Further Means Testing of the Stimulus Will Be Disastrous for Suffering Americans

By
Andrew Perez
Walker Bragman

If Democrats subject the next round of survival checks to more means testing, Americans battered by the economic crisis will find it even more difficult to make ends meet.

Joe Biden on January 19, 2021 in New Castle, Delaware. (Chip Somodevilla / Getty Images)

“I’m basically just treading water,” said Jay, forty-two.

Jay had been working full time in the live event industry in Texas since 2016. While he was largely living paycheck to paycheck due to student loan debt and rent, he was comfortable and loved his work.

That was before the COVID-19 pandemic hit and caused the cancellation of live events around the country. Jay held on to his job longer than many in the industry, but he was furloughed in September.

“My income has been cut in more than half, and I can only pay rent, bills, and eat. That’s it,” he said. “Rent is ridiculously expensive in Austin. I make bulk meals to stretch my dollar that way. I’ve canceled most subscriptions to anything and don’t have cable. I’ve foregone purchases to replace old clothes, dishes, and other consumable goods.”

Now, Jay is worried that because he earned $61,000 in 2019, he won’t get a full $1,400 survival check in the mail if Democrats in Washington follow through on their proposal to limit eligibility for a new round of COVID-19 economic impact payments.

Jay’s story is no isolated incident — in the last two days alone, more than a dozen readers have written in to explain how a new plan for means-testing COVID-19 survival checks, made in the name of excluding wealthy families, would punish middle-class workers who have been harmed financially by the pandemic.

In recent days, Democrats have been discussing limiting full checks to individuals earning less than $50,000 and couples earning less than $100,000. President Joe Biden’s original proposal would send full checks to individuals earning up to $75,000 and married couples earning up to $150,000 — the same income limits Congress has used for previous rounds of direct aid.

Under the new terms being discussed, roughly four in ten US households could be excluded or only receive partial checks, according to census data. Nearly 40 million Americans who received the $600 COVID-19 economic impact payments authorized by Congress in December could be denied checks or only see partial payments, according to economist Claudia Sahm.

Further complicating matters: Americans haven’t filed their 2020 taxes yet, so the government will likely end up distributing checks based on people’s income in 2019 — before the coronavirus pandemic actually started. The result: millions of people who lost significant employment income during the economic downturn could be excluded from the aid if Democrats’ means-test the checks.

Of course, the effort to limit eligibility comes after Democrats rallied behind a smaller dollar figure for the checks — $1,400 — than the $2,000 the party campaigned on in Georgia to win two runoff races last month and take control of the US Senate.

So, while many people could get less money than they expected, if the new eligibility terms are adopted, millions of Americans who received survival checks before could also see smaller payments now or not even get new checks at all.

“Shockingly Out of Touch”

Late this week, progressive lawmakers started speaking out against proposals to limit eligibility for direct aid.

“We cannot cut off relief at $50K. It is shockingly out of touch to assert that $50K is ‘too wealthy’ to receive relief,” Rep. Alexandria Ocasio-Cortez (D-NY) tweeted Friday. “Millions are on the brink of eviction. Give too little and they’re devastated. Give ‘too much’ and a single mom might save for a rainy day. This isn’t hard.”

Oregon Democratic senators Ron Wyden and Jeff Merkley both oppose the new income limits. Merkley warned Biden in an interview with the Intercept that further limiting eligibility could cost Democrats one of the two Senate seats they picked up in Georgia in 2022.

“I would advise him, if he were to ask me, that is not the place to compromise, that if you want to see us lose a Senate race in Georgia in two years, then modify the promise made — break the promise made during the Georgia runoff.”

New Georgia senator Jon Ossoff told Huffington Post: “I was sent here to fight for stimulus checks for Georgia families. And I don’t want to see any reductions in the help that we’re sending to people.”

Senator Bernie Sanders, who is managing the reconciliation process for Democrats’ COVID-19 relief bill as chair of the budget committee, said he will “insist” on using the original income terms in Biden’s initial proposal, according to NBC News.

On Saturday, Sanders warned that, under the new proposal, “working class people who got checks from Trump would not get them from Biden.”

More than fifty House Democrats sent a letter Saturday to Biden to “express strong support of maintaining the higher income thresholds for the next round of economic impact payments so that people who are struggling in areas with high costs of living, such as our districts, can get the support they need during this crisis.”

“People Who Actually Need the Money”

Conservative Democrats and moderate Republicans in the Senate have pressed to limit eligibility in the name of properly “targeting” the stimulus checks to ensure they won’t go to people who don’t need them.

At first, some senators expressed concerns that wealthier families with many children could receive stimulus checks — something that will in fact happen, under the current proposal.

In the current phaseout formula, payments get $50 smaller for every additional $1,000 a household earns above the income limit. Couples are eligible for an extra $1,400 for every dependent in their household.

As Huffington Post wrote, “Even if Congress set the phaseout threshold at $40,000 a year for individuals, a small percentage of households with annual incomes of $390,000 a year would get cash payments, according to an analysis by the conservative Tax Foundation.”

As the Tax Foundation pointed out, lawmakers could phase payments out more quickly and fix this issue entirely.

“Instead of changing the income levels where $1,400 payments phaseout, lawmakers could keep them the same but use a faster phaseout rate,” they wrote. “Increasing the phaseout rate from 5 percent to 10 percent, or to $10 per $1,000 earned, would limit the payments to 92.1 percent of taxpayers.”

Biden economic adviser Jared Bernstein acknowledged Friday at a White House press briefing that revising the phaseout terms is a possibility, saying that “it is a variable under discussion in negotiations that are ongoing.”

