Politics

The best stimulus idea Democrats are leaving on the table

Maybe early in the pandemic, you first postponed your 2020 vacation to July, and then from July to March. Now, you know you should just wait and see, but you can’t help yourself and went ahead and booked for August.

That’s basically what Congress has been doing with economic aid such as unemployment insurance during the Covid-19 outbreak. Federal lawmakers have been picking arbitrary end dates for much-needed support, more or less guessing at the end of the pandemic for nearly a year. And it appears that in the latest relief package, set to pass Congress in the coming weeks, they’re about to make the same mistake again: Instead of phasing out benefits when the economy gets better, Congress is setting up yet another cliff later this year.

Congress has made important changes to the unemployment system to respond to the pandemic: Initially, it added $600 in federal weekly unemployment benefits through the end of July 2020; that dried up for a while but was reinstated at the end of December, this time adding $300 a week through March 14. The federal government has also expanded unemployment to gig workers, contractors, freelancers, and others who are generally ineligible for such benefits, and has added on extra weeks once regular benefits expire.

A growing chorus of lawmakers and experts argue Congress could further improve jobless benefits by adding something called “automatic stabilizers” into the equation. That would mean that benefits would be tied to certain economic conditions — say, the unemployment rate — and would phase out as the economy gets better. They would be triggered on and off according to what’s actually happening in the economy for businesses and for workers.

“A ton of resources are wasted during a really crucial time … just having to go through this ad hoc stimulus and relief and recovery, and it just doesn’t have to be like that,” said Heidi Shierholz, a senior economist and director of policy at the Economic Policy Institute and former chief economist at the Labor Department. “We can automate things to make it so Congress could step in if they ever needed to do more relief, but it would mean that the basic structure of relief and recovery would be there already.”

Proponents of automatic stabilizers have long pushed for Congress to take a serious look at them, especially during the pandemic. When President Joe Biden released his opening bid for his $1.9 trillion Covid-19 relief plan, he nodded at the concept, indicating it could finally get its moment in the sun. But it appears automatic triggers will be passed over once again in the legislation, which instead lays out a new date for benefits to expire: August 29. If you read through the bill as it’s taking shape, it’s clear that the federal government’s new assumed end date for the pandemic is September.

“The absence of automatic stabilizers is probably the most important missed opportunity in what is generally an excellent set of proposals,” said Greg Leiserson, director of tax policy and chief economist at the Washington Center for Equitable Growth. “We need to make sure that we are maintaining aid and income support for as long as economic conditions warrant, as long as people need it.”

Automatic stabilizers are the best idea left on the table.

The idea behind automatic stabilizers is that they phase out benefits when they are less needed

The government already has in place automatic stabilizers, including unemployment itself, which is intended to stabilize the economy — not only do they replace income for people who lose jobs, but they’re also meant to help prop up the economy in moments of downturn and keep consumer spending going. When an unemployed worker can’t pay their rent, it’s bad for both the tenant and the landlord.

Because the unemployment system has become so whittled down over the years, benefits are less effective at supporting the economy than they used to be — food stamps tend to be more impactful — but it varies by state. “Unemployment insurance is a much better stabilizer in Massachusetts and New Jersey than it is in Texas and Virginia,” said Wayne Vroman, a labor economist at the Urban Institute.

But with federal interventions during the pandemic, that has changed somewhat, at least temporarily. Expanded unemployment benefits appear to have been quite useful in helping people spend what they need, which in turn helps businesses dependent on those customers. Research shows they actually helped many people with savings, and they likely made the recession less severe. They also reduced some inequalities in how Black and white workers access benefits and the amount of benefits they receive. This makes the argument that they should continue as long as the crisis continues make sense.

“The idea that more recession spending should be on autopilot rather than dependent on the whims of politicians seems to be a good one whether you’re a hawk or a dove,” said Marc Goldwein, senior vice president at the Committee for a Responsible Budget, which advocates for deficit reduction. “It’s sort of, in theory, a no-brainer.”

