Bernie Sanders calls the American Rescue Plan “the most significant piece of legislation to benefit working families in the modern history of this country.” It isn’t — at least not yet. The Rescue Plan, a huge but temporary spike in outlay, pales in comparison to permanent extensions of the welfare state, like Social Security, Medicare, Medicaid, or Obamacare. Even measured as a onetime cost, it’s slightly smaller than the $2.2 trillion laid out in the CARES Act last year.
What you can say about the Rescue Plan is that it is potentially one of the biggest pieces of social welfare legislation in American history. Realizing that potential is a challenge that still lies ahead.
The bill combines onetime measures to alleviate the pandemic and the economic contraction it produced — funding for vaccinations, state and local government, $1,400 checks, etc. — along with new some social welfare benefits. It increases the generosity of the child tax credit, which will now cover more families (including, for the first time, the very poorest ones, who did not previously qualify) and give them larger stipends. And it will increase health-care coverage, by beefing up subsidies for the purchase of individual market plans (nobody will have to pay more than 8 percent of their income for a plan, and more people will pay nothing), and states will get new incentives to join the Medicaid expansion.
The catch is that these measures are only funded temporarily – the child tax credit for a year, the health care subsidies for two. Democrats believe these subsidies have special urgency as a response to a pandemic that has put more pressure on the uninsured and parents, but they also believe they deserve to be in place permanently.
Why fund them for just one or two years, then? The Senate’s bizarre rules mean that budget-related bills can be enacted with a majority, not a 60-vote supermajority, as long as they don’t add to the deficit beyond a ten-year time frame. That means for new spending programs to be permanent, they have to paid for with spending cuts or tax increases. Taking money away from people is always controversial, and Biden wanted to pass the bill quickly. That’s why they arrived in a quick burst of spending, with the intention of extending the programs in a subsequent bill.
This is an unusual way to create new social programs. Social Security, Medicare, Medicaid, and Obamacare were enacted all at once, permanently, including their funding sources. Biden is going to have to pass a second bill to make the new benefits permanent.
That task will be much harder than passing the initial legislation. While raising taxes on the rich is Democratic Party canon, getting 218 House Democrats and all 50 Senate Democrats to agree on a sizable tax increase on the rich is hardly assured. Any one Senate Democrat’s idiosyncratic objection can sink the whole plan.
But Biden’s strategy has two things going for it. By establishing the benefit first, it can create pressure for extension. Americans are skeptical that government will deliver for them, and those with the lowest incomes tend to have the least political clout, which means it’s difficult to mobilize a constituency behind a promise of creating a future benefit. People are also heavily loss averse, which means that whoever is paying for a new benefit tends to care more about the outcome than the beneficiaries.
Creating the benefit first flips around those dynamics. Once people have their child tax credit and enhanced health coverage, they’re more likely to get angry if Congress lets them expire. Remember how much stronger grassroots activism was to preserve Obamacare against Donald Trump’s repeal effort than it was to enact the law in the first place? That’s the dynamic Democrats hope to create.
Second, by first passing a hefty economic stimulus, Democrats hope to restore fast economic growth and bring down the unemployment rate. This will, hopefully, sustain Biden’s approval ratings, and make Congress more likely to vote for laws he advocates. This, again, stands in contrast with Obama’s experience — as the effects of the Great Recession began to be felt in 2009 and 2020, voters got angry at the party in power and Congress lost its appetite to tie itself to the president’s agenda.
In theory, the plan makes sense. But the method hasn’t been tried before. The recovery could stall, Democrats could unexpectedly lose a senator, or Biden’s agenda could get sidetracked. They have a clever strategy to enact an audacious new expansion of the welfare state. Now they need the plan to work.
Correction: This column originally stated that the health-care subsidies expire after one year. They expire after two.