The Biden Agenda: What Would Biden Do about Poverty?
He’d be better on fighting the pandemic than Trump has been, but in other areas his policies could limit growth without fighting poverty.
|Scott Winship||Nov 2, 2020||17||37|
This year of social distancing, mask politics, and Zoom calls has been remarkable from the perspective of anti-poverty policy. At the start of the year, poverty was at an all-time low in the United States. This happy state of affairs was the culmination of the longest expansion in American history, which began less than six months into President Obama’s first term and lasted just over three years into the Trump presidency.
In late March, however, unemployment jumped practically overnight from a 50-year low of 3.5 percent to something approaching 20 percent (an 80-year high). Yet the best evidence indicates that poverty fell, as the unprecedented federal response to the coronavirus emergency doused Americans with cash and other benefits. As the nation moved further from March without those benefits being replenished, poverty crept upward, surpassing the pre-lockdown rate by June. But the average poverty rate from March through September was the same as that from the preceding five months.
As of this writing, FiveThirtyEight projects a big win for Joe Biden on Tuesday—bigger even than President Obama’s victory over Mitt Romney in 2012 in terms of electoral votes. It also gives Democrats a 77-in-100 chance of winning control of the Senate. If both of these predictions prove accurate, Democrats will be in the same position they were in 2009—in control of the presidency and both houses of Congress, with a big mess on their hands. What can we expect in terms of anti-poverty policy should this scenario come to pass?
There are any number of policies that have implications for the extent of hardship in America, but we can divide them into three broad categories. First and foremost, as I have written elsewhere, we have to quash the coronavirus if we want to increase living standards. Can there be any doubt that a President Biden would do a better job in this regard than the current administration?
Biden rightly asserted that “If we don’t beat the virus, we will never get back to full economic strength.” Toward this end, he would greatly expand the availability of testing, attempt to persuade governors to mandate mask-wearing in states without a requirement, employ a fleet of contact-tracing workers, and invest in personal protective equipment and vaccine production and distribution.
There is much to dislike in his plan, which suggests some counterproductive heavy-handedness in the health and safety regulations it would impose on businesses. It would almost surely involve a fair amount of wasteful spending in its proposed “restart package” for small businesses and the aid it would provide to schools and institutions of higher education. Contact tracing may be impractical on the scale Biden envisions. And he has endorsed both the $3 trillion- and $2 trillion versions of the Heroes Act that the House has passed this year to provide relief to households, businesses, schools, states, and localities, which should be pared down considerably.
But the reduced economic activity caused by the pandemic is the primary threat to family budgets, and erring on the side of doing too much would be a welcome change from the coronavirus policy of President Trump.
Promoting strong economic growth is the best way to reduce poverty, and a second set of policies proposed by the Biden-Harris campaign that are not pegged to the pandemic would have implications for growth and its distribution across American families (rather than being explicitly aimed at reducing poverty). Here, one wishes that Democrats would err far more on the side of doing too little—or rather that they would get over their inequality fetish.
Many elements of the Biden agenda, such as his support for protectionist industrial policies, would be expected to slow growth in a misguided attempt to redistribute it.
And then there is his tax policy. Biden would increase the corporate tax rate halfway back to its pre-Trump level. That sounds like sticking it to big business, but since corporations pay for those taxes in part by lowering worker pay, it ends up lowering worker take-home pay, too.
Biden has also proposed increasing individual tax rates at the top so much that the marginal rate when combining income and payroll taxes would amount to a post-1981 high. That would be expected to reduce risk-taking and innovation by lowering the payoff to entrepreneurs making uncertain investments that could benefit everyone. Tax modeling by several organizations—compiled by Donald Schneider and summarized in The Dispatch by Scott Lincicome—indicates that Biden’s tax policies, taken together, would reduce long-term economic growth. Lincicome also reports projections from these same models that indicate that after-tax income would fall not only for richer Americans, but for the middle class and poor.