The idea of putting in place triggers for programs such as unemployment insurance has existed long before the pandemic. The Great Recession, during which Congress re-upped unemployment insurance more than a dozen times, made the potential appeal of automatic triggers quite obvious. In 2019, well before the pandemic hit, Sen. Michael Bennet (D-CO) released a sweeping plan for using automatic stabilizers to combat recessions as part of his Democratic presidential bid. Also in 2019, the Brookings Institution think tank released a paper arguing for automatically increasing federal spending on Medicaid and the Children’s Health Insurance Program (CHIP) when a state’s unemployment level hits a certain level.

The unpredictability of the Covid-19 outbreak — and the federal government’s inadequate response to the health end of it — has made the discussion around automatic stabilizers even more pertinent. The initial extra $600 in federal benefits from the CARES Act ended on July 31, leaving unemployed workers dependent on state benefits alone for months, even though the pandemic wasn’t over. State payouts can vary widely: according to the Center on Budget and Policy Priorities, before the pandemic, average weekly benefits for unemployed workers in Massachusetts were $550, while for those in Mississippi, they were just $215. Congress and then-President Donald Trump procrastinated so much on the $900 billion stimulus package passed in December that some unemployment programs were interrupted, leaving many workers in limbo. That bill added on an extra $300 in unemployment insurance benefits until March 14, when Congress is facing another cliff yet again.

“Waiting until the very eleventh hour to extend the pandemic unemployment insurance programs, there have been millions of people who saw the lapses in benefits,” Shierholz said. “To lawmakers who have a cushion in their bank accounts and if they don’t get paid for a couple of weeks they’re fine, that is not the case for most people.”

Some states already automatically extend benefits to workers when the unemployment rate is high, but it’s less than half of states, and that doesn’t increase the amount.

There are trigger proposals in Congress. There’s also pushback.

The question of how to design an automatic stabilizer program isn’t an easy one — what’s the best metric to decide when things are back to normal enough to start to phase out benefits is hard to say. But there are certainly proposals out there.

In 2020, then-Senate Minority Leader Chuck Schumer and Sen. Ron Wyden (D-OR) introduced legislation that would have tied unemployment insurance to the economic conditions of each state and gradually phase out expanded federal benefits as a state’s unemployment rate dropped. Sen. Bennet has continued to advocate for automatic stabilizers, including joining with Reps. Don Beyer (D-VA) and Derek Kilmer (D-WA) and Sen. Jack Reed (D-MI) on a framework to include them in legislation also tied to state unemployment rates. There was some hope that automatic stabilizers would wind up in the HEROES Act, the follow-up stimulus package House Democrats passed in May, but they did not. Ezra Klein wrote about it for Vox at the time and noted how popular the concept behind automatic stabilizers appeared to be in polling.

When Biden won the White House and Democrats narrowly took control of the Senate, there was renewed hope that automatic triggers would be made part of a new Covid relief package. Many members of Biden’s economic team have previously expressed some support for them. But it appears they’re about to be left out of the $1.9 trillion package making its way through Congress, which instead adds on $400 in federal weekly benefits and extends expanded benefits through roughly the end of August.

One major obstacle congressional Democrats point to how the Congressional Budget Office could score automatic stabilizers in a relief bill and concerns they’ll just be too expensive. A potential $1 trillion to $2 trillion price tag from the CBO is something many lawmakers find hard to stomach, even if it is contemplating a somewhat unlikely worst-case scenario where unemployment remains super high.

“The bottom line is there are just members of the caucus who are very, very focused on a topline score, and doing stabilizers on unemployment insurance would certainly add a ton of money to the score,” one Democratic aide said.

House Speaker Nancy Pelosi pointed to concerns about a potential CBO score for automatic stabilizers when they were excluded from the HEROES Act in May.

The counterargument is that it’s money that is going to be spent anyway — Congress is going to keep extending unemployment benefits until the crisis is over.

