Covid Relief Checks Sharply Reduced Suffering: Analysis

By Yuval Rosenberg

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.

Biden and Capito Discusss Infrastructure Deal,
Will Talk Again Friday

President Biden met Wednesday afternoon with Sen. Shelly
Moore Capito (R-WV), the Republican point person on infrastructure
talks, and while the roughly hour-long meeting reportedly did not
yield a breakthrough, the two agreed to talk again this
week.

“This afternoon, the President hosted Senator Capito for a
constructive and frank conversation in the Oval Office about how we
can drive economic growth and benefit America’s middle class
through investing in our infrastructure,” the White House said.
“The two agreed to reconnect on Friday.”

Senate Parliamentarian Deals Blow to Democrats’ Reconciliation
Strategy

Democrats will likely only have one more chance this year
to use the process called budget reconciliation to pass legislation
without Republican support, following a ruling issued by Senate
Parliamentarian Elizabeth MacDonough on Friday.

The Hill’s Alexander Bolton
explains:

“MacDonough ruled that a revision to the 2021 budget
resolution cannot be automatically discharged from the Senate
Budget Committee, meaning Democrats would need at least one
Republican on the 11-11 panel to vote with them.

“The bombshell ruling effectively means Senate Majority Leader
Charles Schumer (D-N.Y.) will be able to use only one more
reconciliation vehicle to pass Biden's key legislative priorities
this year. He will not be able to divide up the $2.3 trillion
American Jobs Plan and the $1.8 trillion American Families Plan, as
well as Biden's calls to expand Medicare and lower the price of
prescription drugs, into multiple reconciliation packages, as was
envisioned only a few weeks ago.”

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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