The Democrats have learned to stop worrying and love stimulus spending. Twelve years ago, the Obama administration proposed a smaller stimulus than its own economists thought necessary, in deference to political considerations. Today, the Biden administration is pushing a larger stimulus than those same economists deem necessary, in deference to political considerations (and/or the advice of better economists). And congressional Democrats are marching in lockstep with the White House.
Instead of wasting time seeking out some bipartisan half measure on COVID relief, congressional Democrats have initiated the budget-reconciliation process, clearing the way for the Senate to pass Biden’s $1.9 trillion package on a party-line vote. Crucially, over the past 24 hours, the most moderate members of Chuck Schumer’s caucus have said that, while they’d prefer a smaller bill, they will not block the passage of a nearly $2 trillion one.
This is very good news. For decades, the United States has been prioritizing the preemption of modest inflation over the realization of full employment. If Congress moves forward with a $1.9 trillion stimulus — after passing roughly $2.7 trillion in relief last year, which was sufficient to make most U.S. households more financially secure than they were pre-pandemic — then we may finally get to see what a truly tight labor market looks like.
This said, some policy traditions of the neoliberal generation still weigh like a nightmare on the brains of the Democrats. In recent days, moderate members of Chuck Schumer’s caucus have pushed to limit access to the $1,400 relief payments in Biden’s proposal. As the Washington Post reports:
Biden has publicly expressed willingness to negotiate the stimulus payments, which under Democrats’ current plans would begin to diminish at $75,000 for individuals and couples making $150,000 a year. Biden is also aiming to provide $1,400 per every adult and child under that threshold, on top of the $600 per adult and child approved by Congress in December.
One proposal discussed by senior Democrats includes lowering the threshold for the payments to begin phasing out above $50,000 for single taxpayers, $75,000 for people who file as the heads of households, and $100,000 for married couples, according to two people granted anonymity to discuss internal planning. These people stress that the conversations are fluid and legislation has not been finalized.
The White House confirmed Wednesday afternoon that such a restriction in eligibility is indeed being discussed.
The impulse to concentrate aid on the needy is understandable. Recessions almost always afflict the afflicted more than the comfortable. And even by the standards of past recessions, the COVID crisis has produced a wildly inegalitarian distribution of economic pain. The vast majority of U.S. workers did not lose their jobs during the pandemic, but did receive an unexpected $1,200 payment from the government. Meanwhile, thanks to the CARES Act’s UI provisions, many temporarily furloughed workers ended up with more income than they would have earned absent their brief bouts of unemployment. These realities — combined with a pandemic-induced contraction in consumption opportunities and rallies in the stock and housing markets — have left a majority of U.S. households in better financial shape than they were before the crisis started.
At the same time, a large minority of Americans have been financially devastated. Small business owners who failed to secure PPP funds have had their livelihoods destroyed. The long-term unemployed, who were not eligible for UI benefits, got little beyond a $1,200 check to see them through the labor market’s collapse (if they even got that). Other workers struggled to make it through the tangled thickets of state unemployment-office bureaucracies to secure their benefits, or saw their federal aid expire long before their industries recovered. As a result, as many as one in six Americans (including one in four U.S. children) were suffering food insecurity at the end of 2020, a 50 percent increase over 2019.
So it isn’t crazy to think that maybe we should spend more of this $1.9 trillion on those who’ve been impoverished, and less on those who are more financially secure than they’ve ever been.
But there is a big problem with trying to accomplish this by means-testing COVID relief checks: It is not within the federal government’s capacity to get relief to every American who is struggling economically, while withholding it from every American who is not.
The income thresholds in Biden’s plan are based on 2019 tax returns. Which means that anyone who had a decent-paying job or lucrative business before the pandemic — only to see their livelihoods crushed by a world-historic disaster — will get no COVID relief payment. This is not a negligibly small population. And the lower Democrats set the threshold for phasing out payments, the more needy Americans will go without relief. According to research from Boston University’s Julia Raifman, 20 percent of Americans who earned between $50,00 and $75,000 in 2019 and then lost their jobs suffered from food insecurity at some point during the pandemic.
