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Three Things We Don’t Need in the Next Stimulus Bill (And One We Do)

April 9, 2020
Featured Image
LAKEWOOD, CO - OCTOBER 01: Jimmy Martinez works at a construction project funded by federal stimulus funds on October 1, 2010 in Lakewood, Colorado. The construction site was for a new building for the Colorado National Guard. The $787 billion economic stimulus package U.S. President Barack Obama pushed through Congress last year is coming in on time and under budget, according to a White House report released Friday. (Photo by John Moore/Getty Images)

Now that the President has signed the bipartisan $2.3 trillion stimulus package, talk has already shifted to what should be included in subsequent legislation. 

Even though Senate Majority Leader Mitch McConnell is apparently “hitting the brakes” on round four of stimulus, that’s unlikely to stop many in Congress from getting a jump start on their wish lists for when the time eventually comes. Unsurprisingly, the ideas already on the table comprise a litany of unrelated policy proposals.

That’s because in the wake of the coronavirus pandemic, the partisan stagnation that characterized much of the 116th Congress has now given way to a political climate where anything seems possible. Sadly, most are bad ideas, though, at least in the current context.

Should Congress agree to a fourth tranche of relief, here are a few things that shouldn’t be in it: 

  1. Infrastructure Spending

On March 31, the President tweeted out the following: “With interest rates for the United States being at ZERO, this is the time to do our decades long awaited Infrastructure Bill. It should be VERY BIG & BOLD, Two Trillion Dollars, and be focused solely on jobs and rebuilding the once great infrastructure of our Country! Phase 4.”

It isn’t surprising to see President Trump advocating for massive infrastructure spending. After all, he’s proposed it before and has said on many occasions that he sees himself as “the builder president” – though even his beloved wall has yet to be built. It’s become a bit of a joke in Washington: when isn’t it infrastructure week?

Could the time be any worse for large-scale, FDR-style infrastructure projects? When the economy is cratering because we need people to stay apart from one another, Trump is seemingly suggesting that the solution is enormous spending on highways, bridges, and dams—that would require massive crews to work together in one place. In the height of the crisis and potentially for months afterward, that may not even be possible, let alone a good idea.

 Of course, road-building doesn’t exactly happen overnight – the economy may look very different when such projects actually would get built. But far from reason to advance such a plan, this built-in delay should give us pause about allocating precious resources for projects months in the future while we don’t yet know how much will be needed tomorrow. 

This discussion completely ignores the question of who would pay for these goals. In the past, Trump has called for states to shoulder most of the infrastructure burden, but state budgets are increasingly decimated because of the COVID-19 crisis. That leads to‚ you guessed it—more borrowing when projections are already for a $4 trillion budget deficit this year alone. Not only is this prospect economically unwise, it may be practically impossible under the historically high fiscal strain that is building by the day. 

  1. Reinstituting the SALT deduction

Not to be outdone, House Speaker Nancy Pelosi has proposed a few things of her own. The New York Times broke the story that Pelosi is calling for a repeal in the next round of stimulus of the cap on the state and local tax deduction enacted in 2017. 

How a massive tax break to the wealthiest of the wealthy—primarily in blue states—fits into relief for the jobless is anyone’s guess, but that hasn’t stopped Pelosi from claiming a repeal would be a great way to get “more disposable income” into Americans’ hands.

Unfortunately, as the Committee for a Responsible Federal Budget’s Marc Goldwein has pointed out, those who stand to benefit from a SALT deduction cap repeal are those Americans likeliest to still have disposable income. Goldwein notes that beneficiaries would be concentrated overwhelmingly at the upper-end of the income spectrum, making this proposal about as regressive as possible at a time when economists agree aid should be focused on those who need it most.

  1. Renewable Energy Tax Credits

At the very least, proponents of new infrastructure and the SALT deduction can say their policies would ultimately get cash in people’s hands. Meanwhile, advocates of tax credits for renewable energy can’t even claim that. 

As NPR reported during the last round of stimulus negotiations, green energy lobbyists were hard at work trying to get their favored tax breaks included in the CARES Act, but instead ended up having them left out of the final package. 

Now, in an apparent bid to placate progressive critics of the business aid included in the last bill, Pelosi and others are calling for the renewable credits to be included in round four upon Congress’s return. As one story put it, “Environmentalists and some of their Democratic allies in Congress see economic stimulus discussions stemming from the novel coronavirus as a major opportunity to push their green priorities.” 

When Trump proposed payroll tax cuts as a way to address the crisis, this idea was soundly rejected by Republicans and Democrats alike because such a move would be unlikely to provide immediate relief to those who actually need it.

And yet, the same problem exists with this suggestion. Despite estimates that 11 million Americans now work in the renewable energy sector, it’s unclear how anyone other than a few top executives of electric vehicle and solar energy firms would benefit. 

Nevertheless, there are valid critiques to be made that certain parts of the recent relief bill are cronyism that do not help the desperate, newly jobless Americans—but it boggles the mind why anyone would settle upon the answer, “we should do the same thing.” Two wrongs don’t make a right, especially not as more and more Americans find themselves in dire straits.

So what should we do?

The best answer remains recurring cash payments. Proposals to provide multiple cash payments were eventually nixed in the last round of negotiations in favor of a one-time payment of $1,200 per person and $500 per child. But that’s unlikely to be enough to aid ailing individuals and families if job losses continue to mount and economic activity grinds to a halt more than expected. And, it might not get there in time for those who need it most.

There are many advantages to broad-based cash payments, but they all boil down to the following:

In a rapidly changing economic environment, someone who is gainfully employed today could easily be out looking for work tomorrow. Cash payments alleviate that uncertainty by getting support to people who need it before the bills come due.

Much like how cash assistance benefits underserved populations around the globe, recurring payments would allow recipients to spend funds now as they see fit. Don’t need your check? That’s fine: donate it—or use it to support businesses struggling with the mandatory lockdowns. Ultimately, whether such payments go toward paying a mortgage or buying food or a face mask, individuals are most likely to use funding responsibly. 

That’s also incredibly important for minimizing proverbial waste, fraud, and abuse. Time and again, evidence demonstrates that relying on the government to pick winners and losers just empowers better-funded special interests, and attempting to micro target benefits to a select few usually incentivizes cheaters and leads to inefficiency.

As someone who has spent the better part of the last decade arguing against overspending and deficits, this argument seems strange even as I make it, but we live in strange times. Ultimately, even the most stringent fiscal hawks recognize that some things are worth spending money on. Providing immediate relief to people who have been forced out of the workplace by acts of God and government certainly qualifies, and arguably prevents greater disaster and fiscal strain down the road.

Moreover, the fact that such enormous spending is currently warranted does not mean that all enormous spending must now be accepted—particularly the type of spending that will not provide support at a time when Americans are choosing between food and bills. Lawmakers have no choice but to provide relief, and they should be all the more careful to avoid spending money they don’t have to spend.

So, as we think about what we should do next, let’s stay away from special tax breaks and massive government spending projects, and instead focus on what’s likely to be most successful—getting funding immediately to those who know best: everyday Americans.

Jonathan Bydlak

Jonathan Bydlak is the director of the R Street Institute’s Fiscal & Budget Policy Project and the creator of SpendingTracker.org.