Biden’s tax increases also would not be enough to cover his proposed spending, so the federal debt would balloon by more than $7 trillion over a decade. Some of this spending might increase economic growth, all else being equal, but the Congressional Budget Office warns that even without Biden’s additional deficits, the national debt threatens long-term growth.
CBO also guesses that the $15 minimum wage hike that Biden supports would lower national income. It might also reduce earnings among low-wage workers. When the minimum wage goes up, some people earning below the old minimum lose their job while many low-wage workers get a pay increase. The net impact on earnings depends on the size of these two effects, but since we don’t know exactly what things would have looked like absent the minimum wage hike, studies come to different conclusions depending on their assumptions.
According to the CBO, increasing the minimum wage to $15 would raise the earnings of lower-wage workers by 12 percent, even taking into account those who lose their job. Lower-wage workers are not necessarily in low-income households, so CBO projects that poverty would fall, but minimally. However, according to a study of Seattle’s recent and much smaller hike in its minimum wage (from $9.47 to $12 or $13), the increase actually reduced earnings by 4 percent. On the one hand, it would not be surprising if the disemployment effects of a national minimum wage increase would be smaller than those of a local one, since local employers have the option of relocating to suburbs. On the other hand, more than doubling the minimum wage should have a much bigger impact than the Seattle hike.
Biden also would probably argue that his pro-union agenda will increase growth and reduce poverty, but the effects here also depend on questions such as who gets the union jobs, who gets priced out of them, whether the reduced competitiveness of unionized firms eliminate jobs, the extent to which higher wages lead to higher prices, who pays those higher prices, and a variety of other empirical questions. At any rate, the prospects for reversing the six-and-a-half-decade decline in private unionization rates in an economy that is more globally integrated than ever before do not appear bright.
A third category of Biden policies that would affect hardship includes anti-poverty proposals that directly provide federal cash and noncash benefits or other subsidies to Americans. Many of these policies would be delivered through the tax code. Most prominently, Biden has proposed to create a temporary* child allowance during the pandemic for all but the richest families. He would do so through several reforms to the child tax credit. He would expand it to $3,000 per child—and to $3,600 for children under age 6—from $2,000. Some readers may be old enough to remember when the maximum credit was $1,000 in 2017. He would make the credit fully refundable, meaning that even families without any income tax liability would receive the full amount, more than doubling its generosity to such families versus current law. And he would let families receive the CTC on a monthly basis and extend eligibility to 17-year-olds.
The asterisk next to “temporary” is for doe-eyed readers who might think that such an expansion would quietly sunset upon the arrival of some clearly defined expiration criteria or date. A child allowance is shaping up as one of the top priorities of the center-left anti-poverty community, and there’s a very strong likelihood that Democrats will try to pass this temporary* provision and that they will succeed. Once adopted, it is hard to see anything down the road but permanence and expanded generosity for a child allowance going to all but the top few percent of taxpayers.
One reason for the proposal’s good fortunes is that there is substantial support for the idea of a child allowance among “pro-natalists” in the Republican coalition. It will be interesting to see how Republicans debate among themselves the merits of a policy that would help parents, incentivize fertility, and reduce point-in-time poverty at the same time as discouraging work and encouraging single parenthood, potentially increasing long-term or multigenerational poverty. At any rate, the left’s advocacy of a universal basic income has shifted the Overton window, through which a nearly universal child allowance will easily sail, never to pass back through again.
Less clear would be the fate of Biden’s proposed expansion of the child and dependent care tax credit. He would quadruple the maximum value of this credit, which subsidizes the cost of paid child care and care of other dependents, and make it refundable. Because this credit favors people who are relying on paid care rather than stay-at-home parents, it’s unpopular with many social conservatives. Passing it on top of the CTC expansion—and a proposed new $5,000 credit toward caring for elderly family members—may prove a heavy lift.
