Moneybox

Democrats Have Decided to Send Checks to Fewer People for No Actual Good Reason

Joe Manchin seated in front of his nameplate
Good work, Joe. Sarah Silbiger/Pool/Getty Images

After being badgered to death by moderate Senate Democrats, the Biden administration has agreed to put stricter limits on who will be eligible for a relief check as part of its big COVID recovery bill.

Centrists such as Sen. Joe Manchin of West Virginia have spent weeks urging the administration to “target” the new round of $1,400 economic impact payments more narrowly to lower-income families in order avoid spending money on households that might not be facing financial difficulties at the moment. On Wednesday, Democrats said they would phase down the checks more quickly for higher earners than originally planned. As a result, approximately 11.8 million fewer adults and 4.6 million fewer children will benefit from a payment, according to an analysis by the Institute on Taxation and Economic Policy.

Advertisement
Advertisement
Advertisement

Singles who earn up to $75,000 will still receive the full check amount. But the payment will ramp down to zero for those who earn more than $80,000, well below the previous cutoff of $100,000. Married couples who file jointly will still receive their entire check if they make up to $150,000. But payments will fall to zilch for those earning more than $160,000, down from the previous threshold of $200,000.

Moderates had also sought to lower federal unemployment benefits in the bill from $400 per week to $300. But under the agreement, those won’t be changed. Which is good.

As a result, it does not appear that these cuts will actually save much money—only about $12 billion in the context of a $1.9 trillion bill, according to the Washington Post’s Jeff Stein. Moreover, according to one Democratic aide, the savings from checks won’t be used to pay for any other priorities Democrats had hoped to fund, like a potential extra month of unemployment benefits, in part because they’re too tiny. Multiple Democratic sources also told me that, aside from pressure by moderates, party leaders agreed to cut the checks for procedural reasons having to do with the rules of budget reconciliation, the maddeningly byzantine parliamentary procedure lawmakers are using to get around the Senate filibuster. Under the process, each committee is given a budget cap for what it is permitted to spend. The checks were sliced down a bit in order to make sure that Senate Finance Committee’s section stays under its limit when the Congressional Budget Office scores the bill. It’s mind-numbing, but it’s how policy is being made.

Advertisement
Advertisement

If the section comes back under its limit, in theory Democrats might be able to add some money back in, though it’s not at all clear that will happen.

Unsurprisingly, progressive Democrats are not pleased about this (just check any Hill reporter’s mentions right now). And politically, it very much does feel like Democrats are cutting off their nose to spite their face here, given that they made a new round of relief checks a centerpiece of the Georgia runoff campaigns that won them the Senate. It’s probably not the end of the world if a family that earns $170,000 doesn’t get a little extra help from the government this time. And in the end, ITEP says that 86 percent of Americans are still set to benefit from a check, versus 91 percent under the previous version. But that’s still several million voters who could feel let down. To be clear: Some upper-middle-class voters who got a check from Donald J. Trump will absolutely not get a check from Joseph R. Biden, and I cannot possibly imagine that will help cement the Democrats’ new suburban Sun Belt coalition come 2022.

Advertisement

The new structure of the checks is also messy from a policy design perspective, to the point where it’s even driving some wonks who’d advocated for limiting the payments into a state of existential despair. See, for instance, the Progressive Policy Institute’s Ben Ritz:

Advertisement
Advertisement

The problem is essentially that, because the check amounts phase down so quickly, the payments now effectively create an insanely punitive marginal tax rate on a very narrow band of Americans. As Ritz noted to me, a single taxpayer who earned $80,000 last year is going to be hit with a 70 percent tax on their last $5,000 of income, which means some people are going to realize they were working extra hours for basically nothing. Already, complaints about that are popping up:

Advertisement

Because people can qualify for the checks based on their 2021 incomes, the income cliff could lead some people to cut back on work this year, for better or worse. “It means that a single who earns $75,000 this year really has no incentive to work more at the margin,” Ritz said. “Unless of course they can jump far beyond the bubble bracket, but most decisions on the margin don’t work like that.” [Update, March 3, 3:31 p.m.: A few economists have pointed out on Twitter that, for some of those workers whose incomes put them right around the cutoff for receiving check, the right move may be to just max out their 401(k) or IRA contributions, since the the payments are distributed based on taxpayers’ adjusted gross incomes. And we at Slate are always happy to relay good advice.]

In short, thanks to the whims of a couple of moderate lawmakers and the bizarre jetties of Senate procedure, Democrats are having to make a politically unpopular choice that will probably antagonize a modest but vocal number of voters without saving a substantial amount of money that could be put to better use. The World’s Greatest Deliberative Body is at it again.

Advertisement