Addressing six common arguments and myths in favor of this policy.
There is perhaps no easier political position than supporting broad-based government handouts, particularly for the middle class. Everyone loves free money, and even those who vigorously criticize “tax cuts for the rich” or “welfare for those who won’t work” usually defend middle-class entitlements such as Social Security and Medicare in which the benefits received typically far exceed an individual’s lifetime contributions to the system. Even rural conservatives who criticize urban welfare programs often support welfare for farmers (e.g., farm subsidies to agribusinesses).
The latest triumph of populist pandering over limited-government conservatism is President Trump’s call to increase the $600 relief payments in the latest stimulus law to $2,000 per person. The CARES Act had already provided $3,400 for a typical family of four, and the latest stimulus law added $2,400 more ($600 per person). Enacting the CASH Act — which would raise that $600 payment to $2,000 per person — would bring the total relief payments to $11,400 for a typical family of four in the span of nine months.
The CASH Act has already passed the House with the support of 44 Republicans, and has picked up some GOP support in the Senate. Senators Josh Hawley (R., Mo.) and Marco Rubio (R., Fla.) have emerged as its leading advocates. As many Republicans contemplate these new government handouts, let’s address the common arguments and myths in favor of this policy.
Argument 1: The middle class is suffering from COVID-19, and we get crumbs!
The purpose of the pandemic-relief bills — outside of financing health-care workers and vaccine development — has been to keep afloat families and businesses who have lost income because of government-imposed shutdowns and the attendant economic recession. Indeed, the latest $900 billion law includes $120 billion to extend emergency-unemployment assistance for an additional eleven weeks, and $284 billion for the Paycheck Protection Program (PPP) to keep vulnerable businesses out of bankruptcy and maintain payrolls in order to minimize layoffs. The $166 billion allocated to fund the payout of $600 relief checks serves no legitimate purpose because the vast majority of recipients will not have lost their jobs or income during the past year — and those who did already had access to unemployment and other benefits that often exceeded their prior income. Yes, the past year has been rough on everyone. But government relief is meant to replenish income, not subsidize our grumpiness over lockdowns.
Argument 2: What about those who have fallen through the cracks?
Current aid programs have not been able to fully reach everyone who has lost income. Some have remained employed but have had their hours reduced; some have been ineligible for unemployment benefits (or it’s taken too long for them to receive their checks); and others failed to receive adequate PPP benefits. The solution for those who have fallen through the cracks is not to simply borrow hundreds of billions of dollars to write additional checks that would take the payments to the typical family of four to a cumulative $11,400, even if they had lost no income (that is the kind of attitude that created a $27 trillion national debt), but rather to clean up the targeted programs. Defenders of the first relief payments back in March asserted that a sudden pandemic and a collapsing economy left no time to fix the programs. Nine months later, that is no longer a legitimate excuse.
Argument 3: Spending these relief checks is good for the economy.
Even if one accepts the Keynesian theory that government spending is good and saving is bad, the Keynesian case for relief checks is weak. The last round of checks was largely saved — causing the overall personal savings rate to soar from 8 percent to 32 percent — and the subsequent economic recovery means even more of the next relief checks will likely be saved, too. On the other hand, targeted aid to those who have lost income would surely be spent more heavily. Additionally, the continued economic weakness is largely a result of entire industries (travel, hospitality, restaurants, etc.) being partially shut down by pandemic restrictions. They will not likely be recipients of this new spending anyway, which may instead go to industries that are already doing better.
Argument 4: We paid taxes, we want our money back!
Nonsense. Federal taxes are not even sufficient to fund regular government operations (which were already facing a $1 trillion deficit before the pandemic), much less the host of new pandemic spending. In the recently concluded fiscal year, nearly half of all federal spending was funded by deficits rather than taxes. And two-thirds of these deficits were funded (indirectly) by the Federal Reserve. We’re not getting “our” money back, the Federal Reserve is paying for your relief check. And even if they were funded by federal tax revenues, the relief-check amounts are not related to a family’s tax bill. Many households will get back much more than they paid in taxes. This isn’t a tax cut, it’s a federal handout.
Argument 5: Relief money has been diverted to foreign aid.
President Trump called on Congress to cut foreign aid to unpopular regimes in order to increase the relief checks. Indeed, popular memes on Twitter and Facebook erroneously assert that this latest relief bill diverted hundreds of billions of dollars to foreign aid. Reality check: The foreign aid was in the regular $1.4 trillion discretionary spending bill that funds the federal government for the following year, and that separate bill was merely stapled to the latest pandemic-relief bill at the last minute so that Congress could vote on them together. And because foreign aid is part of the annual appropriations budget (subject to its own budget laws and targets), any reduction in foreign aid would almost certainly be reallocated to other regular appropriations, rather than diverted into a separate pandemic emergency bill.
More specifically, total foreign aid is $40 billion annually — just 1 percent of the federal budget — and much of that goes for initiatives such as saving 20 million lives from AIDS in Africa and elsewhere (a program that costs Americans $20 per person), as well as maintaining peace in parts of the world where war and terrorism would be much more expensive for U.S. taxpayers. Critics have seized on the $4 billion in foreign aid for particularly unpopular regimes (most of which President Trump had approved the previous three years, and even proposed in this year’s budget). Setting aside the merits of those programs, they pale in comparison to $3.5 trillion in total pandemic assistance this year, and diverting those funds to relief checks would come to $12 per person — making a mockery of the claim that they could fund $2,000 checks.
Argument 6: The middle class always pays the taxes and gets no benefits.
One of those myths that won’t die is that the middle class pays all of the taxes, and gets none of the benefits in return. In reality, CBO data show that the typical family in the middle-earning income quintile pays $10,500 in annual federal taxes, while receiving $16,800 in direct benefits plus $6,300 worth of public goods such as defense and infrastructure. For the bottom-earning 60 percent of families overall, the average is $5,000 in yearly taxes matched with $25,000 in direct federal benefits and public goods — a 500 percent return on their taxes. The U.S. Treasury reports that middle-earning families pay an average federal income tax rate of just 2 percent. And while they also pay payroll taxes, their Social Security and Medicare benefits later in life will far exceed those contributions. So, who pays the bill for all these benefits? Federal borrowing (annual deficits are headed toward $2 trillion within a decade, even assuming peace and prosperity) and taxes on the rich (the U.S. has by far the most progressive tax code in the OECD, even controlling for income inequality). America’s middle class receives significantly more federal spending per tax dollar paid than those of other developed nations. They are not getting cheated out of their share and do not need relief checks to compensate.
When conservatives support large federal handouts that are totally unrelated to (and often exceed) the federal taxes paid by families, one ought to wonder what fiscal conservatism even means anymore. This question becomes especially salient when hundreds of billions of dollars in subsidies are funded by the Federal Reserve and budget deficits despite a $27 trillion national debt. Washington should focus on targeting aid to those who have lost income through no fault of their own, not on this irresponsible lunacy.
Continue reading the entire piece here at National Review Online (paywall)
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Brian M. Riedl is a senior fellow at the Manhattan Institute. Follow him on Twitter here.
This piece originally appeared in National Review Online