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As I’m writing this on Wednesday, March 18, the big question in Washington, DC, is not if the federal government is going to send checks to most or all Americans to help them weather the coronavirus pandemic.
The questions are how big, how many, and to whom those checks will go.
To casual political observers — and even to people like me who cover cash policy for a living — this feels like a shocking turnaround. Just a few months ago, entrepreneur Andrew Yang’s presidential campaign fell badly short while running on a promise of $1,000 monthly checks for every American adult. And yet now Sen. Mitt Romney’s running around demanding $1,000 for every adult. What happened?
No, Romney’s and Yang’s plans are not the same — Yang called for recurring checks, not a one-time unconditional transfer. But Romney’s plan is a break from past stimulus ideas.
Remember those stimulus checks that went out in 2001 and 2008 to help stave off economic downturns? They weren’t direct cash transfers — those were, for the most part, refund checks for past taxes; you had to have at least some income to receive them. Much of the “47 percent” whom Romney famously decried during the 2012 presidential campaign for not paying federal income taxes were left out.
The cash bills being considered now would be truly open to the poorest Americans, a radical departure from those stimulus measures.
It’s a stunning turn for an idea that has frankly been on the fringes of the policy discourse for years. It took a major crisis like coronavirus to make it feasible, but credit should go to a group of policy entrepreneurs, lawmakers, and advocates who have paved the way for its acceptance in the governing mainstream.
Here’s a rundown of what Congress and the White House are proposing, how this big idea came to be, and why the politics of the moment allowed for its emergence.
Congress hasn’t passed pure, unrestricted cash before
First, let’s be clear about how new the idea of truly unrestricted cash is. Conservative advocates of cash in the coronavirus moment sometimes point to the refund checks sent out as economic stimulus by the Bush administration in 2001 and 2008 as precedents. But these aren’t very good precedents at all.
The 2001 checks were sent as part of Bush’s first round of tax cuts. The main middle-class benefit in that package was the introduction of a new 10 percent tax bracket (from 15 percent) that would apply to the first $6,000 of income for singles and $12,000 for couples. Because of the light recession that year after the dot-com bubble burst, Bush wanted to front-load the benefits of the 10 percent bracket. So in the summer, he sent out checks to households that had paid taxes for the year 2000, worth half the benefit of the new bracket. For singles, that meant up to $300 each; for couples, up to $600 each.
But that meant that poorer Americans — with taxable incomes below, say, $12,000 for a couple — got less from the checks, and some didn’t get anything. There were nuances to how the checks worked that enabled a few more poor households to get benefits, but for the most part, the worst-off were excluded.
The 2008 stimulus check was a little more expansive, but just barely. Per the IRS, you had to have “either an income tax liability or ‘qualifying income’ of at least $3,000,” to get a refund check as part of the Bush-Pelosi stimulus package that year. People with no income tax burden were limited to half the normal benefit ($300 rather than $600 for a single person), and the poorest of the poor, with income below $3,000, got nothing.
Many people with no income tax burden were additionally left out because you had to file a tax return to get the refund check; that effectively left out many people who didn’t file because they didn’t owe anything and who simply didn’t hear about the prospect of a refund check amid the chaos of that year.
The Making Work Pay credit enacted as part of the 2009 Obama administration stimulus was not much better for folks at the bottom. That credit was worth 6.2 percent of income, up to a maximum credit of $400 for singles or $800 for couples, for the years 2009 and 2010. It was thus closer to the Earned Income Tax Credit, which offers a similar refund on the first $10,000-20,000 of earnings depending on family size, than to the 2001 or 2008 refunds. It lacked a $3,000 minimum salary, which was a big advantage. But people with no cash income still got nothing from the credit, a real problem during a crisis that swelled the ranks of the long-term unemployed.
It was also implemented through changes in withholding, so few people knew they were even getting the benefit. The Obama administration opted for this on the advice of “behavioral economists,” whose psychological theories predicted that people would be likelier to spend money that just popped into their bank account through withholding. Subsequent research suggested that the approach actually increased spending by less than just mailing out checks in 2008 did.
What Congress is proposing now
The proposals for cash checks being weighed right now are dramatically more generous, and more inclusive of America’s poorest residents, than the 2001, 2008, and 2009 stimulus checks were.
The plans are coming so fast and furious that it’s hard to keep track of all of them, but here are the main proposals from actual politicians that I’m aware of as of Wednesday:
- Treasury Secretary Steve Mnuchin reportedly wants cash transfers to every American household in two payments, to go out on April 6 and May 18. The size of the transfers are to be determined and will be “tiered based on income level and family size,” per a Treasury memo that Bloomberg News obtained. Mnuchin on Wednesday specified he wants $1,000 checks per adult and $500 per child.
- Senate Democrats, led by Michael Bennet (CO), Cory Booker (NJ), and Sherrod Brown (OH), want $2,000 per American to go out immediately, plus an additional $1,500 in July if the economy is still suffering or if we’re still in a public health emergency, and an additional $1,000 in October if the same conditions apply. The payments would be for people with incomes under $90,000 / $180,000 for couples, and they would be per individual, so a family of four would get $8,000 at first, then $6,000, etc.
- House Financial Services Chair Maxine Waters (D-CA) has proposed $2,000 per adult and $1,000 per child monthly checks, financed by the Federal Reserve directly printing money, for the duration of the crisis.
- Senator and presidential candidate Bernie Sanders (I-VT), as part of a much bigger coronavirus relief plan, has proposed universal $2,000 monthly payments per American for the duration of the crisis, with no reduction in benefits for children or means-testing.
- Sen. Mitt Romney (R-UT) proposed a one-off $1,000 check to every American adult. Romney’s proposal came early in the conversation, which helps account for its relatively small scale.
