Covid Relief Checks Sharply Reduced Suffering: Analysis

Relief Checks Significantly Reduced Economic Hardship: Report

The Covid relief bills passed by Congress provided direct assistance to the majority of American households, and according to a new report from analysts at the University of Michigan, those payments had a powerful, positive impact on recipients’ financial and emotional well-being.

Researchers Patrick Cooney and Luke Shaefer analyzed data from the Census Bureau’s Household Pulse Survey and found strong and unambiguous benefits provided by the relief payments.

“Our analyses thus far have yielded a fairly simple story: throughout the crisis, the level of hardship faced by U.S. households can be directly linked to the federal government’s response,” Cooney and Shaefer say. “What we find is that reported hardship drops sharply—across multiple domains—immediately following both the COVID-19 relief bill passed in late December 2020 and [the American Rescue Plan Act] passed in early March 2021.”

After the checks worth up to a total of $2,000 per person were distributed in December and March, the researchers found a 43% decline in financial instability, a 42% decline in food shortages in households with children, and a more than 20% decline in anxiety and depression among recipients. The benefits were strongest for adults with children, and those living in households earning less than $25,000 per year, though the researchers found positive effects in higher income households as well.

A question of cost: The relief programs have been financed by deficit spending and contributed to a record increase in U.S. debt, and some critics say that the programs provided too much help to households that didn’t need it. “Given the scale of the stimulus aid — a total of $585 billion — a reduction in hardship may seem like a given, and there is no clear way to measure whether the benefits were worth the costs,” says Jason DeParle of The New York Times.

Conservatives have long opposed providing cash aid to low-income households, citing both the expense and the supposed deleterious effects on individual motivation. “It’s not sustainable to just give people enough cash to eliminate poverty,” Scott Winship of the American Enterprise Institute told the Times. “And in the long run it can have negative consequences by reducing the incentives to work and marry.”

Winship also questioned the reliability of the Census data, and the researchers’ ability to untangle the effects of the relief checks from other income sources, such as tax rebates.

Politically, though, the obvious if predictable success of the payments seems to boost the argument that providing direct payments to low-income households is highly effective in terms of reducing basic human suffering. “Cash aid offers families great flexibility to address their most pressing problems, and getting it out quickly is something the government knows how to do,” Shaefer told the Times.

The bottom line: The Biden administration is sticking with the cash-first approach. Starting in July, as part of the $1.9 trillion Covid relief bill the president signed into law in March, about 39 million families will start receiving monthly payments aimed at slashing childhood poverty.

Quote of the Day

“For all the progress we’re making as a country, if you are unvaccinated, you are still at risk of getting seriously ill or dying or spreading disease to others, especially when Americans spend more time indoors again, closely gathered in the fall.”

– President Biden, in a speech Wednesday urging Americans who have yet to be vaccinated against Covid-19 to get the shots. Biden stressed that the vaccines are safe and “extremely effective.” Biden also announced a ramped-up campaign — a "National Month of Action" — to reach his goal to have 70% of adults get at least one shot by July 4. The campaign includes a partnership with brewer Anheuser-Busch, which announced that it will give away free drinks to Americans age 21 and older if the nation reaches the 70% target.

Deficits Likely to Be Bigger Than Biden’s Budget Projects

President Biden’s budget request for fiscal year 2020 projects a $1.8 trillion deficit next year and annual shortfalls of more than $1.3 trillion over the rest of the next decade. Actual deficits could be even larger, writes Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center — and not because of some extraordinarily rosy economic assumptions, as has often been the case in the past. “Instead, Biden masked what likely will be the true increases in deficits simply by using standard Washington budget accounting and by assuming that all of his proposed tax increases will become law, when they almost surely will not,” Gleckman writes.

He explains that Biden’s budget “makes two big assumptions.” One, as we noted last week, is that individual tax cuts in the 2017 Republican tax law will be allowed to expire as currently scheduled at the end of 2025. Biden has pledged not to raise taxes on people making less than $400,000 a year and he may not ultimately want all of those 2017 individual tax cuts to expire. Even if he does, many in Congress won’t. “In reality, Congress may allow some to expire but surely will extend many others,” Gleckman says. “And there is a lot of money at stake. A back-of-the-envelope calculation based on the Joint Committee on Taxation’s 2017 TCJA revenue estimates, which assume the individual provisions do expire after 2025, suggests extending them could add close to another $800 billion to the debt by 2031.”

