Democrats' destructive obsession with means testing
A well-intentioned focus on distributional justice is counterproductive, especially in a crisis
One of the strangest spectacles in the economic scramble to respond to the coronavirus crisis is that Republicans seem more willing than Democrats to just give everyone straight cash aid. It was Jason Furman, a former Obama administration economic chief, who first prominently endorsed the idea of an immediate $1,000 check to every adult, and $500 for every child. But in the legislature and the executive, Republicans — such as Mitt Romney and Steven Mnuchin at Treasury — have pushed the hardest and the loudest for the idea so far.
Now, thanks to reporting, we have a better idea of how this happened. Turns out Furman pushed the proposal in a meeting with Democrats last week. But House Speaker Nancy Pelosi (D-Cali.) "shot down the suggestion saying she didn't want to write checks to millionaires," according to Politico.
In technical economic jargon, Pelosi wants to "means test" cash aid in response to coronavirus: Don't give the checks to everyone, but target them to the poorest people, by at least scaling up the checks for people further down the income ladder, or most likely phasing them out completely for Americans above a certain income threshold. Pelosi's deputy chief of staff, Drew Hammill, fleshed this point out further in a tweet: "The Speaker believes we should look at refundable tax credits, expanded [unemployment insurance] and direct payments — but MUST be targeted."
Means testing may seem reasonable. But it's actually not a great idea even in the best of times. And in a crisis situation like the social and economic lockdown necessitated by the coronavirus, direct and universal cash aid is one of the best single policy responses available. The fact that Pelosi had the chance to lead this charge a week ago and demurred, insisting on means testing as a condition, is blinkered and insane, on both the politics and the policy merits.
The downside of means testing is that the "testing" part takes time and bureaucracy. Information about people's incomes has to be gathered through the tax code and processed. The government effort needed to simply send checks to every American is not nothing, but it would be considerably quicker and simpler without additional requirements. And in the case of the coronavirus' economic impact, the speed and scale of the policy response is everything.
Unemployment offices in states around the country are already reporting joblessness claims seven to 12 times greater than normal. "The economic shock from COVID-19 will come extraordinarily fast and be very broad and will have a large effect on the economy," the progressive economist Josh Bivens, at the Economic Policy Institute, wrote in his own recommendation for immediate and universal cash aid. "This means that even after targeted interventions are undertaken, quick-acting and large economic stimulus will be needed."
Means testing will also inevitably leave some people out in the cold. Declared income is an extremely crude measure for the true level of financial security for an individual or household, which is made up of all sorts of intersecting factors, from debt to illiquid assets to particular circumstances. Some who genuinely need help will inevitably wind up on the wrong side of the phase out.
Finally, means testing divides Americans. There are the people who get the benefits, who are almost inevitably marked as freeloaders indulged with handouts; then there are the people who didn't get the benefits, who resent those who did get them and who view themselves as the exploited taxpayers. These kinds of sentiments among citizens are politically poisonous, and make it harder in the long run for the government to do the kind of big public investments necessary to make us all better off. The way the Federal Reserve has lept to aid the financial markets while Congress dithers on helping regular Americans is already creating these sorts of divisions. The last thing Pelosi, the Democrats, or anyone else needs to do is sow the discord further.
Concerns with distributional justice are entirely called for, but the trade-offs inherent to means testing really should discourage its use generally — and rule it out entirely in specific circumstances like this. Even more so because a much better tool for enforcing that justice is readily available: namely, progressive taxation. Government spending on welfare aid and public programs should be as simple and universal as possible — and then we can tax the rich much more heavily afterwards to flatten out the income distribution. Indeed, this is already how we do it for public parks and K-12 education and water and electricity and plenty of other public goods.
Unfortunately, it's not just Pelosi: Means testing has become a weird fixation among many Democrats. In response to the coronavirus, Sen. Kamala Harris is pushing her LIFT Act, which relies on means-tested tax credits to provide cash aid to Americans. Representatives Tim Ryan (D-Ohio) and Ro Khanna (D-Calif.) just proposed a coronavirus response bill that would do essentially the same thing via the same tools. Even an otherwise enormously generous plan for cash aid proposed by Sens. Michael Bennet (D-Colo.), Cory Booker (D-N.J.), and Sherrod Brown (D-Ohio) will reportedly feature income thresholds. So far only Rep. Maxine Waters (D-Calif.), the chairwoman of the House Financial Services Committee, has put forth a detailed plan that includes a generous, universal cash benefit in addition to a number of other aggressive relief measures.
You might remember how, during the Democratic presidential primary, Pete Buttigieg and others went after Sen. Bernie Sanders (I-Vt.) for offering free college and student loan forgiveness to everyone rather than targeting it to Americans of lesser means. "If you were confused why people dug in so hard on free college debates, even if it seemed like the stakes were so low, it's because this targeted vs. universalism really is a giant chasm within the left-liberal space," wrote Mike Konczal, another progressive policy analyst.
I had hoped this was just a cynical bit of random maneuvering by centrists like Buttigieg and former vice president Joe Biden, to distinguish themselves from Sanders the left populist. But it seems insisting on the bureaucratic overhang, extra red tape, and mutual social resentments of means testing has become a mark of technocratic liberal first principles; even at the risk of slowing down and complicating the economic response to what looks to be a massive social crisis, not to mention handing a potentially decisive political win to their opponents.
Means testing, it seems, has rotted Democrats' brains.
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