Bernstein added: “I think what’s important to the president is that we don’t lose sight of people in the middle of the income scale who continue to struggle with both the health and economic fallout from this crisis. And these checks target them effectively and efficiently.”

The push to lower the income limits was originally boosted by a study from economists at Opportunity Insights, a Harvard think tank funded by billionaires.

The study, based on consumer spending data, found that “households with incomes above $78,000 will spend only $45 of the $600 payments they received” within the first month of the checks being sent. The economists recommended limiting survival checks so that the money going out gets spent immediately — proposing cutoffs of $50,000 for individuals and $75,000 for couples.

Elite media outlets have pounced on the opportunity to further means-test the checks.

Billionaire Mike Bloomberg’s money manager, Steve Rattner — who previously agreed to pay $10 million to settle claims he paid bribes to win lucrative state pension business — led a segment Friday on MSNBC’s Morning Joe where he used the Opportunity Insights study to explain why the government must target the COVID-19 relief payments to go to “people who actually need the money.”

An Exercise in Cruelty

The idea that individuals who earned more than $50,000 can’t possibly need money now and won’t use it is a figment of TV pundits’ imagination.

While lower-income households have been hit especially hard by the pandemic, census data suggests that Americans across all income levels have been hurt. For example: 45 percent of households earning between $50,000 and $150,000 reported experiencing a loss of employment income since March 2020.

Even before the pandemic, 40 percent of American adults were struggling to afford at least one basic necessity. A stunning 78 percent of full-time workers, including almost 10 percent of those earning $100,000 per year, were living paycheck to paycheck.

Past rounds of COVID-19 survival checks have gone out using older financial data from IRS tax returns. That will likely happen again this time, since Americans haven’t filed their taxes for 2020. As a result, the government will probably be stuck determining eligibility based on people’s income before the pandemic actually started ruining people’s lives.

Those who lost enough income in 2020 will still qualify for new payments, but they wouldn’t receive the money automatically. Instead, they will have to jump through hoops to demonstrate eligibility or figure out how to claim the missing payments on their next tax returns — options that involve annoying work and additional delays before checks arrive, if they do.

The Wall Street Journal recommends people file their 2020 tax returns as soon as possible to avoid getting a smaller check.

The fact that most of these payments will likely go out using 2019 data makes the effort to means-test them an exercise in cruelty — in practice, it would stop aid from flowing to many people who have been economically crushed by the pandemic.

Conservative Democrats say they want to target checks to keep them from going to rich people.

“I don’t think a single person on this floor would disagree to target the relief to our neighbors who are struggling,” Senator Joe Manchin (D-WV) said on Thursday, as senators voted 99-1 on a nonbinding resolution from conservative Democrats and moderate Republicans demanding that “upper-income taxpayers are not eligible” for COVID relief checks.

“There are other families who have not missed a single paycheck as a result of this pandemic,” he said. “It does not make sense to send a check to those individuals.”

However, party leaders are simultaneously pushing to repeal caps on state and local tax deductions — a move that could deliver 80 percent of its benefits to the richest 5 percent of the population.

If Democratic lawmakers were truly interested in blocking money from going to the wealthy, there are more efficient and humane ways to do that without means-testing survival checks and running the risk of cutting off money to those who need help now.

As the American Prospect’s David Dayen has written, Congress could simply “give everyone a check, and then claw back the money for ‘undeserving’ households in the 2021 tax year.”

“$1,400 Would Mean a Great Deal”

We spoke to multiple people who could lose money if Congress further restricts who is eligible for survival checks while using 2019 financials to determine eligibility. (Most of the individuals we spoke to asked that we avoid using their full names or use pseudonyms.)

Liz, a nonprofit fundraiser in New York City, said she earned $66,000 in 2019 and lost her job at the end of 2020. While Liz said she’s fortunate enough to have some savings and live in a rent-stabilized apartment, she hasn’t started receiving unemployment benefits yet, and her social security won’t kick in until later this year.

“That $1,400 would mean a great deal to me,” Liz said, adding: “I’m not going to starve, I’m not going to get evicted yet, but I need the money.”

Jon worked in marketing in the field of mental and behavioral health care before the pandemic, making nearly $70,000, but most of it went to paying off medical and student debt. Last March, Jon was laid off. He has little savings and has not been able to find work since.

“This first stimulus under Biden would be the first I didn’t qualify for,” Jon told us. “The check would mean a lot. My wife and I live with my family, and obviously that isn’t ideal. And I still have needed to go to therapy, I need to go to the doctor, I need to pay my medication, my other various bills, etc. An extra stimulus — while $1,400 is modest compared to other nations — would at least provide a stronger foundation for my wife and I to move forward with our lives.”

“Not to mention my health insurance, at $400 a month, could be covered for three months,” he added.

Using older financial data on past rounds of checks has already kept some Americans who qualify for checks from receiving the money they should be owed.

Kris, thirty-five, had been living alone for years, working a steady job for a utility company and living in a sizable two-bedroom apartment. But that changed in November 2019, after an on-the-job back injury. Unable to work despite two surgeries, he lost $110,000 in annual income and found himself on workers’ compensation, relying heavily on credit cards, savings, and roommates.

“Workers’ comp is great and all, but it doesn’t pay my bills,” he told us. “My savings account is gone. I was forced to get roommates after living alone for many years, and my credit card debt is through the roof now.”

After the pandemic hit, Kris never received the past two economic impact payments authorized by Congress, because of his 2019 income. If Congress uses 2019 tax returns to determine eligibility for new checks, he worries he could face exclusion again.

“During the campaign, of course I had my doubts,” said Liz, “but I was hopeful that the Biden-Harris administration would really get it, give up some of their comfort and do the right thing for the American people.”

“Hope is for suckers,” she said.