What the American Rescue Plan Will Do for You
by Anthony Arnold
March 2021
With the passage of the American Rescue Plan (ARP), we can confidently say that some version of monthly child allowances are likely going to be here to stay.
Both the President and his chief of staff have said, in recent days, that they intend to try to make it permanent, and can’t imagine any objection coming from any Democrats to that course of action. And while Republicans may grumble about “expanding the welfare state,” there’s not going to be any appetite to run on a platform that involves taking money away from families. It’s one thing to advocate for ideas that de facto do that, and quite another to take hundreds of dollars a month directly out of people’s pockets.
So, when that part of the ARP comes up for renewal, there’s going to be a lot of energy behind making it a permanent feature; and just not that much on the other side, especially because it’s set to expire sometime next year, which would be just before the midterms. Nothing scares our political class more than an upcoming election.
But, if it’s going to be permanent, then we need to be having a more serious discussion about the details of it, and we need to be thinking of ways to improve upon the current version, right now, as opposed to a year from now when the pressure cooker of the midterms threatens to drive Washington crazy (or is it crazier?). So, that’s what we’re going to do here.
Biden Plan versus Romney Plan
A little over a month ago, Senator Mitt Romney proposed a child allowance plan of his own. You may have heard about it, but maybe you haven't. The reasons for that are likely because: 1) Democrats were pretty set on doing their own thing, which means Romney got the government version of “we’ll be in touch”; and 2) Republicans are set on opposing everything right now, and to some of them, Mitt Romney is a traitor who doesn’t adhere to the gospel of Trump. Which meant that despite his idea being a genuinely good thing, it just didn’t get much traction.
So, here’s the good news, in case you missed it: Mitt Romney’s plan is really generous! Let’s do some quick comparisons here between the Biden plan and the Romney plan. The Biden plan would send $300 a month to parents with children up to age 6, and $250 a month to parents with children between 6 and 17. The Romney plan would send $350 a month to the first group, and $250 a month to the second group. The phase out, which is the income level at which you no longer get these checks, is the same in both plans. So, if you’re an individual earning over $200,000 a year, then neither one of them are offering anything to you.
I know, you’re looking at those numbers and asking yourself, "If the plans are so similar, then why do they both exist?" That’s a fair question, which is why I’m going to do my best to answer it. While the topline numbers are remarkably similar (which is another reason why I believe some version of this is here to stay), there are significant differences in the details.
The primary difference between the two is that Romney has already proposed a way to pay for his plan. While his plan may be generous, he’s not looking to blow up the deficit to make it happen. Debating whether or not that’s the right position is a different conversation; but that’s his position.
There are three ways that he suggests paying for his plan: getting rid of Temporary Assistance for Needy Families (TANF), the Child and Dependent Care Credit, and the state and local tax (SALT) deduction. Of these three, it’s the first and last ones that are going to be obstacles to his plan getting support from Democrats, though for very opposite reasons.
TANF
Democrats are attached to TANF. Like most programs that are described as “welfare” there’s a pretty partisan split here, at least at the Federal level. This is an extremely annoying split, since it ties pretty broad questions such as “Should we support parents?” to party identity; but it’s the system we have right now.
Under this system, Democrats are extremely hesitant to cut things like TANF, because their identity is that they are the party that expands such programs. The issue here is that cutting TANF, in order to pay for a monthly child allowance, would be good! And that’s because TANF doesn’t work.
Programs that have work requirements attached to them are, by many accounts, generally bad; and TANF is no exception here. The Center on Budget and Policy Priorities, a left of center think tank, has been writing for a while now about how such requirements not only don’t work, but they have the perverse effect of harming people. You could read this link, or maybe this one instead; or you could find any number of your own sources.
They exist, and they all say the same general thing that work requirements not only reduce benefits, but they don’t have any sustained impact on people continuing to work ‐ which their reason for existing. Work requirements literally have one job, and they aren’t doing it.
