Fixing the COVID Relief Bill

Senate Republicans are working on a measure to provide economic relief for the coronavirus crisis. I thought I'd write a brief post here on how this bill could be improved, particularly the cash-benefits portion. The phase-in and front-end means-testing provisions could both be stripped from the bill to make it more pro-worker and efficient.

  Here's an outline of the cash-benefits element of that bill:

GOP bill on immediate checks:

-- $1,200 per person ($2,400 if filing jointly)
-- $500 per kid
-- Begins to phase out above $75K
-- Phases out completely above $99K
-- Much smaller benefit, of $600, for millions w/o federal tax liability pic.twitter.com/mPggn8eepS

— Jeffrey Stein (@JStein_WaPo) March 19, 2020

Over at NR, Robert VerBruggen explains how the phase-in works:

To use the tax-wonk term, the benefit “phases in” at lower incomes, because it’s based on tax liability. To put it bluntly, poor workers can see their checks cut in half, and Americans with hardly any income will get squat.

So the COVID relief bill could give reduced cash benefits to many poorer Americans.  How many? AEI's Kyle Pomerleau has one estimate:

Rough estimate using IRS data:

The Structure of the Senate GOP Plan's Rebate would mean that roughly 64 million filers earning less than $50k would not receive the full rebate amount of $1,200/$2,400.

— Kyle Pomerleau (@kpomerleau) March 20, 2020

This seems to be a significant policy mistake. The coronavirus crisis is inflicting pain on Americans across the economic spectrum. It makes no sense that poorer Americans should receive less assistance during this time, especially because this is not a normal recession. Instead, this massive economic pain is being inflicted by federal, state, and local governments in the name of public health. Mitt Romney and Josh Hawley have pushed back against this effort to reduce aid to poorer Americans. We'll see if their efforts are successful.

Means-testing (the phase-out) poses its own problems.  This means-testing is based on a person's 2018 tax bill. Why should the fact that someone did well eighteen months ago mean that he or she should get less aid now? Moreover, front-end means-testing further complicates the bill and could create more delays in getting relief money into consumers' hands.

If members of Congress really are concerned about means-testing, back-ending it could be more efficient. For instance, Congress could impose a one-year tax surcharge of 0.5% on incomes over a certain threshold; this surcharge would dissipate after $1200 (or whatever the COVID cash benefit was) had been collected through it.  This would lead to wealthier Americans paying back their COVID cash benefits, but that payback wouldn't occur until taxes were due in 2021. It would put more cash into the economy now and would be more transparent.  (And that's if you think means-testing is even a worthy aim; David French thinks it isn't for this bill.)

As I wrote in NR today, the coronavirus crisis is a time of intense economic disruption, and it demands considerable civic solidarity. Equal cash benefits to compensate for the pain inflicted by this crisis could be a way of reinforcing that solidarity and providing needed economic stimulus.

(In addition to those policy reasons, there's a political reason why Congress should support more blanket benefits: the optics of providing less aid to poorer Americans during this tumultuous time are absolutely terrible.)