The American Rescue Plan lifted millions out of poverty and charted a new course for economic assistance by emphasizing direct cash relief. Is UBI next?
By: MAX GHENIS
In March, President Biden signed the $1.9 trillion American Rescue Plan. While the plan temporarily expands many safety net programs, such as unemployment insurance, food stamps and housing assistance, two of its programs shift the paradigm of economic relief toward direct cash assistance: the third round of economic impact payments and the expanded Child Tax Credit (CTC).
The economic impact payments of $1,400 per person reached over 150 million households and virtually all were paid within a month of the plan’s passage. This was extremely popular: Eighty-one percent of adults supported payments of at least $1,400, compared to 62 percent that supported American Rescue Plan overall. Prior rounds cut poverty substantially, and we can expect this round to do the same.
The expanded CTC is similarly popular and poverty-reducing.
By cutting child poverty nearly in half, the new CTC promises to improve children’s health, education and earnings down the line. Research from my team at the UBI Center shows that following the lead of most other developed countries with “child allowances” like these will reduce inequality and adult poverty, as well.
What sets these successes apart? Unlike workfare programs, the payments and expanded CTC are unconditional — recipients don’t have to perform tasks or meet with case officers to qualify.
Unlike most tax credits, including the pre-American Rescue Plan CTC, they don’t exclude the poorest Americans (though they stop short of being universal), and the new CTC will be distributed monthly.
And unlike programs like food or housing assistance, they don’t restrict how recipients can use the money. That is, they share the defining features of universal basic income.
In fact, divergence from universal basic income is where these policies have fallen short. By targeting the checks, some families are made worse off for getting a raise or working extra hours. Had the payments been universal, each dollar a family earns would mean more money in their pockets. Targeting hindered the CTC expansion, too. To avoid excluding families who fall under the income limit mid-year, and to avoid requiring families to repay the payments if their income rises above the limit, the IRS had to construct a portal for families to report income changes. As a result, the program had to be delayed until July.
How do we strengthen and multiply unconditional cash transfers like these? One opportunity is extending the CTC expansion beyond this year, as Biden has proposed in his American Families Plan.
We should go further and integrate elements of Sen. Mitt Romney’s (R-Utah) more generous and universal CTC expansion, called the Family Security Act, which doesn’t require a portal to report income changes.
As the administration contemplates other programs like child care through the American Families Plan, they could focus funds on an even larger CTC, providing families more choice over how to meet their needs.
Another opportunity is passing the Energy Innovation and Carbon Dividend Act that 29 House Democrats recently introduced. This bill would charge fossil fuel companies for their carbon emissions and distribute the revenue as a monthly cash dividend to all Americans, putting the U.S. on a path to net-zero emissions by 2050 and putting more money in the hands of low- and middle-income families.
The American Rescue Plan lifted millions out of poverty and charted a new course for economic assistance by emphasizing direct cash relief. Let’s apply its lessons by designing future American policy programs around the defining features of universal basic income: unconditionality, universality and cash.