Who exactly will get the enhanced cash aid, and who won’t, in the stimulus package the Biden administration will soon negotiate with Congress? This is the first of many distributional challenges awaiting lawmakers on both sides of the aisle. Choices on targeting increasingly scarce public funds will reveal which income groups both parties are committed to represent.
Details of the relief proposal had not been released as of this writing. But it is likely that the administration has been working from the distribution template in legislation Democrats introduced at the end of December. That bill, the Cash Act of 2020, would increase the $600 COVID-19 cash relief authorized last month to a total of $2,000 ($4,000 for couples). It also would send billions of dollars to well-off people that don’t need the money. As with previous COVID-19 cash aid legislation, an argument can be made that the distribution scheme shortchanges millions of people who need money to pay for food and rent.
With U.S. national debt already surpassing annual output, Congress and the new administration will have to make tough choices revealing the strength of their commitment to the growing legions of low-paid workers. More cash relief is needed both to maintain the economy and help people survive. Even before the pandemic, researchers reported that almost half the U.S. workforce was earning low wages.
The Cash Act throws a wide net by sending tax rebates to all but the very highest earners. Almost 48% of the tax units (individuals and families) that would receive aid have incomes below $50,000. But these low earners would get only about 42% of the benefits, according to an analysis by the Urban-Brookings Tax Policy Center. (See table below.) Tax units making $50,000 to $100,000 comprise 23.7% of beneficiaries and would get 25.3% of the money.
About 26% receiving aid would be in the $100,000 to $500,000 annual income range. These would end up getting more than 32% of the total pie. And, somehow, more than 2.6 million folks making more than $500,000 would end up getting some cash — not enough to affect the federal budget seriously but surely a waste of money.
The 12.5 million tax units making less than $10,000 a year would net an average of $1,840 in additional cash, according to the analysis. The 32 million earning between $100,000 and $200,000 would get an average of $3,430 — almost twice as much.
These numbers do not indicate a high-water mark for liberal policymaking. Who needs money more: a professional couple making six figures or a single parent working minimum wage? Recall that while millions of low-wage workers became unemployed or lost income in 2020, salaried workers were much more likely to keep their jobs. Many benefited from a rising stock market.
COVID-19 relief legislation passed in December stemmed from a compromise proposal that offered very little for the lowest income groups. The $600 checks were included during last-minute negotiations after public criticism. But most of that cash did not even go to people with low incomes. The cash relief cost an estimated $166 billion. The Biden cash stimulus plan appears to follow a similar distribution pattern and would likely cost more than twice as much.
If economic stimulus is a goal of the legislation, which tax units are most likely to spend the windfall immediately and which would likely put it in savings and investments? The 12.5 million making less than $10,000 a year or the 14.4 million making between $200,000 and $500,000?
This week, lawmakers from both parties lobbied the White House for a more targeted relief package, including the expansion of cash relief. President Biden responded by saying he is willing to adjust cash aid income thresholds. He also stressed the need for negotiations to move quickly.
As the Republican Party tries to increase its appeal to the working class, liberals may have more leverage to direct funds to people most in need. Senators representing low-income states from both parties are among the leaders pushing for better targeting. Close votes in a 50-50 Senate may provide them with opportunities to make a difference. Time will tell which path Biden and Congress choose to take.
Karl Polzer is founder and CEO of the Center on Capital and Social Equity.