The fact that the existing income threshold is relatively high mitigates this problem somewhat (a married couple that earned $150,000 in 2019 is a bit more likely to have a cushion of savings than one that earned only $100,000). But if moderate Democrats are earnestly motivated by a concern with prioritizing aid to the needy, rather than a fetish for performing “fiscal responsibility” for swing voters who are not watching and do not care, then they should push to eliminate all means-based restrictions on eligibility for COVID relief.
As The American Prospect’s David Dayen notes, there is a simple way that Democrats can minimize the number of needy Americans who miss out on relief checks while withholding further fiscal aid from most upper-middle-class households: Send $1,400 to everyone now, and tax it back from people who report high incomes on their 2021 tax returns.
This approach remains imperfect: Just because someone has a six-figure income in 2021 does not mean that their finances weren’t significantly impaired by the pandemic. But it would nevertheless come much closer to realizing the moderates’ ostensible goal of targeted aid. All Americans who are currently struggling financially would receive help, regardless of how they were doing before the pandemic. And all households that currently have high incomes would net zero dollars from the program by next year.
Given how well this policy design fits the moderates’ stated objectives, the fact that it hasn’t even come up for discussion demands explanation.
I’d wager that the reason why “checks for all, and let the IRS sort ’em out” hasn’t been proposed can be gleaned from a separate oddity: The moderate Democrats who are so scandalized by the thought of providing relief checks to upper-middle-class households evince no objection to other forms of regressive welfare, such as the mortgage-interest deduction; in fact, many support restoring a state-and-local income tax deduction that overwhelmingly benefits the affluent. Similarly, moderate Democrats often wince at the thought of raising taxes on people who earn “only” $150,000 a year. The president himself felt compelled to promise that he would not raise taxes on any household that earns under $400,000.
In material terms, there is little difference between withholding a $1,400 check from an upper-middle-class family, and clawing back that family’s $1,400 basic income benefit at a tax time. But they are distinct propositions in political terms. The electorate is famously loss averse: When politicians try to take away existing social benefits, voters tend to respond with outrage; when politicians decline to provide the public with new social benefits — including ones that are commonplace in other wealthy countries, such as universal health care or a child allowance — voters typically fail to notice or register dissent. Public schools, Medicare, and Social Security are not abstractions to the median voter; they are institutions that they have structured their life around, and which make the burdens of their existence a little lighter. Social programs that do not yet exist are much less tangible. Their absence is not commonly experienced as a deprivation in the way that cuts to Medicare would be. And this same logic can apply to tax hikes, which voters sometimes experience as a loss of something to which they’d previously felt entitled (their market income).
So, it’s possible that moderates fear (consciously or otherwise) that withholding a relief check from an affluent voter will be politically costless, but “raising their taxes,” in order to nullify a relief check that was already sent, would spur political backlash.
But I don’t think this is true. Relief checks are popular — but so is targeting relief at those who need it most. A recent Data for Progress poll found that 60 percent of likely voters support a onetime $1,400 relief payment to most Americans. But it also found that that same percentage agreed with the statement, “Checks should be phased out based on income so higher income people receive less money.” If Democrats clearly messaged their policy to the public, explaining that the reason everyone was going to receive a check was to make sure the needy didn’t go without, it seems unlikely that many affluent swing voters would gripe about the government re-collecting their literal government handout.
Regardless, Democrats are not against raising taxes on the rich. Biden’s impending climate infrastructure plan will reportedly include tax hikes on the wealthy. If moderates are gun-shy about re-collecting relief checks from households that earn less than $400,000, so be it! Surely, it is more important to get help into the hands of those who need it than to avoid putting cash in the hands of the affluent (and thus, stimulating the economy).
But you don’t need to take it from me — take it from the Republican governor of West Virginia.
(And by “you,” I mean Joe Manchin, lord and savior of the Democratic Senate Majority, and the only reader I wish to reach.)