You could, of course, find studies and criticism from the right of center that say the opposite. But it’s important to note what’s happening there. Conservatives support work requirements precisely because they reduce the overall state burden.
The reason I chose to highlight a critic from the left is that Progressive think tanks don’t believe we should be using programs like TANF. So, when Democrats argue that we can’t cut it to pay for a child allowance, their argument really isn’t very good. Cutting something bad, in order to pay for something that does the same thing, but better, isn’t cruel. It’s just good governance.
The other reason why Democrats should really get on board with cutting TANF is that right now our safety net is designed to make you prove you’re worthy, like some sort of Thor’s hammer situation. That is completely at odds with how a smart safety net should be designed. Now, obviously, you want some ability to make sure that there’s not rampant abuse.
What we have right now isn’t that. What we have is a situation where across 50 states you have programs being run by 50 little kingdoms, each with their own little nuances, and their efficiency is entirely dependent upon how much the state level officials care to make them work. It’s wildly unproductive, and it ultimately discourages people from trying to get aid in the first place. While there are those who may describe this as a feature, I’m firmly in the camp that it’s a bug.
A program that would remove the difficulty and stigma that’s often associated with a program like TANF, and replace it with a check sent from Social Security to everybody with kids, is one that doesn’t have such strings attached. The fact that it also helps to keep the government’s books balanced is just a cherry on top.
SALT
The other major point of contention with Romney’s plan is that he wants to pay for it by eliminating the SALT deduction. Now I’m guessing that a number of you read that sentence and asked yourself “What the heck is the SALT deduction?” I’m guessing that because that’s the exact question I asked myself when I read about it. That’s because like most people in my income bracket, I don’t itemize my taxes. I just take the standard deduction and move on.
But people who make more money are more likely to itemize their taxes. A lot more likely! And when they do, the SALT deduction is one of the tools they have to reduce their overall tax burden. I won’t bore you with too many details, but the idea is that they get to write off the amount they pay to local governments when they file federal taxes.
The results of this are that wealthy people, in high tax states, really love this deduction, because they benefit overwhelmingly from it. If you look at states that both have lots of wealthy people, and also high taxes, you end up with a list that’s mostly topped by Democrat states such as New York, California, New Jersey, Connecticut, and Maryland; which is why some speculate that President Trump decided to cap the SALT deduction at $10,000 with his tax bill. He was pretty clearly trying to punish states he didn’t like.
Which is clearly not a nice thing to do ‐‐ and I don’t think policy should be done this way. But it wasn’t the wrong thing to do, if that makes sense.
The SALT deduction is a gift to the wealthy. And if the price of making pro-family policy budget neutral is that we just eliminate this deduction, then we should do that. This is an idea that Democrats, who vocally support that basic trade-off, claim to be behind ‐ except that’s not the case.
Because the SALT deduction primarily helps residents in blue states, Democrats such as Senator Chuck Schumer and Majority Leader Nancy Pelosi have advocated for lifting the cap entirely. Again, this would be an action that overwhelmingly benefits the wealthy.
That’s not a good thing, in my opinion.
Policy should be smart
The reason all of this matters is simple, and I stated it at the very start. Some type of child allowance is overwhelmingly likely to stay. So, we’re faced with a choice.
We can settle for whatever Washington squeezes out, or we can become our own advocates and start agitating for what we believe to be in our own best interest. If we settle, then we’re likely to get policy that’s acceptable, and even improves people’s lives. But it’s not likely to be the best version of that policy.
But if we become our own champions, and both express our concerns and vote based on them, then maybe we can nudge that policy closer to being truly great. In this case that means we have a chance to not only make the U.S. a more pro-family country, but we can do so without adding to the debt. We can do all this while removing some of the inefficient and unproductive aspects of the current system.
That’s the sort of goal for which we should be aiming. If our country is serious about dedicating itself to the idea that our safety net should be more robust, then that’s going to require any number of changes. It’s a massive restructuring of society in some very fundamental ways. And under those conditions, the difference between being acceptable and being great are massive.