Lawmakers on both sides of the aisle are converging on the need for emergency cash aid to households impacted by the coronavirus and the surrounding containment effort. Senator Mitt Romney made waves this week by proposing that every household should receive an emergency $1,000 check, directly from the Treasury Department. Several of these proposals have now taken shape in the form of real, concrete legislation, which we summarize below.
Fortunately, these proposals are far more alike than they are different. If lawmakers are able to set aside minor distinctions in size and implementation, the opportunity for a comprehensive, bipartisan fiscal relief package for households impacted by the epidemic appears high.
Senator Hawley: Emergency Family Relief Act of 2020
On Tuesday, Senator Josh Hawley (R-Mo.) released the Emergency Family Relief Act of 2020, a proposal to provide a monthly family allowance for middle and low-income households for the duration of the epidemic. The bill would provide immediate relief to families with children on a monthly basis through the end crisis. Importantly, the credits it provides are fully refundable, meaning that they would be available to households regardless of income or tax-filing status. To expedite payments, the IRS would be able to use tax records from prior years, and alternative methods of income verification for non-filers.
The size of the credit is based on the IRS’s necessary expense standards, which scale up as household size increases. A single-parent would be eligible to receive $1,288 per month; a three-person household would receive $1,446; a family of four would receive $1,786; and larger families would receive an additional $420 per member. Payments would phase out at a rate of 5% above household incomes of $50,000 for a single parent and $100,000 for two parent households.
Based on household data derived from the 2019 Current Population Survey’s Annual Social and Economic Supplement, we estimate that the bill would provide roughly $37.2 billion in aid per month for the duration of the crisis, assuming full up-take.
Hawley’s proposal targets income support to families with children, in particular, given the disruption families are facing amid school closures, and the higher consumption needs of households with dependents. Families will be forced to take on additional expenses to fill the gap created by the loss of access to daycare facilities, schools, and other location-based services for children. Additionally, while workers laid-off during this crisis may find relief through enhanced Unemployment Insurance (UI), “dependent bonuses” in state UI schemes are generally paltry in the limited number of states where they are even offered.
Senator Cotton: “Cash to Workers”
Senator Tom Cotton (R-AR) delivered a Coronavirus Response Plan on Tuesday to immediately issue checks to households and to temporarily increase federal assistance programs for workers and small businesses. The plan consists of three parts, with the first part authorizing the Treasury Department to immediately issue tax rebates. Similar to Hawley’s bill, the credits would be fully refundable and thus requires no minimum income to receive, however the language in the proposal suggests that only previous tax filers would receive a payment. Every tax-filer with annual income below $100,000 would potentially qualify for $1000, or $2,000 for married couples with joint income below $200,000. The plan would also include an additional $500 for each household dependent. Restricting payments to tax filers, we estimate this part of the plan would alone inject over $60 billion into the economy.
The second component of Cotton’s proposal would temporarily expand Temporary Assistance for Needy Families (TANF) and UI programs through block grants. Under the plan, work and job search requirements for both programs would be waived and eligibility standards temporarily expanded. Any family with minors earning less than 400% of the Federal Poverty Line could qualify for a one-time TANF benefit ranging between $500 to $1000 per dependent, as determined by each state. Individuals could qualify for UI if their employer temporarily shut down or if they had to seek quarantine and forgo pay. Individuals would also be eligible for UI if they stopped receiving pay to care for family members or dependents.
Based on household data derived from the 2019 Current Population Survey’s Annual Social and Economic Supplement, we estimate that this bill would provide roughly $209.6 billion in assistance.
Senator Cotton’s plan also proposes supporting small businesses with disaster loans, however business support proposals deserve a post of their own. All together, the household side of the plan would provide a major, one-time cash injection for American workers and families, both through direct payments and expanded eligibility for TANF and UI.
The Booker-Brown-Bennet Plan
Senators Cory Booker (D-NJ), Michael Bennet (D-CO), and Sherrod Brown (D-OH) proposed a cash-based relief package in a letter sent to Senate leadership this week. Their plan appears to be the largest proposed cash-relief program to date.