The other questionable tax assumption in Biden’s budget involves corporate taxes. The budget assumes that his proposal to raise the corporate tax rate from 21% to 28% gets enacted — even as some Democrats have pushed back on that hike and said they’d prefer a 25% rate. “Rough rule of thumb: That three percentage point difference would reduce projected revenue by about $300 billion,” Gleckman says. “Similarly, Biden’s budget assumes about $500 billion from changes to the taxation of US-based multinational corporations. The biggest single provision would effectively increase the global minimum tax on multinationals from 10.5 percent to 21 percent.” But the minimum rate is tied to the base corporate rate, and could ultimately drop to about 18% or lower. “Add it all up and that $2 trillion in new corporate tax revenue is likely to look more like $1.5 trillion or less,” Gleckman says.

His conclusion: The 2031 deficit of 4.7% of GDP projected in the Biden budget is more likely to stay closer to 5% of GDP through the decade because revenues would be lower than forecast in the White House blueprint. Of course, Congress could still change that outlook by scaling back Biden’s spending plans or enacting some unanticipated revenue measures.

Read the full piece at the Tax Policy Center.

Chart of the Day

State and local governments cut jobs in the wake of the Covid-19 crisis, and employment levels in that sector are still more than 1 million below where they were before the pandemic. Looking at different ways states and cities could spend the$350 billion windfall they will receive from the federal government as part of President Biden’s $1.9 trillion American Rescue Plan, Bloomberg’s Brian Chappatta says re-hiring workers should be near the top of the list.

“Economists widely agree that the austerity measures put in place by governors and mayors after the 2008 financial crisis held back the U.S. economy from reaching its full potential,” Chappatta writes. “To avoid making the same mistake, states and cities should bulk up their workforces. Those salaries tend to flow back into local businesses anyway.”

3.7 Million Unemployed to Lose Benefits as 25 States Opt to End Federal Program Early

Maryland announced Tuesday that it will end emergency federal unemployment benefits early, bringing the total of states doing so to 25.

According to an analysis of Labor Department data by CNBC, the decision means that at least 3.7 million people will see a reduction or elimination of their unemployment benefits in the coming weeks, starting as soon as June 12.

Unemployed workers in the 25 states – all led by Republican governors – will stop receiving the $300 per week federal supplement that Congress scheduled to run through Labor Day, and some will also lose benefits provided for the self-employed and the long-term unemployed.

Maryland Gov. Larry Hogan said Tuesday that his decision was based on what he perceived as a shortage of workers, driven by the enhanced federal benefits. “While these federal programs provided important temporary relief, vaccines and jobs are now in good supply,” he said. “And we have a critical problem where businesses across our state are trying to hire more people, but many are facing severe worker shortages.”

But many economists say that the labor market is deeply unsettled right now, and that the elimination of benefits will only hurt vulnerable people. “It’s like a classic example of blaming the victim,” Andrew Stettner of The Century Foundation told CNBC. “It’s a crazy policy response to a situation that’s obviously a lot more complex than that.”

In a research note last week, analysts at JPMorgan said that politics, not economics, is likely driving the decisions to end benefits early. While the federal benefits are probably limiting the labor supply in some places, labor market tightness at the state level does not appear to be the deciding factor in ending the aid programs, the researchers found. Instead, the common factor is having a Republican governor.

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• Biden Privately Tells Lawmakers Not to Expect Much on Reparations Legislation – Politico
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• Biden Sheds Hawkish Past on Deficit With Debt-Laden Budget – Niv Elis, The Hill
• Pentagon’s Budget Pressures Will Mount Soon – John M. Donnelly, Roll Call
• The Jobs Report That Could Upend Biden’s Economic Agenda – Megan Cassella, Politico
• A Corporate Tax Hike Won’t Help Us Build Back Better – Blanche Lincoln, Roll Call
• Biden's Budget Tackles Climate Crisis Across Nearly Every Federal Agency – Kirin Kennedy, The Hill
• The Latest Burst of Inflation in the U.S. Is Probably Transitory – Peter Coy, Bloomberg Businessweek
• Why It Makes Sense to Look at Inflation Without the Hot Stuff – Joe Weisenthal, Bloomberg
• Repealing Flawed “Pass-Through” Deduction Should Be Part of Recovery Legislation – Samantha Jacoby, Center on Budget and Policy Priorities
• Recovery Legislation Provides Historic Opportunity to Advance Racial Equity – Danilo Trisi et al, Center on Budget and Policy Priorities
• The End of the C.D.C. Eviction Moratorium Means Trouble – Peter Hepburn, New York Times
• Another Way to Think About the ‘Worker Crisis’: Americans’ Work Conditions Are Terrible – Helaine Olen, Washington Post
• The Real Reason Employers Can't Hire Enough Workers – Jill Filipovic, CNN
• Teacher Shortages Can Be Fixed With Higher Pay – Conor Sen, Bloomberg