First 100: The Wonk Case for Limiting Eligibility on Relief Checks Is Wrong

The evidence for targeting tells you nothing about whether it’s good policy, and it’s not even decent targeting.

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The Chief

In 2009, President Obama allowed members of Congress to write and direct the Affordable Care Act negotiations for way too long. Joe Biden isn’t making that mistake. He’s fully engaged in the process, encouraging Democrats to get the bill done quickly. And that engagement has coincided with this new development on the $1,400 direct payments, where Biden has held firm on the dollar figure but expressed openness to the changing the eligibility requirements, which would start phasing out at $50,000 for individuals and $100,000 for couples. So in my view, you have to place responsibility for that emergence squarely on the president. This is his bill. If he wanted to shut down talk of any changes, he would have.

Let’s just say that Biden has a far different conception of how this would be perceived than reality. “I’m not going to start my administration by breaking a promise to the American people,” he reportedly said on a call with House Democrats yesterday, referring to his support to keep the checks at $1,400. But changing the targeting most certainly would break that promise. (some would say conceiving of the checks as “topping up” to $2,000 after a $600 check in December is already breaking the promise.) Nothing changed between December and today for the millions of people who would suddenly become ineligible for support. They’ll just get sacrificed.

And the question about that is: why? Who is this for? Marc Goldwein of the Committee for a Responsible Federal Budget estimates that the more tightly targeted checks would cost $420 billion, as opposed to $465 billion. That’s what we’re fighting over? $45 billion in a $1.9 trillion package, to deny middle-class people (almost definitionally speaking; they make just over the median income) relief? That’s the holdup?

The answer to the why is largely predicated on a study from Raj Chetty and his group Opportunity Insights, which attempts to turn an obviously political imposition (to allow moderate Democrats to say they had a role in scaling back the bill) into an evidence-based one. This study is playing an outsized role in the debate, all the way up to the White House. There are several major problems with using Chetty’s data to make the case for more stinginess on the direct payments, however.

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The Opportunity Insights analysis looked at how families used the most recent $600 direct payment in January. They found that households with incomes under $46,000 saw their spending increase by 7.9 percent in the two weeks after receiving the checks, while those with incomes over $78,000 had spending increase only 0.2 percent. They estimate that those higher-income households would spent almost none of the $1,400 checks, and therefore that money should be better targeted.

The first problem is that, deeper in the data, the spending effect holds up for households up to $59,000. Yet any single households over $50,000 in the proposed targeting would get less money, despite the data showing that they need it enough to use it immediately, in the first couple weeks, after receiving it.

The second, and much bigger, problem, is that the data really only tells you that there’s dire need below $59,000. The reason that these households would spend quickly relative to higher-income ones is that they are running a severe deficit and need that money to fill immediate needs. Just because slightly higher-income households aren’t spending as quickly doesn’t mean the money won’t be used.

Remember that the checks in the study came in at the beginning of the month. By the end of the month, those higher-income households might need that money to pay bills, or buy durable goods. Or maybe they drew down savings to cover for lost income during the pandemic, and now they’re building it back up. Would that be a “waste,” to allow people to accumulate emergency funds? Would it be a waste to allow families to pay down debt? The fact that these households don’t spend the very moment they receive a check says nothing about whether or not it’s good policy.

Finally, there’s the inconvenient fact that the eligibility thresholds will be based, until there’s more tax information, on 2019 data. The first direct payment a year ago was based on obviously outdated financial information, as it didn’t account for the extreme unemployment spike. But to based payments now, a year later, on pre-pandemic earnings is just completely out of proportion. Yes, you can still get the payments through your tax return, but that puts the onus on the individual to do a bunch of paperwork and await processing to get something they’re fully eligible to get.

As I’ve said repeatedly, my ideal means test would be “none,” but if you must, give everyone a check, and then claw back the money for “undeserving” households in the 2021 tax year. Then you would actually be “targeting” correctly, and giving everyone a 15-month interest-free loan besides, which is the least you can do for people being jerked around like this. The concept of using the Chetty analysis to apply a means test that will rob someone of relief who made $75,000 in 2019 but has been unemployed since the pandemic makes a mockery of being “data-driven.” (Incidentally a significant number of people fall into that description, and up to 20 percent of them experienced food insecurity in the past year.)

So there’s no economic case for this narrowing, and politically it’s suicidal. You’re taking the most popular part of the American Rescue Plan and chipping away at it for no good reason. Try explaining to the millions who will end up with less why this was done, why White House economists sided with the Chamber of Commerce and the president decided to break a campaign promise while attracting no Republican support for his plan. In the name of technocratic “targeting,” you’re just cutting the benefit, and doing it for reasons of politics. It’s nonsensical.

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