Whether Joe Biden’s presidency will be as transformative as many hope remains to be seen. But if it turns out to be one of those landmark presidencies like that of Ronald Reagan or Franklin D. Roosevelt, what will be the big economic idea? For Reagan, it was tax cuts. For Biden it will probably be cash benefits.
(See also Allison Schrager, “Biden’s trickle-up economy is doomed to fail“For an opposing view.)
America’s traditional government welfare programs, developed primarily during the New Deal by FDR and the Great Society by Lyndon Johnson, were intended to reassure a nation deeply skeptical of government assistance. Some programs required people to actively look for work, or they didn’t join until people started earning some income. Others were limited to the elderly or the disabled. Still others were in-kind benefits such as health care, home vouchers, and food stamps. Any restrictions should ensure a suspicious public that healthy, able-bodied people don’t idle on the state allowance or spend government money on vices like alcohol.
But these precautionary measures left a highly complex mess in the US welfare state. The thicket of programs is so dense that people who do qualify often don’t even apply to the many of them. The blizzard of work demands and complex incentives confuses poor people who are already spiritual overloaded of the trials and tribulations of their troubled lives. Many fall through the cracks.
In the 2020 pandemic, circumstances forced the US to try a different approach. Pandemic unemployment benefits went to a much broader section of the population than traditional unemployment insurance, and multiple rounds of checks were sent out to anyone making less than $ 75,000 to $ 100,000 a year. These cash benefits were a resounding success – income and consumption actually rose despite the huge wave of unemployment and programs Not Convince people to quit their jobs.
Now the pandemic relief programs are ending, but the idea of cash benefits has stayed as always central element President Biden’s economic plans. Most importantly, if it becomes permanent, the monthly child benefit of up to US $ 3,600 per year per child should cut child poverty in half.
Meanwhile the idea of cash benefits was up tie in with in different regions and corners of the political spectrum, even before the Covid-10 pandemic. The basic income was at the heart of Andrew Yang’s presidential and mayoral campaigns. A pilot program in Stockton, California, found that regular cash payments were made actually increased Full time employment.
Cash benefits have several advantages and are far more convenient and simple than the traditional American welfare approach. Instead of telling people what to spend their money on, cash lets people decide for themselves. Although there are a few exceptions, people generally know what they need better than government policy makers. Some people may have to pay to get their car from the tow area; others could spend the money on night classes; still others can cover emergency medical expenses, pay for child care or help a sick family member. The government cannot foresee all of these needs; Cash covers them all.
And the less conditional cash benefits are income-related, the less they deter people from working. The complex phase-ins and phase-outs of existing programs often create high levels implicit tax rates for work. Simply sending everyone a check removes these counterproductive incentives. (Of course cash benefits will be phased out on higher incomes unless they are truly universal, but this does less harm than phasing out on low incomes.) Economical Research confirmed that cash benefits do not reduce employment much – if at all.
Cash benefits have many of the same benefits that tax cuts have. Republicans were drawn to the idea of tax cuts in the 1970s for the same reasons – they were simple, they put money in people’s pockets and let them choose what to spend it on.
But unlike tax cuts, which mostly benefit the rich, as the rich pay much more taxes in the first place, cash benefits are much more balanced in terms of who gets the money. This means that cash benefits not only appear fairer, but also have macroeconomic benefits. Because low-income people tend to spend a higher percentage of the money they receive from the government, cash benefits are better than tax cuts to help stimulate demand in the economy. And payouts could be increased in a recession to provide quick stimulus.
So cash benefits are a best of synthesis in many ways – they combine the Great Society’s compassion for the poor, the New Deal focus on providing security to the middle class, and the simplicity of Reagan’s tax cuts. Mailing checks may feel like a revolution, but in reality it’s just another development in America’s long quest for better ways for government to cater for the common good. If Bidenomics has a lasting idea, it’s a good bet that there will be cash benefits.
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