How Congress learned to stop worrying and start handing out cash

ftaxThe Biden administration and its allies in Congress are pushing for a new round of $1,400 checks to all but the richest Americans. If you’ve been following the ins and outs of Covid-19 relief politics in recent weeks, this isn’t surprising news.

But consider what a dramatic transformation of American politics this represents. The first $1,200 checks that were sent out as part of a massive relief package in early 2020 were genuinely unprecedented in American history.

The US has issued refunds for taxes paid in the past, and those refunds sometimes looked a bit like unconditional checks, as in 2001. The $1,200 checks were not refunds. They were just checks, and they were available even to low-income Americans with low or no tax burdens.

These checks were the closest the US, or most other rich countries, had ever come to trying a universal basic income. By one estimate, 93 percent of Americans got money from the program, which offered benefits to, say, a family of four as long as they earned under $218,000. “93 percent basic income” is not quite universal basic income, but it’s not far off, either.

March 2020 was a strange time when it felt like the world as we knew it was collapsing, so it was natural to think this would be a one-off policy. But it wasn’t. Democrats in Congress pushed for more cash in the spring and summer. So did President Trump and some Republicans like Sen. Josh Hawley (R-MO) late last year. The result was a surprising second batch of stimulus checks: $600 in cash sent to most adults.

In the wake of the December stimulus bill’s passage, Trump expressed his preference for an even bigger $2,000 check, a target enthusiastically embraced by Democrats in Congress. Riding that momentum, Biden and his allies in Congress are trying to send out $1,400 checks to reach that $2,000 goal. Meanwhile, progressives are pushing the administration to support even larger checks — not just $1,400 to top up the $600 from December, but a full $2,000.

Whatever the final figure ends up being, it’s worth stepping back to appreciate just how much the politics of giving people money has shifted in the past year. Sending cash is hugely popular and has become the subject of genuine mass public attention in a way that’s rare for legislative proposals. In late December, Google search interest in the $2,000 checks exceeded interest in the Kardashians or Taylor Swift.

Cash’s bipartisan popularity, and its ability to muster large-scale public interest and support, suggests that the future might involve a lot more policies like checks — even when the current pandemic has passed. Covid-19, in other words, may have done what years of basic income advocacy could not do on its own: convinced our political class that handing out cash is a good, popular, economically effective policy.

More than that, the surprising embrace of checks by some Republicans suggests that the tax cut-centered right-wing politics that emerged in the Reagan era may be waning. If slashing rates is replaced in the Republican toolkit with handing out checks, that’s a win for basically everyone.

The self-sustaining politics of checks

There’s a great bit in the pilot episode of The Carmichael Show where Jerrod Carmichael’s dad, played by David Alan Grier, confesses that he voted for George W. Bush in 2004. His liberal Black family is shocked and horrified. But his explanation is simple: Bush gave him a check in 2001. “He sent me that stimulator check. No president ever sent me $1,600. Nobody ever sent me $1,600. You can bomb whoever you want long as you send me $1,600.”

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I don’t know how common a reaction that was to the 2001 tax cut checks (which were more like $600 for married couples). But Grier’s character’s reaction gets at the heart of why checks have taken off this year. Members of Congress often act, in the words of political scientist David Mayhew, as “single-minded seekers of reelection.” There are lots of ways to get yourself reelected, but wouldn’t sending your voters money be the simplest way of all?

Congress does all kinds of other giveaways, of course, from the mortgage interest deduction for the affluent to the earned income tax credit for the working poor. But they tend to be relatively complex and buried in the tax code, where it’s hard for voters to know who, exactly, in Congress made this help for them possible. Why not simplify it dramatically?

For years I’ve been somewhat baffled, as a writer on social policy, that this logic hadn’t taken off more. Examples like Bush’s 2001 refunds were rare; Wisconsin Gov. Scott Walker (R) tried a similar approach with his “sales tax rebates” for families with kids in 2018, but the amounts there were paltry, at just $100 per child. It seemed like there was a strong taboo against simply attempting to send money to voters, as evidenced by the criticisms that Walker was engaged in “vote buying” by introducing his refund plan in the months leading up to his election.

That changed last year. The $1,200 checks included in the CARES Act in March — which were much more universal, especially at the low end, than Bush’s 2001 refund — were sufficiently popular that a groundswell of support built up for subsequent rounds. They were so popular, in fact, that they overshadowed every other aspect of the US’s fiscal response, including the similarly unprecedented $600-per-week boost to unemployment insurance payments.