“The CBO scores show just how deep of an economic hole we’re climbing out of,” said Sen. Wyden in a statement to Vox. “The score would not be high if there was not unprecedented need. If vaccinations continue to pick up and the economic picture improves faster than projected, the score would be lower than projected. When you ask Democrats whether they would support extending benefits if they are still needed, the overwhelming response is ‘yes.’ So my colleagues are willing to provide the relief that’s needed. It’s just the score that is the obstacle.”

Leiserson echoed the point: The CBO score is reflective of the scale of the problem. “It’s ultimately a program we need, and to use that as a reason that we can’t have it is to confuse the indication of what we need to do with a reason not to do it,” he said. “The price tag isn’t telling you whether we need it, it’s just telling you the price tag of the thing we need.”

Wendy Edelberg, director of the Hamilton Project at the Brookings Institution and former chief economist at the CBO, noted that there is, of course, a chance that the coronavirus mutates, rendering the vaccine ineffective, and unemployment remains persistently high for a long time. It’s a possibility, though not a probability, that the CBO would contemplate. She said that Congress could work with the agency to calibrate expected values. “There are certainly ways to make this not scary,” she said. “But what’s frustrating is that if indeed all those bad things happen … policymakers should be thrilled that they set policy to keep unemployment insurance benefits really generous to help people through those incredibly difficult times.”

Plus, if the economy gets better faster than anticipated, benefits can phase out faster, too, meaning the price tag goes down, which saves the government money.

None of this is to say that figuring out how automatic stabilizers should work is super simple. The unemployment rate has fallen more sharply than many economists expected at the outset of the pandemic, in part because millions of people have dropped out of the labor force, and initial proposals on how to scale down benefits didn’t really take that into account. Some economists have suggested triggers be tied to other indicators, such as vaccinations.

Vroman, whose work is focused on unemployment insurance, doesn’t believe a fully automated system for turning stabilizers on and off all of the time would be feasible. “In any given year, the range of unemployment across the country is really very, very wide, so the need for stimulus in more industrial areas is a lot greater than in areas that have mainly service jobs or even agricultural jobs that aren’t really linked to aggregate output,” he said.

He added that there’s also the issue that Congress doesn’t want to give up the reins: “One of the biggest constraints is that the Congress wants to keep a hand in because it wants to take credit for doing something in a recession. Having something that’s fully automatic would remove them from that process.”

Why do we keep guessing at the end of the pandemic?

Everyone would like to believe the pandemic will be over sooner rather than later. That’s been true since the lockdowns began. But the country is now nearly a year into this, and it’s time to stop predicting. Nobody has insight into exactly when the virus will be under control or when the economy will really be better, and not just the topline numbers, but for everyone.

Democrats now are talking about the urgency of passing a new relief package before the latest unemployment cliff arrives in March. But they’re already setting up another cliff in late summer.

Proponents of automatic stabilizers say they’re not giving up on them, even if the triggers don’t make it into this package. “We are working behind the scenes to get the number of people on board that we need to have on board,” one Democratic aide said. They expressed some hope it might show up in the follow-up recovery package the president is set to unveil, though they acknowledged that support from the White House for automatic stabilizers hasn’t been as enthusiastic as it could be. “The administration so far has made gestures in the direction of support, but they haven’t landed on a full-throated endorsement that this is what they want.”

Still, the question remains: If not now, when?

For unemployed workers facing a tough job market, it’s stressful not to know whether benefits will end, or whether Congress will again procrastinate so much that their benefits are delayed or they have to start over. While Democrats say they will surely again act on unemployment insurance if necessary when the next cliff arrives, that’s not entirely reassuring — after all, it didn’t happen last summer when the extra $600 wrapped.

Biden and Democrats are, in many ways, going big on the economy. It’s hard not to ask why they’re not doing so here. Instead of deciding whether to again help workers who need it in August, they can decide right now.


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