How Democrats learned to stop worrying and hand out fat stacks of cash

The American Rescue Plan is a transformative piece of legislation

President Biden.
(Image credit: Illustrated | Getty Images, iStock)

Over the weekend, the Senate passed one of the most ambitious pieces of legislation in American history: Democrats' pandemic relief bill, also called the American Rescue Plan (ARP). All indications are the House will whisk the Senate's version through in a final vote Tuesday, and President Biden will sign it by the end of the week. Despite some unnecessary compromises and walkbacks, the vast majority of the plan went untouched in the Senate debate. Many important measures weren't even mentioned at all.

For those who remember what this point in 2009 was like, all this is very confusing. Democrats back then had gigantic majorities in both the House and the Senate, plus an extremely popular new president — but they cheaped out on their response to the financial crisis. Today, the party has a tiny 5-vote margin in the House, controls the Senate only by virtue of Vice President Harris' tie-breaking vote, and elected a famously moderate old white guy as president.

Yet despite having literally zero margin for error, the ARP is more than twice as big as the 2009 Recovery Act, and structured far more generously. Effectively, Democrats are betting that blasting trainloads of money down the income ladder will pay off both economically and politically. I can't believe I'm writing this, but it seems Democrats ... learned from their mistakes?

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First, let's take a look at what is in this thing. There is tens of billions for vaccines and pandemic containment, which should nicely accelerate the rollout that is already going quite well. (At time of writing, about 90 million shots had been administered, and the rate of daily vaccine shipments was nearing 3 million.) Then there are $1,400 checks. These were pointlessly trimmed down with a steeper phaseout that pulled partial payments from about 17 million people. But still, roughly 280 million Americans will get the full whack — including an estimated 26 million adult dependents who were left out of previous rounds of checks. Then there is a continuation of the $300 per month supplement to unemployment benefits (cut down from $400 in the House version), which will last through the first week of September. There is also $350 billion to help state and local governments deal with the fallout of the pandemic.

Then there is a major expansion of the Child Tax Credit, which will be increased from $2,000 per child to $3,600 for children under six years old and $3,000 for children between 6-17. More importantly, the work requirement benefit phase-in will be eliminated — meaning that the poorest people without any labor income will qualify — and the benefit will be mailed out periodically.

But that's not all. There were numerous smaller provisions tucked into the bill that would count as major legislation in any normal time. There is a 15 percent boost in food stamps, and $50 billion for low-income rental assistance. There is an $86 billion bailout of 185 union pension plans that were on the verge of going bankrupt. Taxes on the first $10,200 in unemployment benefits during 2020 will be eliminated. There is $10 billion for local infrastructure spending, $50 billion in rental assistance, $30.5 billion for transit agencies, $8.5 billion for rural health providers, half a billion in homeless relief, $200 million for Amtrak, a change to include senior citizens in the Earned Income Tax Credit, and many more things.

Now, I could complain about a lot of this. The CTC expansion is structured in a goofy, incoherent fashion and lasts only one year (though that does give Democrats a chance to do it right if they make it permanent, which they are planning to do). The checks walkback was politically stupid. Excluding an increase in the minimum wage to $15 per hour was bad, and seeing so many Senate Democrats vote against it was worse. Boosting the EITC for seniors makes no sense; Social Security should have been boosted instead.

But all that said, it's a hugely ambitious bill — just by itself putting Biden in league with Lyndon Johnson as a poverty fighter. All the various provisions will cut overall poverty by a third, and child poverty in half, according to one estimate. It remains to be seen whether Democrats can make these programs (above all the child benefit) permanent, but unlike Obama, Biden will surely be remembered as a president who at least attempted to be transformative.

So what gives? Democratic wonks and politicians stress they very much do not want to repeat the mistakes of 2009. "Mr. Biden's economic team" is betting the transfer payments will "power a rapid increase in economic growth," reports The New York Times, and thereby boost the party's political fortunes. "What happened in 2009 and '10 is, we tried to work with the Republicans, the package ended up being much too small, and the recession lasted for five years … People got sour; we lost the election," Senate Majority Leader Chuck Schumer told The Washington Post. The "mantra of the White House and the Federal Reserve has been that it's better to err on the side of doing too much than too little," reports the Post in another article.

Meanwhile, the boost to child benefits builds on an argument that has been developing for years among liberal and leftist scholars. Instead of conditioning family support on work — the thinking behind the EITC and welfare reform back in 1996 — the state should simply establish an income floor for families, as is done in many European countries with much lower poverty, less social dysfunction, and a greater fraction of the workforce employed. That naturally fits in perfectly with the desire to greatly boost the purchasing power of the poor and working class.

In 2009, so-called moderates took a stimulus that was already half the size it needed to be, and lopped off another $100 billion for no reason. Despite some theatrics during the Senate vote, that did not happen this time. The reason, apparently, is that Democrats have grasped that it was not cautious or small-c conservative to leave the economy un-fixed a decade ago. For the moment at least, they are going to try the novel strategy of trying to improve the lives of the American people, and hope they get rewarded at the ballot box. Progress!

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