A common genre of viral tweet in 2020 involved insisting that $1,200 was all the US did for people, usually while exaggerating what other countries did as well (by, say, insisting Canada gave everyone $1,433 a month when it just did so for unemployed people, to whom the US gave at least $2,400 a month):

Obviously, Drake giving away about $1 million as part of his music video for “God’s Plan” does not remotely compare to the $848 billion the federal government has spent on cash payments and bonus unemployment checks to date. But this reaction tells us something important: The flat cash checks to almost every American were by far the most visible parts of the country’s policy response to the Covid-19 crisis. Even other good, relatively broad-eligibility policies like the unemployment bonuses were less salient to people.

And for politicians, there’s a real advantage to offer tangible, salient relief that’s visible to all. This helps explain why Jon Ossoff and Raphael Warnock, the two Democrats who flipped both Georgia Senate seats on January 5, made the $2,000 checks proposal central to their campaigns. Ossoff is now reportedly urging fellow Democrats to be “bold” in pushing for actions that result in immediate material gains for voters. It’s not hard to see why: That’s a big part of the political strategy that made him a senator.

Cash politics has downsides, but they’re easy to overstate

Not everyone, even on the left, is enthusiastic about the rise of checks as the de facto language of economic populism. The most compelling critique is that giving money to citizens is just one of many functions the government will perform — and that if checks become too popular, the other functions will get starved.

How much check money is given out, economic policy analyst Nathan Tankus notes, is “becoming a proxy for how good or bad legislation is. If this continues to be established as a benchmark, we will get worse and worse legislation.” More money in checks can mean less money for public health infrastructure, education, medical research, and basically everything else the government does other than hand out money.

That may not be a terrible thing if the benefits being crowded out can be replicated with cash — $1,000 in cash is more valuable than $1,000 in food stamp benefits, for instance, because it can be spent more flexibly and on more material needs, a common argument UBI advocates make. But there are other priorities like schools or medical insurance for which checks cannot substitute.

This has already happened to some degree in the one US state with a universal cash program: Alaska, which pays out a “dividend” from its oil wealth to all residents every year. Pressure to increase that dividend has translated into spending cuts, rather than tax hikes, from the state’s Republican leadership. Depending on what’s being cut, that can translate into a net loss for many residents.

This is a valid concern, and people like Tankus are right to raise it. But I still think check politics is an improvement on the politics surrounding fiscal policy that preceded this moment.

To see why, it helps to break down the approach to checks taken by the two parties. Are Democrats eschewing non-check investments in favor of checks, now that they have unified control of Congress and the presidency? Not really, no.

President Biden’s “American Rescue Plan” includes $1,400 checks, yes, but also the beginnings of a more regular cash program in the form of an expanded child tax credit, copious state and local aid, vaccination and testing funding, investments in child care subsidies, and so on. The checks are the largest provision in the plan, per the Committee for a Responsible Federal Budget, at about $465 billion, but state and local aid isn’t far behind at $350 billion, and another $350 billion would go toward expanding unemployment insurance.

Democrats just don’t seem to be using checks as an excuse to avoid investing in other non-cash priorities.

Republicans are a different story, of course. Figures like Hawley or Sen. Mitt Romney (or Donald Trump) who embraced checks over the past year do not typically pair this with a commitment to invest elsewhere in the budget, at least outside of defense. Trump’s budgets as president frequently included deep safety net cuts, even as he pushed hard for $2,000 checks. So it’s reasonable to worry that the future is Republicans pushing for big cash payouts at the expense of other priorities.

My optimistic read on this, though, is that this means Republicans are using check politics for the same purposes they have used tax cut politics in the past. And check politics is a marked improvement.

The end of tax cut populism?

It’s easy to forget this now, but the Reagan tax cut project of the 1980s was largely a populist endeavor. Business interests, the sociologist Monica Prasad has found, were not particularly enamored of Reagan’s and other supply-siders’ plans to slash the top individual tax rate from 70 percent to 50 percent.

Business interests were understandably more focused on pushing through substantial corporate tax rate cuts and saw individual rate cuts as a distraction. But the Republican coalition embraced across-the-board individual rate cuts, at least in part, because the idea was genuinely popular, Prasad argues.

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Tax rates were much higher across the board in 1981 than they are now, and even more importantly, inflation was high and rising, and tax brackets were not indexed for inflation. This meant that with each passing year, more people were getting pushed into higher tax brackets, which angered middle-class taxpayers, not just the rich.

The key to victory for conservatives, supply-siders like Jude Wanniski argued, was not to become Scrooges decrying government spending, but to become like a “second Santa Claus.” The first Santa Claus was the Democrats, who offered benefits through more spending programs. The second Santa Claus would be the Republicans, offering benefits through tax cuts. It was an explicitly populist strategy, and it made sense politically, if not economically.

As critics of the tax cuts, then and now, have noted, across-the-board tax cuts have the effect of helping the rich more than the middle class. But that doesn’t mean they were unpopular. Reagan’s subsequent political success, followed by the relative failure of George H.W. Bush when he raised taxes, served to convince Republican operatives that across-the-board cuts were a winning strategy.

