Building Automatic and Long-Term Economic Relief During the Coronavirus Crisis
This column contains an update.
The economic fallout from the coronavirus response has happened quickly, but its effects will be long-lasting. When Congress reconvenes in May 2020 to debate the next round of funding priorities, it must employ strategies that work in tandem to get economic relief to the wide range of people who need it: the millions who have lost jobs, small businesses that have been shuttered, states and cities facing budget shortfalls, and communities that are facing disproportionate health burdens. These policy approaches should be designed to provide significant support right away; effectively address the public health crisis; mitigate the economic harm to people; and begin to build towards an eventual equitable recovery.
Once COVID-19 is reasonably contained and many people go back to work, some businesses will remain permanently closed. There will be longer-term employment consequences for employees of those businesses and for those graduating or looking for new employment. Recent projections from the Congressional Budget Office (CBO) forecast a long overhang of the economic crisis, including a 10 percent unemployment rate 18 months from now. Historical patterns would suggest that in such an environment, Black workers could face unemployment rates as high as 20 percent. With possibly months of significantly elevated unemployment, potential additional waves of closures during intense social distancing, and slow rehiring, that scenario will clearly still require ongoing extended unemployment insurance (UI) benefits and direct cash payments for individuals and families.
Policy approaches now must be able to address both the immediate pain of the economic crisis and the expected continuing distress, even as we move into a long period of recovery. Robust UI benefits—and a system that can efficiently deliver those benefits, including to those who have been shut out of the system thus far—will be crucial in an extended period of double-digit employment. Structuring extended UI benefits to stay on during extended periods of economic distress (and to trigger back on if that distress comes in waves) addresses the likelihood that very high unemployment rates will persist well into the summer and fall. Meanwhile, work-search requirements for UI and other social safety net programs should be waived, as job searching is impractical during this period and hiring is down. Worries that workers will quit jobs in order to receive UI are misplaced: The law states that workers cannot voluntarily quit and then receive UI, and evidence shows that many more people should be receiving UI than currently are.
But gaps in the unemployment system and income shocks for those who are employed—plus the need to bolster the economy when activity returns—argue for broader cash relief as well. Getting cash into people’s hands (quickly and without administrative burden) can help keep families afloat, and direct cash payments to adults and children were a crucial part of the CARES Act. While the CARES Act was a good start, more money will be needed. Speaker of the House Nancy Pelosi’s (D-CA) draft proposal for the CARES Act provided for larger payments ($1,500 per person, notably including children), and advocates are calling for higher payments than that. Congress should provide for an additional payment immediately as well as further payments triggered automatically by economic conditions until an equitable recovery is fully underway.
Direct cash payments must also be broadened to include two large groups who were excluded from the CARES Act: immigrants/mixed-immigration-status families and adult dependents, such as 17-year-olds, postsecondary students, or relatives a family supports who are elderly or who have disabilities. Currently, these adult dependents cannot claim the $1,200 provided by the CARES Act for themselves. Millions of immigrant and mixed-immigration-status families were also left out, and children were excluded from the $500 payment eligibility if their parent did not have a Social Security Number (SSN). Households with adult dependents and immigrant and mixed-immigration-status families pay taxes in the United States and are disproportionately likely to be financially precarious. They have an acute need for ongoing cash assistance.
Cash payments that go to everyone who needs them—including those who have no income at all—can also serve as a bridge and a complement to expansion of the Earned Income Tax Credit (EITC), Child Tax Credit (CTC), and a Young Child Tax Credit as the economy recovers. While the EITC and CTC as currently designed* are not well-suited to provide immediate relief in the current economic crisis because of their ties to the tax season and because they exclude those with no income, they could provide crucial support for families in early winter 2021, when it is plausible that unemployment rates will remain high and additional waves of business and school closures could be required. An expanded EITC (particularly a refundable EITC that extends eligibility to caregivers, low-income students, and childless adults* between the ages of 18 and 24) would have stimulus and employment effects, as households with resource constraints are more likely than high-income households to spend additional income. Increased spending will bolster consumption, which leads to more jobs. Research has shown that an EITC expansion would be valuable to low- and middle-income workers and their families during the recovery from a recession.
But families can’t wait for a boost to their income, with millions unemployed and millions more facing the unexpected costs of school or child care closures, health care, or just disruptions to normal life. Ongoing cash payments and a robust implementation of extended UI will complement each other during phases of acute economic distress, and they will make an equitable recovery more plausible.
Lily Roberts is the director of economic mobility at the Center for American Progress.
To find the latest CAP resources on the coronavirus, visit our coronavirus resource page.
* Update, May 5, 2020: This column has been updated to clarify the mechanisms of the EITC and the CTC as well as whom an expanded EITC should target.
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