What is in the American Rescue Plan ?

 

David Dayen, The American Prospect

An eligible family of four will get $7,600 in new money from the American Rescue Plan, and if those children are under 6 years old, that rises to $8,800. That comes from the stimulus check, which is $1,400 per person, including for all dependents (a first for coronavirus-era bills in that it includes adult dependents), as well as the increase in the child tax credit as an advance monthly payment from $2,000 to $3,000, $3,600 if the child is under 6. If one of the wage earners in the family is unemployed, they will also get $400 a week to supplement their unemployment check, and their unemployment will likely be extended until August. If they qualify for food stamps they will maintain a 15 percent increase in benefits there too. There are more numbers at HuffPost. I wanted to put that up front because there’s a media bias toward only reporting things that are now or have changed, and in the past week or so that has mainly meant reporting on the ARP as a minimum wage bill. That’s not really what the bill is about. It’s a bill that creates, as its predecessor legislative efforts did, a pop-up safety net for those struggling in the COVID-19 crisis. And it puts a down payment on reversing 40 years of inequitable treatment for the middle class in America. It does this without giving a large chunk of money to multinational corporations, and without abandoning state and local governments who have had to swell their own safety nets to manage the increase in precarity. It also tries to save the world by funding vaccine distribution (and yes, a lot of that distribution should be global).

It’s not going to have a minimum wage increase in it, unless something changes dramatically in the next few days. But it will, you know, have stuff in it. There are two main objections to the bill, or at least to the economic relief portions of it. First, the economy is fine; second, people have too much money already. When you break it down, those are the objections. They’re a bit self-negating, but let’s take them one by one. The economy is not fine. Real personal income less transfer payments, which is a measure of the economy absent government support, is down nearly 3 percent year over year. And it decreased in January, so the trend is negative. This is a worse trough than the 1982 or 1991 recessions. Meanwhile the low point in this cycle, created last April, was worse than the Great Recession. In other words, if you kick out the government’s props under the economy, it’s not a pretty picture. Even this is a distortion, because we know that the harm from the COVID crisis has collected in the low end of the income scale. Every complaint about the ARP is sold as a story about the economy in aggregate, without accounting for that pain at the low end. But Matthew C. Klein managed to disaggregate some of the numbers last week. Klein cites the statistic showing that overall personal income (with transfer payments) has enabled trillions in new savings. (This is the old “people have too much money” argument.) At that to stock and home prices soaring and net worth is substantially higher than in 2019. But Klein takes that next step to show who is saving this money. The Federal Reserve’s latest financial account data show a $2.3 trillion increase in liquid assets like bank deposits since the end of 2019.

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But “about 28 percent of the increase in liquid assets… went to Americans in the top 1 percent of the income distribution.” Meanwhile, just 14 percent of that increase is held by the bottom 60 percent of income earners. And these figures cut off last September; we know that in the fourth quarter, when no additional federal support was coming in, lower-income Americans drew almost one-third of their checking account funds out of the bank, and most Americans had less in checking at the end of 2020 than the previous quarter. Meanwhile stock and housing wealth is concentrated at the top. Another way of saying this is that Blackstone CEO Steven Schwarzman took home $610.5 million in compensation last year. That could mess up the aggregate figures! It’s just unlikely that there’s this vast amount of unspent money at the low income end of the scale. What the anti-spending crowd will tell you then is that they agree, it’s just that any spending should be targeted. That gives away the game. Since we don’t have the actual income data we would need to target specifically, and since the concentration of wealth means that suffering could be seen all the way through the middle class, we have to fire fairly indiscriminately to make sure nobody is left behind. The economic case for the ARP, in other words, is extremely strong.

The Wages of Wages

That doesn’t mean I’m not disappointed about the apparent extinguishing of a minimum wage increase in this bill. The weird tax incentive/penalty idea to nudge higher wages was quickly found to be impractical and shelved, and the Biden administration is simply unwilling to follow House progressives’ wishes and overturn the parliamentarian.  But the minimum wage increase remains a live issue. The House has vowed to pass it as a standalone bill, probably in April. The Biden administration reinforced their “commitment,” without addressing a plan to get it done. Kyrsten Sinema and Joe Manchin have supported minimum wage increasesin the past; Sinema’s main objection right now seems to be putting it in the relief bill, not raising the wage. Manchin wants to go to $11 an hour, but though this has drawn objections, read the fine print. Manchin’s $11 threshold would phase in over only two years, as opposed to the $15 threshold phasing in over 5 years. They’re functionally equivalent, and you could always increase from there.

Either you end the filibuster or find 10 Republicans to support this bill. But several Republicans have spent the past week coming up with alternative wage-hike ideas. There’s at least a starting point for negotiations, as Republicans want to avoid rejecting a popular policy. This is what I meant by putting the bill on the floor. Democrats might have to hear out Republicans on E-Verify, the system intended to confirm eligibility to work at U.S. employers. You wouldn’t need a militarized border if you accepted that concession and removed economic incentives to migrate, so if Republicans want to talk about demilitarization, so be it.  The point is there’s a chance here to actually negotiate a solution, the baseline of which would be at least a 50 percent increase in pay for the lowest-wage Americans. Time to hash it out and make as much progress as possible. The news broke while I was writing yesterday’s edition that the Senate was changing the eligibility rules for direct payments in the American Rescue Plan. The dirty details are here. Everyone making up to $75,000 (individuals) and $150,000 (couples) still gets the full $1,400 check; instead of phasing out fully by $100,000/$200,000, it phases out by $80,000/$160,000. This is bad policy and politics, as Eric Levitz and Jordan Weissman explain. It saves a miniscule $12 billion yet angers a particular group of upper-middle class people whose socioeconomic status matches that of the political journalists who will report on this. The last time we had that dynamic was 2015, when Democrats tried to kill and then quickly retreated on 529 savings plans for college education. This means nothing to the federal government and everything to people affected. Say I had a wife and three kids and made $150,000 a year; I would get $7,000 in direct payments. If I made just $10,000 more, I’d get nothing, plus those additional earnings would be taxed at the normal rate. If I lived in a high-tax state, the combined state/federal tax rate could be 30 percent on that money. In other words, I’d have nothing to show for making that additional $10,000; I’d take home the same as if I earned $150,000. This is called a high marginal tax rate, and it punishes people for no good reason other than the vanity of Joe Manchin and some colleagues.