Bernie Sanders has won the day — a guaranteed annual income, a wealth tax however disguised, national health insurance and the like will define the midterms.
Facing an uphill battle to capture the Senate, the GOP will be forced to cave on at least one issue — a refundable tax credit for children.
During the Georgia runoff elections, President Biden promised a stimulus check of $2,000 if voters gave Democrats control of the Senate and for most Americans, he has more than delivered.
The American Recovery Act sends $1,400 to every resident earning up to $75,000 a year — on top of the $600 provided by the December 2020 pandemic relief bill. Plus, it bumps up the Child Care Tax Credit to $3,000—$3,600 for children under 6 — from $2,000 and makes it “refundable” — parents don’t have to work to get it.
The ARA provides a family of four with children ages 4 and 8 earning twice the median household income an additional $11,400 no strings attached. The law similarly enhances the Child and Dependent Care Tax Credit and the Earned Income Tax Credit.
All this costs about $570 billion but, importantly, the enhanced benefits only last one year.
As we know, benefits once offered are tough to take away, and the allowances for children are not likely going away. Other benefits may be scaled down — Democrats could choose to limit eligibility for additional stimulus checks to those who are truly in need and roll those into a permanently refundable EITC.
Democrats can pass a program through reconciliation that costs $200 billion, “taxes the rich” and then hammer “selfish” Republicans in virtually every senatorial race and congressional district.
If you don’t think that will work in conservative-leaning jurisdictions, consider that voters in Florida went for former President Trump in 2020 but also approved a $15-an-hour minimum wage.
Sen. Mitt Romney has proposed even more generous child allowances — $4,200 a year for each child 5 and under and $3,000 for those 6 to 17 — for families with annual incomes less than $200,000. That likely means Majority Leader Chuck Schumer has the 51 votes for making permanent a generous child support allowance, and other moderate Republicans will pile in lest they be painted as anti-child in 2022.
Mr. Romney’s plan would add $112.5 billion to the cost of the CTC as it was prior to the ARA. It would be awfully tough for Republicans to deny cries to end preferential tax treatment for capital gains, for example, to fund it.
It would encourage families with several children to work less, and Mr. Biden’s proposed taxes on high income earners, capital gains and estates would raise taxes on high-tech startups to nearly 80% for California residents.
Fewer people working and less investment in high tech is how the European Union became a welfare state that can’t grow or provide young people with enough meaningful work. And that appears to push down birth rates more than child benefits do to boost it.
While guaranteed incomes for most children are not quite the same thing as guaranteed incomes for all Americans, it is very tough to separate such generous benefits for children from the realized income of their custodial adults.
Progressives are busy rolling out studies that proport to show guaranteed incomes have little significant effect on people working. Those examine U.S. and Canadian programs like the Stockton experiment, which gave 125 individuals $500 a month for two years, and the Alaska Permanent Fund Dividend. Generally, those benefits are sometimes temporary, not large enough to live on and only marginally impact on employment, but hours worked is quite different from whether someone is employed at all.
Encouraging more part-time work offers few opportunities to enhance skills and rise out of poverty, but the Stockton experiment illustrated that it takes a lot of effort to be poor. The recipients were able to better handle termination of utility service from unpaid bills, deal with unexpected problems like car repairs and generally do what is necessary to find some kind of employment.
However, those experiments don’t justify a large, refundable and permanent EITC as that would reduce employment — likely by a lot.
Instead, it would make sense to replace the personal and corporate income tax with a 14% value-added tax and offer every child $4,000 a year.
That would eliminate taxes altogether on work and do less to discourage startups and productive investment than the current tax morass — more on that in my next column.
• Peter Morici, @pmorici1, is an economist and emeritus business professor at the University of Maryland, and a national columnist.