Senate Republicans’ cash assistance plan is far too limited

Direct cash assistance has suddenly become a broadly popular idea as American politicians begin to grapple with the economic consequences of the Covid-19 pandemic.

It could be a radical step for the US. But the details matter.

And the plan released Thursday by Senate Republican leader Mitch McConnell is structured to shortchange poor families, affluent families, and families with multiple children — ending up doing far too little at a time when short-term economic forecasts are becoming nearly apocalyptic.

The way it works is that a single person who had little or no income tax liability last year gets a one-time payment of $600. Then as your taxable income increases, that check goes up to $1,200. But then when you reach $75,000 in annual income, the size of the check starts going down again. For married couples, all those numbers double. And each child would be worth $500 in extra help.

Kyle Pomerleau, a tax analyst with the American Enterprise Institute, summarized various scenarios with this chart.

By comparison, a plan from Sens. Michael Bennet (D-CO), Cory Booker (D-NJ), and Sherrod Brown (D-OH) would give $2,000 to everyone regardless of age, beginning to phase out for people earning over $90,000 — and followed up by an additional round of checks if the economy is still hurting.

McConnell’s plan will still help people and help stabilize the economy. But the limitations placed on this program give it serious shortcomings as both a humanitarian relief measure and an economic stimulus.

Little help for those who need it most

The shortcomings start with the fact that, reflecting longstanding conservative hostility to helping people who don’t have much market income, the people most in need of assistance get the least help here. Republican governors and the Trump administration have been trying for years to impose work requirements on Medicaid benefits, which studies show leads to lower enrollment but no change in employment. The White House is also pushing forward with a plan to impose more stringent work requirements on SNAP beneficiaries even as the economy collapses, likely leading 700,000 people to lose their benefits.

Judged by that standard, McConnell’s plan is surprisingly generous. The poorest households get some money, even as Republicans try to take their health and nutrition benefits away.

From a humanitarian standpoint, however, there’s something perverse about throwing together an emergency financial assistance program that gives the least assistance to those most in need. And from a macroeconomic standpoint, it’s the most desperate households that we can be most sure will immediately spend any money they get — thus doing the most to stabilize the economy.

As for the other limitations — restricting any money from going to higher-income households — they at least have a clear rationale. The idea is these families don’t really need the money. But there are both technical and practical reasons to doubt whether even that kind of targeting really makes sense.

Backward-looking data doesn’t predict present needs

According to the Bureau of Labor Statistics, the median psychologist in America earns $97,770 a year, which puts you right about where the McConnell plan phases benefits down to $0.

Now that’s fine for those who actually make $97,770. But the way this plan works is the IRS would be basing what checks people get based on the data it already has, data about the past. So if you’ve had to close your office and offer your patients the option of doing remote therapy sessions, and 20 percent of them have decided they don’t want to do it (some because they don’t like the idea, some because they’ve lost their jobs, others because they’re just nervous and trying to conserve money), then your household budget has probably been thrown into disarray. But you’re still not getting any help.

You could go down the line with scenarios and the point will always be the same.

The reason we’re talking about this is that a very large and disruptive thing happened. Under the circumstances, past earnings are not very predictive of present conditions. Some jobs are not that impacted by Covid-19, the disease caused by the novel coronavirus. A few industries are probably even boosted. But other sectors are devastated. Owning a decent takeout pizza joint is suddenly a great career move, but being the chef of a Michelin-starred restaurant in Las Vegas is worthless.

There’s no tractable way for the government to take all these considerations into account. But that’s why just giving money to everyone and accepting that some of it will go to those who don’t really need help is probably the best solution. If you’re really worried about it, you could always launch a big drive to exhort people to donate their checks if they have no immediate spending needs.

Last but by no means least, treating a child as worth 40 percent the value of an adult is very questionable under the current circumstances.

Parents really need help

Raising children is very expensive.

The main way the government normally helps with that is by providing public schools. But schools are currently shut down indefinitely, leaving parents with the need to keep children safe and entertained in a context where they’re also not supposed to go to playgrounds or play with their friends.

This is challenging, but one way to make it more viable is to be relatively liberal with spending on a babysitter and new toys and at-home activities. Having money to spend on kids’ activities isn’t just a way for families to preserve their sanity, it’s a form of economic activity that can be sustained and possibly increased even as the leisure and hospitality sectors shut down and the policy focus turns to production and procurement of medical supplies.

The idea that a single mom trying to safeguard two kids while working as an assistant manager of a grocery store needs less financial assistance than a childless married couple frankly defies common sense. And even families who don’t urgently need financial assistance to help with their kids are relatively likely to go out and spend the money if they’ve got it, given how easily bored children can become.

It’s a good time to go big

Politicians of all stripes seem to be trying to balance the vogue for cash assistance with the apparent need to support various kinds of businesses in distress with the basic sense on Capitol Hill that $1 trillion is an extremely large number.

Barack Obama’s economic advisers didn’t even want to show him a memo making the case for a stimulus bigger than $1 trillion because they thought it would spook Congress too much. Republicans don’t love the idea of spending money, and Democrats don’t love the idea of expending political capital pushing for outrageously high stimulus spending that will redound to Donald Trump’s benefit. Everyone vaguely worries about pushing the national debt into unprecedented terrain.

But it’s worth thinking more clearly about the downside of spending too much.

Inflation might go up as a result of excessively free spending, but right now inflation expectations have fallen below where they’re supposed to be, so this doesn’t seem too troubling.

It’s also possible that in the future we might need to “take back” the excessive spending by raising taxes. Nobody will be thrilled about that. But if two years from now the story is that everyone has their Covid-19 vaccine, shops and restaurants are open, the unemployment rate is below 4 percent, wages are rising, but people are bummed out about a looming tax increase — that’s a pretty good outcome. If the story is that unemployment shot up to over 10 percent again as it did during the Great Recession and has been only slowly declining as wages stagnate, that’s awful.

As long as Congress is in the mood to cut checks, they should just cut them to everyone — low-income people, high-income people, kids — and be glad that the downside risk of check-mailing is very low and they can move on to more technically challenging problems related to public health.

Matthew Yglesias Matthew Yglesias https://cdn.vox-cdn.com/community_logos/52517/voxv.png Read More