- Sen. Josh Hawley (R-MO) proposed offering all “families experiencing school closures or financial hardship” a monthly benefit worth $1,288 for a family of two, $1,446 for a family of three, $1,786 for a family of four, and $2,206 for a family of five for the duration of the financial crisis. Single parents making under $50,000 would get the full benefit, as would married parents making under $100,000. The checks would be based on 2018 tax data. Childless households would not qualify.
- Sen. Tom Cotton (R-AR) has proposed $1,000 per adult and $500 per child or elderly/disabled dependent for single people making under $50,000 and couples making under $100,000.
- Reps. Tim Ryan (D-OH) and Ro Khanna (D-CA) have proposed a plan under which “every American adult making up to $130,000 would receive at least $1,000 and up to $2,000 per month for 6 months. Congress could then renew this again for another 6 month period.” That plan, unveiled on Tuesday, is already bolder than their initial plan unveiled last Friday.
- Rep. Ilhan Omar (D-MN) has proposed $1,000 per adult, $500 per child payments. Her communications strategist, Jeremy Slevin, told me that the checks would be sent out monthly for the duration of the crisis.
The idea of cash payments as a response to the crisis was pitched in a closed-door meeting of House Democrats, and initially Speaker Nancy Pelosi reportedly expressed skepticism, concerned that rich Americans could receive benefits. But her deputy chief of staff has clarified that she’s on board for cash, just averse to distributing it without means-testing:
As Congress considers the next steps, the Speaker believes we should look at refundable tax credits, expanded UI & direct payments—but MUST be targeted.
— Drew Hammill (@Drew_Hammill) March 17, 2020
The winding path for the idea of direct cash transfers
As the slew of plans above suggests, Congress is currently in a bit of a bidding war to see who can develop the most attractive, and perhaps the most expansive, cash plan for the moment. But let’s back up. How did unrestricted cash first become such a focus on Capitol Hill and the Treasury Department, to the point that it now feels inevitable?
The story starts all the way back in 2010, when a little-known Bush administration economic aide named Robert Stein started making an argument that found wide purchase in the conservative think tank and magazine world: Social Security and other benefits to older adults represented an economic distortion because they reduce the need to have children who can take care of you in old age. This led to less childbirth than would be ideal.
To correct this distortion, you need a bigger child tax credit to encourage people to have more kids. Stein did not want to give the credit to very poor parents, but he did want to make it refundable against payroll taxes, which would slightly increase the credit’s availability to moderately poor families.
Stein’s idea made it into an influential tax plan released by Sen. Mike Lee (R-UT) in 2013, and then into a plan coauthored by Lee and Sen. Marco Rubio (R-FL) in 2015. Some elements of the plan — like doubling the child tax credit from $1,000 to $2,000, and lowering the minimum income poor people must earn to receive it — made it into the tax cut package Trump signed into law in 2017, but Rubio and Lee’s amendment establishing refundability against payroll taxes failed badly.
Amid that discussion, two Democratic senators, Michael Bennet of Colorado and Sherrod Brown of Ohio, brought their own amendment, which would dramatically expand the child credit to as much as $3,600 a year for young kids, and would be fully refundable: no phasing in, no exclusion of the poor at all.
In 2019, Bennet and Brown, along with Rep. Rosa DeLauro (D-CT) (who had pushed for the idea for years) and Rep. Suzan DelBene (D-WA) reintroduced the legislation. This time they successfully whipped the vast majority of Democrats to support the idea: 38 out of 47 Senate Democrats are on board, as are 186 out of 232 House Democrats. A slightly more modest proposal designed to appeal to moderates, the Working Families Tax Relief Act, has support from all but one Senate Democrat; even Joe Manchin, the conservative Democrat from West Virginia, is on board.
Mitt Romney even got on board the fully refundable child credit bandwagon in late 2019, joining with Bennet to put together a plan offering a guaranteed $1,500 per child under age 6, and $1,000 per child ages 6-17, as the Senate debated legislation extending various tax breaks. Romney-Bennet did not wind up passing, but it set the stage for both Romney and Bennet to offer expansive cash bills amid the coronavirus crisis.
As this conversation was developing in Congress, a parallel discussion was happening among policy economists about how to build out “automatic stabilizers,” or government programs that can offer automatic stimulus during a recession. One idea that proved widely influential was the “Sahm rule,” named for Claudia Sahm, who in 2019 was working as an economist for the Federal Reserve Board.
Sahm proposed direct cash transfers to individuals, in one big lump sum, whenever economic data suggested a recession was looming. The checks would go out, per Sahm, when “the three-month average national unemployment rate rises by at least 0.50 percentage points relative to its low in the previous 12 months.” She noted this rule would have automatically triggered stimulus in February 2008 without Congress needing to do anything.
When the coronavirus crisis loomed, Sahm’s idea, already the topic of wide discussion in DC policy circles (see for instance her appearance on Vox’s The Weeds), started to feel like a real possibility. Jason Furman, who served as Obama’s chief economist during his second term, pitched direct cash transfers as a response to the crisis in a closed-door briefing before House Speaker Nancy Pelosi. Pelosi was initially hesitant, thinking the checks had to be means-tested, but the idea has gained momentum despite her hesitation.
Finally, credit should also go to the broader basic income movement. The Economic Security Project (ESP), co-founded by vocal basic income advocates Chris Hughes, Natalie Foster, and Dorian Warren, was an early backer of Khanna and Ryan’s cash bill, the first introduced in Congress. And Yang, by helping make basic income a household idea, arguably normalized the concept, making it politically safer as an emergency measure. ESP and Yang are big believers in cash as an ongoing measure, and not just for children, separating their ideas from the above. But they were influential all the same.
All these tendencies, together, created a political environment where the previously unthinkable now feels inevitable.
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