And so across-the-board cuts made their way to the top of George W. Bush’s agenda in 2001, with measures like the $600 refund checks included as a way to bolster the populist appeal of the changes to folks like Jarrod Carmichael’s TV dad. As the political scientist Larry Bartels noted in his classic paper on the Bush cuts, “Homer Gets a Tax Cut,” the result was that a plurality of Americans supported Bush’s policies even as they acknowledged the tax cuts mostly helped the rich. It’s just that they perceived the cuts as also helping them.

The net effect of these policies was not far from the one feared by check skeptics today — that checks will mean less money for public health, education, and other priorities. Bush’s and Reagan’s policies ballooned deficits, which enabled the successful calls for austerity by Republicans in Congress like Newt Gingrich in the 1990s and John Boehner and Paul Ryan in the 2010s.

The tax cut-fueled deficits enabled Gingrich, Boehner, and Ryan to chip away at spending priorities important to Democrats through a series of deals with Bill Clinton and Barack Obama. This is not to say that the “starve the beast” strategy — cutting taxes so as to force reductions in government spending later — was always successful. But it’s hard to see measures like the “sequestration” cuts of the Obama years happening without the Bush tax cuts increasing the national debt, and Republicans’ ensuing use of the debt as a rationale for budget cuts.

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In the Trump years, though, tax cut populism ran dry. Republicans had cut middle-class taxes to the bone under Reagan and Bush and so focused their attention on slashing the corporate tax rate. The result was the Tax Cut and Jobs Act of 2017, an unpopular package the American public rejected, seen as a giveaway to corporate America.

The bill did cut rates for individuals by a few points here and there, and more importantly greatly expanded the standard deduction, but the public correctly saw middle-class benefits as minimal compared to what corporations and the rich got. The poorest Americans got $60 each back on average, the Tax Policy Center found, while the top 1 percent got over $50,000 apiece.

This was a development some conservative policy analysts and thinkers had anticipated. The “reformicon” movement of the 2010s sought to reorient Republican economic policy away from tax rate cuts and toward more concrete benefits for middle-class taxpayers, like a more generous child tax credit. The idea was that the Reagan formula of slashing rates across the board couldn’t work anymore. The party was running up against the limits of what rate cuts could do. They had to figure out how to be a different kind of Santa Claus.

The signature proposal of the reformicons — a child tax credit refundable against both the income and payroll tax, not just the former — did not exactly set the world on fire, perhaps because it was mostly about adjusting refundability formulas, and no ordinary person knows what the phrase “refundable tax credit” means.

Indeed, the main legacy of that proposal has been that Democrats picked it up beginning in 2017, made it simpler to understand ($3,000 cash to every child every year, plus an extra $600 to young kids), and used it as a centerpiece of their tax agenda starting in 2019, most recently by including it in Biden’s American Rescue Plan.

A simple plan

You can think of stimulus check politics, then, as a kind of round two of the reformist conservatives’ ideas. It’s even simpler than Democrats’ “$3,000 to every child every year” plan.

Everyone below the phaseout — in Biden’s proposal, $75,000 for individuals, $150,000 for households — gets money: adult, child, whoever. Unless you’re pretty rich, you get a check. It’s a better way to be a second Santa Claus than either the Reagan/Bush tax cut approach or the convoluted tax credit plan of the reformicons.

If Republicans arrive at check politics as a replacement for tax cut politics, it will be good for their political prospects — but also incredibly good for the country. What made tax cuts politics somewhat deceitful was the idea that to help the middle class, you needed to help the rich even more.

Pushing “across the board” tax cuts was essentially a way to bribe the middle class into going along with rate cuts that primarily helped the richest taxpayers (like slashing the top rate from 70 percent to 50 percent back in 1981), because at least the middle class got something too. The rich got more in both dollar and percentage terms than anyone else, but all boats (at least of people who make enough money to owe income tax) were rising, so complaints were limited.

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But giving everyone under a certain cutoff a check is truly progressive. That $1,400 that Biden is proposing is always going to be a higher percentage of income for a poor person than a rich person. And 2020 set a precedent that when the government sends cash, it sends it to everyone — including the roughly 40 percent of Americans who earn too little money to pay income taxes, who were left out of the Reagan and Bush efforts.

The net effect of the 2020 stimulus debate may be to transform the Republican Santa Claus — a huge elitist throwing big stacks of bills at the rich plus a little bit for the plebes to keep them at bay — into an egalitarian handing out checks to the bottom half of the income ladder.

That would be a huge win. Republicans have always run on returning your tax dollars to you; this would simply be settling on a much more equal way of doing so. This shift won’t solve every problem with budget debates, of course; checks will compete with spending priorities the same way tax cuts did and do. But it’s a better Santa Claus.