income in April 2020

3-19-20: US workers likely to lose significant income in April due to disruptions, closures, quarantines, travel restrictions, and illness caused by the COVID-19 outbreak.

This assessment builds on the economic analyses previously released by the company on the effects of the coronavirus outbreak, the first of which was released on February 4^th that identified the coming disruptions to the US auto industry as well as the human calamity that was then occurring in China. It details the number of workers likely to lose significant income during the month of April due to disruptions, closures, quarantines, travel restrictions, and illness caused by the COVID-19 outbreak in the United States.

Very Large—and Possibly Unprecedented—Number of Workers Losing Significant Income

The revised assessment continues to project an extremely large, and possibly unprecedented, number of workers losing significant income in a single month. These workers include those laid off, furloughed, placed on sick leave, required to self-isolate or quarantine, unable to work due to illness or care of immediate family members who are sick or out of school, and those directed to not work by their employers or by orders of state governments. We estimated the number of workers that would lose at least two days of wages during this time period.

Workers Losing Income in New York, Michigan, and Illinois

Anderson Economic Group economists estimate that, beginning this week and extending through April, the number of workers who will suffer significant lost income to be in excess of 3 million workers in Michigan, 4 million in Illinois, 6.5 million in New York, and 104 million in the United States.

Potential Use of Paid Sick Leave

We also estimate the number of workers eligible for paid sick leave of more than two days for times they are unable to work due to the causes above. We consider both existing employer-paid leave policies, and the three different public acts incorporated in the HR 6201 that would provide support for employers paying for leave during the current declared health emergency. Of these, we project that between 875,000 and 1.3 million workers in Michigan, and between 29 and 49 million in the US, could receive paid sick leave during this period, pending adoption of the federal law (see table below).

Projection of Workers Losing Significant Income, March-April 2020; Paid Sick Leave Recipients

Revised: Tuesday, March 17, 2020

“This is not a worst-case scenario,” said Patrick L. Anderson, principal and CEO of Anderson Economic Group, “these estimates are conservative in that they do not presume the majority of workers will leave work for more than two days, for illness, family care, or disruption in their lives. The numbers could be much higher.”

Huge Gap in Income Not Covered by “Sick Leave” Even Under Pending Federal Law

“This analysis also reveals the huge gap between the total income due to the disruption in work caused by this health crisis, and the amount that could be offset by employer-paid sick leave. Even with the pending federal law, the total loss that will be suffered by small business owners, workers in the hospitality and travel industry, and self-employed persons will be enormous. For many of these individuals, the combination of forced business closures and unavoidable illnesses will be a double-whammy of loss. Some such businesses may never recover from this damage.”

Limitations in this Analysis

This is a summary of the current economic and public health situation, which changes daily. Should public health be more severely affected, or restrictions increase further, lost income will be larger than estimated here. Any supporting sick leave or other benefits depend on laws that are likely to change, as well as both employer and employee decisions that have not yet been made. For this reason, this analysis should be considered an illustration of likely events.

Anderson Economic Group will revise this assessment as more data becomes available. Our experts for this analysis, Patrick L. Anderson and Brian Peterson, are available for comment by contacting Lisa Wootton Booth, [email protected]. Please also contact Ms. Booth to be added to our distribution list for further updates as they become available.