Moneybox

Kamala Harris Wants to Give Middle Class Families $500 Every Month. Her Plan Is Bold, Generous, and Maybe Ill-Conceived.

WASHINGTON, DC - OCTOBER 6: Sen. Kamala Harris (D-CA) exits the Senate floor following the Senate's confirmation of the nomination of Judge Brett Kavanaugh to the U.S. Supreme Court, October 6, 2018 in Washington, DC. Kavanaugh was confirmed in a 50-48 vote on Saturday. (Photo by Drew Angerer/Getty Images)
She’s running.
Drew Angerer/Getty Images

Sen. Kamala Harris is probably running for president. So, like other Democrats probably running for president, the Senator from California has decided to start rolling out some moonshot policy ideas that might endear her to the Democratic primary electorate. Last week, she introduced a giant tax credit called the “LIFT the Middle Class Act.” It would essentially send up to $500 each month to working families. It’s not a universal basic income. But it’s as close as we’ve seen to one from a serious 2020 prospect.

There are a couple of major criticisms you could make about Harris’s approach, though. One is that it leaves out both the neediest Americans and the upper-middle class, which might make it politically untenable while at the same time failing to offer help to those who need it most. The second is that it’s just a bit unwieldy.

As you’d expect from such an ambitious proposal, the LIFT Act has a big-honking price tag: Though Harris hasn’t produced a formal estimate, The Atlantic’s Annie Lowrey ballparks the cost around $200 billion a year. The Senator would pay for it by levying a fee on large banks and repealing much of the $1.5 trillion tax cut Donald Trump signed last year, which disproportionately benefited high-income households and corporations. That’s the main message here: Republicans have decided to blow Washington’s budget on the wealthy. Harris would rather take that money and spend it on the middle class. But the bill also signals an important shift among mainstream Democrats, who seem to be getting more comfortable with the idea of unapologetically mailing people money.

Here’s how the LIFT Act would work. The bill creates what’s known as a refundable tax credit, meaning workers can claim it even if they don’t owe any money to the IRS. The credit matches each dollar a household earns, up to a maximum of $3,000 for singles and $6,000 for married couples. Then it levels off, before gradually dropping to zero for those making six figures.

For the visually inclined, here’s a graph of its structure, courtesy of the Tax Policy Center. It kind of reminds me of something out of the De Stijl movement.

LIFT Act

Fundamentally, it’s more or less an update of the Earned Income Tax Credit, the $70 billion per year program that’s served as one of the most important anti-poverty tools of the past 30 years. The EITC nudges poor parents into the workforce by offering them a nice cash bonus that often tops what they would have actually owed in taxes, making low-wage jobs more worthwhile. Currently, it can boost household incomes by as much as $6,431. But workers have to wait for their tax refund in order to get the money, which can set them up for a cycle of financial feast and famine over the year. The LIFT Act’s big innovation is that it would let families take their tax credit as a monthly payment. So singles could look forward to $250 every thirty days or so; couples could get $500. It would also cover millions more people, since its benefits zero out at $100,000, far higher than the EITC’s limit of around $55,000 for a family of three.

Harris wouldn’t eliminate the EITC, however. Families could claim both.

Again, just a few years ago this kind of a plan would have been an absolute no-go for Democrats, who have scarring memories of how conservatives demonized the old cash-welfare program as a hand-out for lazy single parents. Even if the whole thing is still couched as a tax-credit, it’s, in reality, a movement back towards just giving people money.

One disadvantage to Harris’s approach is that it would make our opaque, hard to navigate welfare state even more complex. Aside from the EITC, families can also claim the Child Tax Credit, a partially refundable tax credit that now provides up to $2,000 per kid, but is only available to households with at least $2,500 of income. It’s not clear that stacking on yet another tax credit with a elaborate schedule of phase-ins and phase-outs—even one that sends workers a nice check each month—is ideal, when you could just supersize and modernize the EITC itself. That’s the tack some other Democrats have tried; Ohio Sen. Sherrod Brown and Silicon Valley Rep. Ro Khanna released a bill last year, for instance, that would pump another $1.4 trillion into the program over a decade.

It’s also a little odd to create a massive new social welfare program that does nothing for the group that arguably gets most short-changed by the current system—people who don’t work. As economist Robert Moffitt has documented, the U.S. now spends more per-household helping the working poor than it did in the 1980s, but much less on most severely impoverished families. Much of that has to do with the government’s shift from supporting households with cash welfare to emphasizing tax credits. Families need income to qualify for either the EITC or Child Tax Credit. Harris’s bill would do more for poor families than those programs, since its benefits phase in quicker. But it still excludes most households that lack a wage earner. (Students who receive Pell grants could qualify).

The fact that Harris does leave out the very poor suggests she is still trying to avoid having the program labeled as a handout. The bill has plenty of other political liabilities, though. We’re talking about a piece of legislation with a potential thirteen-figure cost that offers zero benefits to families that make more $100,000. In other words, the credit excludes around 29 percent of households—and it’s the 29 percent that are most likes to vote. It doesn’t help matters that Harris’ idea to fund the legislation could end up raising taxes on some families that earn low six figures, since they did benefit, on average, from Trump’s cuts.

All of this raises a question: If the pricetag is going to be so hefty anyway, why not at least try proposing something that benefits all middle class families and even those without any income? To take just one idea, Matt Bruenig of the People’s Policy Project has been promoting the idea of a European-style, universal child allowance as a way to cut poverty for years. It’s the type of approach that could conceivably be an easier to sell than the one Harris came up with—and could even do more good.