In my previous Defining Ideas article, “An Unnecessary ‘Stimulus’ ” (March 5), I laid out why the about-to-be-passed $1.9 trillion federal spending bill was unnecessary. I also pointed to a few major spending items in the budget that were clearly unjustified, such as the unneeded bailout of state and local governments. But I didn’t point out that the bill will also cause harm in the long run. The harm will be of two kinds. The first is in the realm of ideas: many people will learn the wrong lessons from the spending. The second is in the realm of policy and the effects of policies: dependence on government and irresponsibility will increase, and economic freedom and long-run economic growth will fall.
This is from David R. Henderson, “The ‘Stimulus’ And The Damage Yet to Come,” Defining Ideas, March 18, 2021.
At a distance, the $1.9 trillion measure is awful; up close, it’s ugly.
Another segment:
A major piece of the spending bill is a $3,600 annual tax credit for each child under age six and a $3,000 tax credit for children ages six to seventeen. The credit is, in tax speak, “refundable.” Normally one can get a refund only of something one has paid. But the term “refundable” is now widely used to describe a tax credit that goes to someone who otherwise would have a tax liability that is less than the credit. For some people, these tax credits will amount to a huge increase in their income. And the tax credit is granted regardless of whether the recipients work. Thus, the measure undoes, to some extent, the highly successful welfare reform of the mid-1990s, passed by a Republican Congress and signed into law by Democratic President Bill Clinton. Economist Scott Winship of the American Enterprise Institute points out that a non-working mother with three children could get $10,800 a year, as well as food stamps and Medicaid. That’s not a lot, but it would reduce her incentive to get married and/or to get a job.
Washington Post columnist Greg Sargent, in an op-ed titled “The GOP scam is getting worse—for Republican voters. A new study shows how,” March 8, 2021, finds puzzling the fact that all Republicans in Congress voted against the bill even though the tax credit would help a lot of low-income people in the states they represent. I don’t find it puzzling at all. In fact, given how dismal the performance of Republicans in Congress has been this century, it’s slightly heartening. Why would so many Republicans vote against a bill that helps so many of their constituents? Could it be that they actually believe some of their own rhetoric, the rhetoric about keeping people off welfare and not having them depend so much on the federal government? Maybe.
Read the whole thing.
READER COMMENTS
Aaron W
Mar 19 2021 at 7:25pm
I don’t think anyone believes their rhetoric because whenever they are in power they are happy to run up budget deficits. Have you been asleep during the Trump, Bush II, and Reagan administrations? The most disheartening line from the Democratic primary debates was when someone brought up whether a certain program would be paid for. The response was “The Republicans don’t care about paying for programs so why should we?” You reap what you sow.
David Henderson
Mar 19 2021 at 7:37pm
You wrote:
But my comment about their rhetoric wasn’t about the budget deficit issue, which I agree with you on. It was about welfare that benefits many constituents of many Republican members of Congress. And notice that I did say “maybe.”
You wrote:
No.
You wrote:
Yes, it was too bad to see the Democrats imitate and double down on some of the worst aspects of the Republicans.
Mark Bahner
Mar 20 2021 at 12:00am
Yes, $10,800 for three children is definitely “not a lot.”
BC
Mar 20 2021 at 5:53pm
Actually, $10k does sound like a lot for a mother of three on food stamps and Medicaid. In fact, if someone proposed cutting benefits by far less than $10k, then I’m certain that welfare proponents would scream that cutting those far smaller amounts would have dramatically detrimental impacts. Some people claim that charging even $10-40 for a Covid vaccine would significantly affect vaccine hesitancy or that paying the cost of obtaining a voter ID, which is also orders of magnitude less than $10k, would significantly impact voter turnout. Why do you doubt that $10k would have any incentive effect on the decisions of someone on food stamps and Medicaid?
Michael
Mar 20 2021 at 7:54am
I find this specific criticism (apart from the general issue of the merits – or lack thereof – of deficit spending) disappointing, because seems to reveal a very stilted view of the incentives faced by the working poor (by which I mean, people who would have collected the pre-reform welfare benefit).
One critically important difference between the pre-reform welfare benefit and the enhanced child tax credit that passed in Biden’s rescue package is how the benefit phased out. Pre-reform welfare phased out at very low income levels, meaning that a welfare recipient who began working a low wage job would see something close to a dollar for dollar phase out of the benefit. Under those circumstances, choosing not to work would seem to be a fairly logical and utility maximizing decision for someone on welfare, for whom additional work would bring no (or very little) financial return.
The Biden tax credit is not like this at all – it phases out at a much higher level of income ($75,000/$150,000 for single/joint filers), so a non-working or low-wage working person does not see their paid work disincentivized in the same way as a pre-reform welfare recipient would have.
Winship and the other critics of the plan basically ignore this difference. Neither he, nor you, nor any other critic has addressed this issue in any substantive way. (This might have been what you meant by “to some extent,” but I wouldn’t call that substantive).
The work disincentive effect of small increases in the highest bracket marginal tax rate has been a core feature of most of the arguments against raising those rates. (By ‘small,’ I mean ‘small relative to the implict rates a pre-reform welfare recipient would have faced’). If those arguments against increasing marginal tax rates are to be taken at all seriously, the impact of much higher marginal rates on much lower income workers should also be taken seriously.
Billt
Mar 20 2021 at 11:35am
I share your distaste for the Stimulus Bill. $1400 magically appeared in my checking account from the Bill. I don’t feel comfortable spending the money on myself, Covid has had no effect on my income or expenses. My thought is to give it to the local food bank or some other charity. Do you, or any of your readers have any suggestions of what I should do with the money?
Cobey Williamson
Mar 20 2021 at 12:41pm
Use it to hire a local contractor or service provider to perform some labor, if not for you then for an individual or organization that you deem worthy.
Ensuring people keep working, and thus spending, was the point of giving it out. Pass it along.
BillT
Mar 21 2021 at 8:20am
Good suggestion. I like the idea of using the money to make something that will be around for a while.
Jon Murphy
Mar 20 2021 at 8:20pm
If you’re looking for suggestions, I’m happy to take the money off your hands
BillT
Mar 21 2021 at 8:25am
Sure, just send me your bank account number and I’ll clean it out, I mean transfer the money.
BC
Mar 20 2021 at 6:12pm
Some commenters seem unaware or have forgotten that, before 90s welfare reform, we had a problem with unwed teen pregnancy among non-working welfare recipients. Some thought it was because welfare paid teens to have babies while others pointed to declining moral standards. In the ensuing decades after welfare reform, teen pregnancy has declined significantly. Yet, sexual moral standards don’t seem to have become more conservative. If anything, they keep liberalizing. So, on net, that would seem to give more credence to the incentive effects of paying welfare recipients to have more children. What, if anything, in the design of the new child tax credits discourages unwed pregnancies and encourages work and marriage?
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