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The Case Against the $2,000 Checks

Now that Democrats have won the Senate, there’s a better way to spend that money.

Saul Loeb/Getty Images

Now that the Democrats have won control of the Senate, with a 50–50 split and a tie-breaking vote for Vice President-elect Kamala Harris, they should forget about those $2,000 stimulus checks and instead increase unemployment benefits and extend their duration.

I’m not saying this won’t be a little awkward. Congressional Democrats gleefully embraced President Donald Trump’s last-minute complaint that the Covid stimulus bill he signed into law on December 27 should have included a $2,000 near-universal “economic impact payment” rather than the $600 payment negotiated by, ahem, Trump’s own treasury secretary, Steve Mnuchin. In a deft piece of political theater, the Democratic majority in the House voted, the following day, to increase the payment to $2,000, prompting Senate Majority Leader Mitch McConnell to block it.

A wedge issue was born!

Now Senate Democrats are pledging to use their newfound majority to deliver those $2,000 checks as fast as possible. “One of the first things that I want to do when our new senators are seated is deliver the $2,000 checks to the American families,” Senator Chuck Schumer of New York, who will become majority leader, said Wednesday.

It was, after all, something President-elect Joe Biden promised to Georgia voters the day before they delivered the Senate to the Democrats. “If you send John [Ossoff] and the Reverend [Raphael Warnock] to Washington,” Biden said, “those $2,000 checks will go out the door, restoring hope and decency and honor for so many people who are struggling right now.”

Previously, Biden had been somewhat cool to stimulus checks, promising to increase the amount beyond $600 but declining to specify how high he was willing to go. He abandoned that cautious position Monday. “If you send Senators Perdue and Loeffler back to Washington,” he said, “those checks will never get there. It’s just that simple.”

But it’s not that simple.

Boosting economic impact payments from $600 to $2,000 was a defensible position when the Democrats were in the minority, because it was the only direct stimulus to individuals that they were in any position to deliver. But now that the Democrats have a majority—admittedly a razor-thin one—they can probably do better.

Even before the Democrats regained the Senate, former Treasury Secretary Larry Summers argued in a widely read Bloomberg op-ed that $2,000 stimulus checks were a bad idea. I’m skeptical of Summers’s claim that that much stimulus would risk overheating the economy. (We should be so lucky!) But Summers was quite right to argue that such aid would be very poorly targeted, sending too much money to people who don’t need it while stiffing unemployed people who need it quite desperately.

Economic impact payments aren’t available to everybody, but they’re available to almost everybody. Summers calculates that more than 85 percent of tax filers are eligible. According to the IRS, you get the full payment if you’re an individual tax filer earning up to $75,000 or a married couple filing jointly earning up to $150,000. Above those thresholds, the payment is reduced gradually until you reach $99,000 for individual filers and $198,000 for joint filers—and even then, some married couples will continue to receive payments based on how many children they have. I wouldn’t be surprised to see Democrats loosen even these extremely generous parameters.

Summers isn’t the only economist to observe that economic impact payments are poorly targeted. New York Times columnist Paul Krugman—nobody’s idea of an austerity championmade the same point last month when he noticed that the Covid relief bill spent more on those $600 economic impact payments ($166 billion) than on unemployment payments ($120 billion for a $300 add-on to unemployment benefits—that’s half what Congress provided last springand an extension of the benefits’ duration by a completely inadequate 11 weeks).

“This is pretty upsetting,” Krugman tweeted. Imagine, then, how upsetting it would be to quadruple that imbalance by boosting economic impact payments to $2,000. (The estimated cost of such payments would be $464 billion, according to the Joint Committee on taxation, and might go as high as $600 billion, according to Summers.)

Am I suggesting that last spring’s economic impact payments of $1,200 per adult and $500 per child were a waste of money? I am not. According to the Economic Policy Institute, those payments lifted 8.2 million people out of poverty. But remember where we were last spring. The Covid-19 lockdown cratered the economy, with gross domestic product dropping by one-third. GDP rebounded over the summer.

Unemployment has rebounded, too, but by much less, and in November and December it was 6.7 percent.* The same Cares Act that sent $1,200 checks to most American households allocated $600 per week in additional unemployment benefits, lifting 7.2 million people out of poverty, according to the EPI. But the $600 add-on expired July 31, even as the weekly number of people filing initial unemployment claims—which had declined steeply since April—remained stuck just below one million. Restoring the add-on at $300 per week, as the Democrats managed to do in December’s Covid stimulus, isn’t enough. The GDP crisis may be ending, but the unemployment crisis is not.

Democrats may be reluctant to push too hard on unemployment benefits because they don’t want to give Republicans another opportunity to say that when you add $600 to weekly unemployment checks, many people will end up earning more on the dole than they did on the job. It’s true, but so what? The reason this happened last spring was that Covid-19 socked lower-income people much harder than it did higher-income people. That’s still true. Largely because of the $600 booster, the Cares Act was the most redistributive—probably the only redistributivelegislation to emerge from the Trump administration.

The GOP worry is that when you pay poor folks more for not working than for working, they won’t want to work. It isn’t an unreasonable proposition theoretically, and one can certainly envision circumstances when it might be true. But the Covid-19 crisis isn’t one of them. Academic study after academic study has shown that unemployment payments have not disincentivized work during the pandemic.

Another such study was published last week, by Yale’s Lucas Finamor and Dana Scott. It found that the expiration of the $600 add-on in July did absolutely nothing to send more people back to work. “Somehow,” Scott observed somewhat gratefully on Twitter, “the economic response to the pandemic has been bungled enough that this paper has stayed relevant.”  The University of Chicago’s Peter Ganong tweeted that Finamor and Scott presented “the best evidence to date on the incentive effects of the $600 weekly supplement.”

There are other items that the Democrats should put in the next Covid stimulus. States are still in pretty desperate need of a bailout. And it sure would be nice to repeal the horribly regressive increase to full deductibility for business executives’ three-martini lunches. But Democrats’ highest priority should be to get more money to people put out of work by the Covid-19 lockdown. A $2,000 check to the public at large is a very poor substitute.

This article has been updated to include this morning’s news that the unemployment rate remained at 6.7 percent in December.