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February 4, 2021

The Wonk Case for Limiting Eligibility on Relief Checks Is Wrong

The evidence for targeting tells you nothing about whether it's good
policy, and it's not even decent targeting

 

This Vermont nurse and others like her making just above the median
income won't get a full relief check, under a new Democratic proposal.
(Kristopher Radder/The Brattleboro Reformer via AP)

The Chief

In 2009, President Obama allowed members of Congress to write and direct
the Affordable Care Act negotiations for way too long. Joe Biden isn't
making that mistake. He's fully engaged in the process
,
encouraging Democrats to get the bill done quickly. And that engagement
has coincided with this new development on the $1,400 direct payments,
where Biden has held firm on the dollar figure but expressed openness

to the changing the eligibility requirements, which would start phasing
out at $50,000 for individuals and $100,000 for couples. So in my view,
you have to place responsibility for that emergence squarely on the
president. This is his bill
.
If he wanted to shut down talk of any changes, he would have.

Let's just say that Biden has a far different conception of how this
would be perceived than reality. "I'm not going to start my
administration by breaking a promise to the American people," he
reportedly said on a call with House Democrats yesterday, referring to
his support to keep the checks at $1,400. But changing the targeting
most certainly would break that promise. (Some would say conceiving of
the checks as "topping up" to $2,000 after a $600 check in December
is already breaking the promise.) Nothing changed between December and
today for the millions of people who would suddenly become ineligible
for support. They'll just get sacrificed.

And the question about that is: why? Who is this for? Marc Goldwein of
the Committee for a Responsible Federal Budget estimates that the more
tightly targeted checks would cost $420 billion, as opposed to $465
billion. That's what we're fighting over? $45 billion in a $1.9
trillion package, to deny middle-class people (almost definitionally
speaking; they make just over the median income) relief? That's the
holdup?

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The answer to the why is largely predicated on a study from Raj Chetty
and his group Opportunity Insights, which attempts to turn an obviously
political imposition (to allow moderate Democrats to say they had a role
in scaling back the bill) into an evidence-based one. This study is
playing an outsized role in the debate, all the way up to the White
House. There are several major problems with using Chetty's data to
make the case for more stinginess on the direct payments, however.

The Opportunity Insights analysis

looked at how families used the most recent $600 direct payment in
January. They found that households with incomes under $46,000 saw their
spending increase by 7.9 percent in the two weeks after receiving the
checks, while those with incomes over $78,000 had spending increase only
0.2 percent. They estimate that those higher-income households would
spent almost none of the $1,400 checks, and therefore that money should
be better targeted.

The first problem is that, deeper in the data, the spending effect holds
up for households up to $59,000. Yet any single households over $50,000
in the proposed targeting would get less money, despite the data showing
that they need it enough to use it immediately, in the first couple
weeks, after receiving it.

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The second, and much bigger, problem, is that the data really only tells
you that there's dire need below $59,000. The reason that these
households would spend quickly relative to higher-income ones is that
they are running a severe deficit and need that money to fill immediate
needs. Just because slightly higher-income households aren't spending
as quickly doesn't mean the money won't be used.

Remember that the checks in the study came in at the beginning of the
month. By the end of the month, those higher-income households might
need that money to pay bills, or buy durable goods. Or maybe they drew
down savings to cover for lost income during the pandemic, and now
they're building it back up. Would that be a "waste," to allow
people to accumulate emergency funds? Would it be a waste to allow
families to pay down debt? The fact that these households don't spend
the very moment they receive a check says nothing about whether or not
it's good policy.

Finally, there's the inconvenient fact that the eligibility thresholds
will be based, until there's more tax information, on 2019 data. The
first direct payment a year ago was based on obviously outdated
financial information, as it didn't account for the extreme
unemployment spike. But to based payments now, a year later, on
pre-pandemic earnings is just completely out of proportion. Yes, you can
still get the payments through your tax return, but that puts the onus
on the individual to do a bunch of paperwork and await processing to get
something they're fully eligible to get.

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As I've said repeatedly, my ideal means test would be "none," but
if you must, give everyone a check
,
and then claw back the money for "undeserving" households in the
2021 tax year. Then you would actually be "targeting" correctly, and
giving everyone a 15-month interest-free loan besides, which is the
least you can do for people being jerked around like this. The concept
of using the Chetty analysis to apply a means test that will rob someone
of relief who made $75,000 in 2019 but has been unemployed since the
pandemic makes a mockery of being "data-driven." (Incidentally a
significant number of people fall into that description, and up to 20
percent of them experienced food insecurity
in the
past year.)

So there's no economic case for this narrowing, and politically it's
suicidal. You're taking the most popular part of the American Rescue
Plan and chipping away at it for no good reason. Try explaining to the
millions who will end up with less why this was done, why White House
economists

sided with the Chamber of Commerce
and
the president decided to break a campaign promise while attracting no
Republican support for his plan. In the name of technocratic
"targeting," you're just cutting the benefit, and doing it for
reasons of politics. It's nonsensical.

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What Day of Biden's Presidency Is It?

Day 16. The President visits the State Department today.

We Can't Do This Without You

Today I Learned

* Biden's approval rating is high
,
and the way to keep it there is to keep doing things the public likes.
(Associated Press)

* Sending masks to every American
,
for example, would be smart policy, and even politics, despite the vocal
minority of anti-maskers. (NBC News)

* We are still on the streak of first-time jobless claims being bigger
than any week of the Great Recession
.
That's been true since last March. (CNBC)

* If the minimum wage can get a vote in reconciliation and Joe Manchin
is the only holdout
,
then we'll see how Biden handles dissent on his right. (Politico)

* I'm getting worried about a double-dip recession in the Eurozone
,
a big enough market that we'd catch a cold if they get sick. (Axios)

* Treasury Secretary Janet Yellen has convened a big regulatory meeting

for today, in the wake of the GameStop mess. (CNBC)

* Interesting bill from Amy Klobuchar

on antitrust policy. (Wall Street Journal)

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