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February 9, 2021

The House Sets the Marker

Two main outstanding issues in the Biden relief bill have been, at least
for now, decided in progressives' favor

 

Separated from the media debate, Congress is deciding on the $1.9
trillion American Rescue Plan. (Dominick Sokotoff/Sipa USA via AP
Images)

The Chief

The major media debate about the $1.9 trillion American Rescue Plan
involves the overall size of the package, driven largely by Larry
Summers' anger over getting blackballed from the Biden campaign last
summer. That's not actually much of a debate, because the
decision-makes are all aligned. It's very likely that the U.S. will
pass an additional $1.9 trillion or so of pandemic relief, mostly
focused on helping low- and middle-income people survive the pandemic
and getting everyone vaccinated as quickly as possible. And they're
going to do it in the next month or so.

Summers has had no impact on this, and that's as it should be.
Financial markets

and Federal Reserve officials

don't see much risk

from inflation, and Summers' fear of an overheating economy is based
on bad math and a seeming desire to keep a large section of the
population in financial pain. That this is being rejected should be
celebrated. It's not 2009 anymore.

That said, there is a debate happening inside Congress, over the fate of
one key component of the bill and the structure of another. About 90
percent of the bill is going to get through relatively unscathed, in the
form Joe Biden presented before his inauguration. The remaining 10
percent really matters so we're focused on it. And yesterday the House
made key decisions on both pieces.

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Yesterday we discussed the debate

over what level to phase out the direct payments. I explained how a
different economist, Raj Chetty, triggered this debate by airdropping a
two-page research paper based on imprecise, outdated ZIP code-level data
to "prove" that nobody above $78,000 spent stimulus money. (Nobody
above $78,000 got a full stimulus check, but somehow that never gets
said.) Economist Claudia Sahm, who I quoted extensively in my piece,
wrote an even more thorough takedown
of
the Chetty paper.

But Claudia and I didn't end up on the op-ed page of the New York
Times, as Chetty and his fellow researchers did

yesterday, given the space to present the research again and
pre-emptively rebut critics. That they felt the need to do this shows
that a real debate is forming
.
But the role of elite media is pushing through Chetty's narrative is
notable. The research first gained attention in a Washington Post spread

on January 26, with the very explicit headline "Cutting off stimulus
checks to Americans earning over $75,000 could be wise, new data
suggests." Nowhere in that story does it mention using ZIP code-level
rather than household-level data; in fact the technical appendix
explaining the data source isn't linked in the paper until a week
later . When the
paper finally starts to get some criticism, NYT gives it an unmediated
op-ed. The only disclosure of the ZIP code-level data is in a caption to
a chart. Did I mention that influential NYT op-ed columnist David
Leonhardt sits on the advisory board
for Opportunity Insights,
Chetty's umbrella group that produced this analysis?

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The second major variable in the bill is whether the increase in the
minimum wage to $15 an hour will be added. This is mostly a function of
whether the Senate parliamentarian allows it in the budget
reconciliation process, agreeing that it has a significant budgetary
impact. That was likely to hinge on a Congressional Budget Office
analysis

of the legislation, and whether they took the budget implications into
account.

That CBO report dropped yesterday
, and
there's good news and bad news. The bad news is it's just a terrible
report. It assumes that, while 27 million people would get a raise,
there would be 1.4 million jobs lost (over 10 years, so that sounds a
lot bigger than it is). That plays havoc with all the budgetary
implications. There are higher unemployment insurance costs, higher
interest on the national debt, and higher prices for goods and services
baked in. Basically CBO tried to model the entire economy and national
expenditures based on this one change.

It also based that model on arbitrarily choosing seven research studies
about minimum wage increases and then over-emphasizing the negative
ones, as Arin Dube explains
. If CBO used
the methodology it used in 2019 to look at a previous minimum wage bill,
it would have shown a 1.1 million job loss. Instead it showed 1.4
million, and that drift is completely at odds with the latest research.
A fiery call from the Economic Policy Institute yesterday savaged the
CBO score. "Normally we don't like to yell at the referees," said
AFL-CIO economist Bill Spriggs. "But in this regard, the CBO has
stepped outside its bounds and is not speaking truth to power, but is
giving information that is misleading."

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I wrote two years ago

that the CBO was going to be a problem, though you get no points for
being first, or right. But that leads us to the good news. Ultimately,
CBO shows that the wage hike would cost the government $54 billion in
the 10-year window, when contemporaneous analyses showed budget savings
of close to $500 billion. Many progressive economists disagree with that
analysis. Nevertheless, a budget impact is a budget impact, and the
Senate parliamentarian will have to disallow something more than twice
the size of closing the carried interest loophole, for example, if they
choose to nullify the minimum wage hike from reconciliation.

All this is preamble to what the House did yesterday afternoon. The Ways
and Means and Education and Labor committees released their preliminary
text of the reconciliation bill, which will be marked up this week.
Education and Labor

kept the minimum wage hike, and Ways and Means

kept the phase-outs for direct payments starting at $75,000 a year for
individuals and $150,000 for couples. (Some are trying to make hay about
a "faster phase-out
"
but it's really not much faster. The previous checks reduced the value
by $5 for every $100 over the threshold. This phase-out would reduce
value by... $5.60 for every $100. It's not really a difference, made
just to get a round number cutoff
at
$100,000/$200,000.)

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House leadership, in other words, ignored the cries to tighten the means
test, recognized the anger middle-class voters would have

if they qualified for two previous checks and not this one, and just
kept the structure in place. The structure is still flawed-either 2019
or 2020 earnings data can be used for the checks, depending on when it
passes and when individuals file taxes, so there's still a burden on
individuals to manage the system to maximize payout. The means test
based on outdated income data makes no sense (it's a major problem in
this new version of the Child Tax Credit

too.) But it's not needlessly restrictive.

The Senate can still, and probably will still, put their mark on this.
But the House set an early baseline, and we'll see if that passes
through the markups. I know the Progressive Caucus organized to include
both of these pieces. The leadership could have punted right away on
both these questions and they didn't. Since checks and the minimum
wage are super-popular, it gives progressives more time to build support
and rebut contrasting arguments. It allows these important elements,
both policy-wise and politically, to have a fighting chance.

What Day of Biden's Presidency Is It?

Day 21.

We Can't Do This Without You

Today I Learned

* I was on Bad Faith podcast with Briahna Gray Joy and Virgil Texas.
Here's a preview
.
(Apple podcasts)

* A non-binding vote over undocumented immigrants and pandemic relief
funds

is causing internal Democratic strife. (Politico)

* Pfizer now assures that they can cut vaccine production time in half
.
(USA Today)

* Biden asking Trump's U.S. Attorneys to resign
.
Good work. (CNN)

* The historical echoes of Biden's Civilian Climate Corps
.
(Grist)

* Yuck, Cass Sunstein got a job

in the Department of Homeland Security. (Bloomberg)

* Meanwhile, the decision on who should run

the Office of the Comptroller of the Currency lingers. (Wall Street
Journal)

* Good report making the case

for forgiving taxes on unemployment insurance in 2020. (The Century
Foundation)

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