If a Biden relief package isn’t open-ended, and tied to a full recovery, America is doomed to repeat last-minute partisan fights over aid.
Opinion by Claudia Sahm
On Tuesday, the Senate confirmation hearing for Janet Yellen, President Biden’s nominee to be the next Treasury secretary, turned into a de facto hearing on the president’s economic relief plan. While Ms. Yellen, a former Federal Reserve chair, is expected to be confirmed, the fate of the Biden plan is up in the air and became the focus of senators’ back and forth.
Democrats generally cheered Mr. Biden’s proposed $1.9 trillion package, while Republicans peppered Ms. Yellen with questions about whether that level of spending might be overkill.
The price tag is indeed big — as it should be. This moment of crisis demands it.
But members of Congress should carefully consider the necessary levels of spending, particularly amid so much uncertainty.
Many lawmakers seem to be asking, “How much is enough?” while “When have we done enough?” is the better question. When those 10 million jobs still missing are back, when the half of families who have lost income from work are made whole and when those who had to leave their jobs because of extra parenting burdens begin to return — that’s when relief should turn off.
Rather than setting an arbitrary expiration date and banking on yet another 11th-hour scramble for more relief, Congress could base its policy on how people and businesses are doing, not on the passage of time.
In policy circles, such tools are known as “automatic stabilizers.” They’re quite simple: If the economy comes roaring back, then the stabilizers put in place turn off; if it takes longer to recover, they stay on.
A broad cross-section of research shows that auto stabilizers will help us do enough without doing too much.
Putting policy on autopilot is not new. For the U.S. government, it began in 1935 when, with the guidance of Labor Secretary Frances Perkins, our first female cabinet secretary, the Roosevelt administration introduced unemployment insurance as part of the New Deal. Employers pay into the system, so that laid-off workers can receive benefits. More workers are laid off in recessions, so more money is spent on benefits. Then in expansions, much less is spent.
Food stamps and progressive income taxes are also, in their own ways, automatic stabilizers.
Another great advantage to automatic stabilizers is that Congress can bump up the generosity of their benefits in bad times. Currently, 16 million people are receiving some form of jobless benefits — more than seven times the number of recipients a year ago.
In light of the pandemic, it was both humane and economically astute when, this past March, Congress made jobless benefits more generous through the CARES Act: The $600 a week federal supplement to state unemployment checks; the expanded eligibility for benefits; the increased number of weeks the unemployed could get support; the $1,200 direct checks to the vast majority of adults. It was all a strong start.
Then, political will eroded. The extra $600 expired on July 31, leaving millions with much less to make ends meet.
In the meantime, a zombie debate over whether to renew that extra money — along with a bucket of other crucial economic benefits — dragged on for months.
Only over the holidays, once the remaining relief in the CARES Act was expiring, did Congress and the Trump administration act, approving a new $900 billion package. Now, the unemployed get an extra $300 a week and the long-term unemployed and those not normally eligible for benefits are covered, but only through early spring. Meanwhile, the eviction moratorium was only extended one month and extra food stamps only until June.
President Biden’s current plan calls for a $400-per-week federal unemployment supplement through September. But his pledge to “work with Congress on ways to automatically adjust the length and amount of relief depending on health and economic conditions” suggests he and his team are open to tweaks.
Ron Wyden, the incoming chairman of the Senate Finance Committee, who will play a significant role in shaping any bill, used his time during Ms. Yellen’s confirmation hearing to highlight his bolder proposal to put federal unemployment benefits on autopilot, then phase it out gradually as the unemployment rate falls.
Representatives Don Beyer and Derek Kilmer and Senators Jack Reed and Michael Bennet, all Democrats, have designed similar plans.
In fact, many of the strongest supporters of automatic stabilizers since the beginning of the pandemic have been moderate Democrats in the House.
Each of these plans is evidence-based and deserves to be closely considered. Policy experts like me have worked with several Congress members and their staffs for over a year on how to do this right: what economic indicators to use (whether the unemployment rate, work force participation or inflation), when to start and when to phase out the extra support.
The surest sign that automatic stabilizers stand a fighting chance of being included in the stimulus is that Ms. Yellen may be on board, too.
[Yellen] endorsed using automatic triggers this summer, explaining her reasoning that struggling Americans “need relief and support for as long as the job market remains weak.”
In early 2019, based on research and my experience working at the Fed amid the Great Recession, I argued in a chapter of the policy volume “Recession Ready” that we should make direct payments to people automatic in recessions — starting as soon as the unemployment rate begins to rise in a way that we know a recession has arrived and continuing until unemployment comes back down.
We should send more direct checks to all families except high-income households now and be ready to repeat some level of them on a monthly or quarterly basis until the crisis is over.
If another relief package fails to provide households and businesses consistent, predictable support soon, we’ll be doomed to repeat the inefficient, cruel and unorganized cycle of last-minute partisan fights over aid.
Americans deserve more relief; they deserve the peace of mind of knowing that relief will continue as long as they need it.
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Claudia Sahm, a contributing opinion writer, and the author of the “Sahm Rule,” an early recession signal, was a section chief in the division of consumer and community affairs at the Federal Reserve.
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