The Senators’ emergency plan calls for an immediate $2,000 payment for every adult and child in the country, meaning a family of five would receive an immediate payment of $10,000. In order to ensure these payments are made available to all Americans, the proposal provides for a variety of administrative options for obtaining payments, including through prior tax records, the Social Security Administration, or by submitting a simplified 1040 tax return. The aid would be phased-out at higher levels of income, although the exact details for doing so have not yet been specified. These initial payments alone would easily exceed $600 billion dollars.
A second round of payments worth $1,500 per person would be automatically triggered if economic conditions deteriorate. This would be determined in one of several ways: with the certification of the Secretary of Health Human Services and an Economic Turmoil Determination by the Treasury Secretary; if the rolling three-month average unemployment rate rises at least 1 percentage point over the three-month rolling average between December 2019 and February 2020; or if the unemployment rate rises less than one percent but above half a percentage point, in which case payments per person would be cut in half to $750 per person.
After the second round, an unspecified number of quarterly payments worth $1,000 would be available if both the Treasury’s Economic Turmoil Determination remains in effect and the unemployment rate remains at least 1 point above the three-month average between December 2019 and February 2020. And once again, the payment size would be cut in half if the unemployment rate’s three-month average is between a half and a whole percentage point.
Tying additional fiscal stimulus to objective economic indicators is a good idea. It represents an example of the “Sahm Rule,” named after economist Claudia Sahm, whose research finds that a half-percent rise in the unemployment rate relative to the previous twelve month low is a reliable early indicator of a recession. Establishing more general and permanent automatic fiscal stabilizers of this type is an idea worth considering, given the enormous uncertainty about the scale of the present downturn and likely speed of the recovery.
Finding a Synthesis
We are living through an extraordinary moment in which Republicans and Democrats are both demanding some form of direct, cash-based fiscal relief for households. Yet given the urgency of this crisis, there is a real risk that Congress acts too late or does nothing at all because of squabbles over minor preferences in implementation, or a broader unwillingness to compromise and share credit.
It is therefore important to emphasize the large extent to which all the above proposals are directionally aligned. Indeed, one can easily imagine a bipartisan package that combines the best elements of each, with Senators Romney, Hawley and Cotton on the right, and Senators Booker, Brown and Bennet on the left. A unified, bipartisan proposal would help galvanize the support of other members, and set a strong baseline for negotiating with the White House and Senate Majority Leader.
What would such a synthesis look like? For starters, Senator Cotton’s proposed enhancements to TANF and UI have no conflict with the other proposals, and could be seamlessly integrated into any package. Next, payments to households could build on Senator Hawley’s family allowance, which would provide households with monthly income support for the duration of the crisis, rather than a one-time payment. Monthly payments would be superior to a larger, one-time payment given uncertainty about how long quarantine efforts and the resulting disruption to employment and schools will last. Moreover, the IRS’s guidelines on household expenses are a sensible benchmark for determining the amount of support required. Yet childless households and retirees need support as well, and could be integrated into a comprehensive plan using the approach proposed by Senators Booker, Brown and Bennet.
Additional payments should be triggered according to objective economic indicators, although it is important to distinguish stimulus aimed at achieving full employment from relief designed to support households under quarantine. At this point, a one percentage point increase in the unemployment rate is a near certainty. Given mandatory business closures and social distancing measures, the Booker-Brown-Bennet plan therefore runs the risk of pouring nearly a trillion dollars of fiscal stimulus into the economy before a true recovery is even possible. Counterintuitively, it may therefore make sense to reserve the strongest fiscal stimulus for when the epidemic has passed its peak. Indeed, a major boost in demand will only translate into more employment and production after mandatory quarantines and closures have subsided. As such, a version of Sahm Rule calibrated to these unique circumstances may justify a larger movement in the unemployment rate before triggering additional payments. The Treasury Secretary could also be given the discretion to time congressionally-approved stimulus with the return to normal business conditions.
While debate continues on how to best channel support to the business sector, there is broad agreement on the immediate need to support families and individuals, and a near-consensus on the utility of direct cash payments. A unified proposal, put forward by prominent Senators in both parties, would help get checks out the door and into the hands of the American people sooner rather than later.