Other Biden tax policies would also affect poverty. He would replace the deductibility of 401(k) contributions with a refundable tax credit (worth more to lower-income people than a deduction), and he would create or expand tax credits for health insurance premiums, long-term care insurance, down payments toward first homes, and rent and renter utility payments.
Even as he increases payroll taxes at the top, ostensibly to help keep Social Security solvent, Biden would expand program benefits for those who had the lowest pre-retirement earnings, for the oldest recipients, and for widows. He has also proposed expanding the earned income tax credit to workers older than 65, who today do not qualify for these low-income worker benefits (which are modest for those without children).
Biden has proposed increasing benefits to disabled adults from the Supplemental Security Income (SSI) program by 38 percent for singles and by 84 percent for married couples. He would also expand eligibility to people with greater assets than are currently allowed. Further, Biden would allow disabled adults to receive Social Security Disability Insurance (SSDI) and Medicare benefits sooner, and he would allow SSDI beneficiaries to work more while still receiving benefits. Finally, he would expand access to “ABLE accounts” that provide tax-favored savings opportunities to adults who became disabled before age 46 rather than age 26.
Other proposals would affect poverty by subsidizing or regulating the cost of health care, housing, and education. As my AEI colleague, James Capretta, has described for this series, Biden could pursue a variety of health care reforms that would impact poverty: expanding Medicare coverage to those ages 60 to 64, making Obamacare subsidies more generous and expanding Medicaid enrollment, and lowering the price Medicare pays for prescription drugs. In another battle from the last war, Biden would also create a public option within Obamacare that would use federal purchasing power to offer lower premiums to those who choose to have the federal government insure them.
As with so many policy reforms favored by the center-left, the undeniable first-order impact of these policies on poverty reduction has to be weighed against the long-term consequences—intended or unintended—and costs. The downsides of Obamacare have ended up being smaller than feared by conservatives. In part, that is because some of its most worrisome provisions, such as draconian cuts to providers, have been punted, and in part because some of the worst ideas initially associated with it, such as the public option and price caps on Medicare drugs, were kept out of the final legislation. Would these provisions damage the health care industry in the long run or worsen deficits? It is certainly worth asking.
The reluctance to grapple with tradeoffs on the left is perfectly captured in Biden’s assertion that “housing should be a right, not a privilege.” Biden would dramatically expand the number of households receiving housing assistance—by roughly a factor of four—primarily by expanding the housing choice voucher program. By one estimate, this proposal would reduce poverty by more than one-fifth and child poverty by one-third.
Though the Biden campaign claims that his entire housing program would cost $640 billion over 10 years, the likely cost of expanding rental assistance alone ultimately would be in excess of $1 trillion, especially if the new entitlement would lead some ineligible families to accept a lower income in order to receive housing assistance. Subsidized housing can constitute a formidable barrier to accepting employment if the additional earnings disqualify someone from getting rental assistance. One compromise might be to tie expanded vouchers to experiments with work requirements, earnings disregards, and time limits.
Biden would also prohibit landlords from discriminating against those with vouchers, and he would expand an Obama-era rule that would tie voucher amounts to the rents in ZIP codes rather than in metropolitan areas or counties. The latter would have the effect of discouraging the concentration of voucher recipients in the poorest neighborhoods. (When vouchers are pegged to the broader and less-poor geographic area surrounding the poorest neighborhoods, landlords stand to make the most from renting in the most impoverished ones.) Both of these policies are worthy of bipartisan support.
In addition to these subsidies, Biden would require states to create inclusive zoning strategies as a condition for receiving federal funding through the Community Development Block Grant and Surface Transportation Block Grant programs. Inclusive zoning would expand residential choice for lower-income families who are priced out of many neighborhoods because they limit the kind of housing available. He would pursue the same goal by reinstating the “Affirmatively Furthering Fair Housing” rule, an Obama Administration policy suspended by President Trump that would—according to critics, too onerously and ineffectually—task localities with assessing the extent of racial segregation in their jurisdiction and devising plans to reduce it.
Finally, as detailed in this series by Abby McCloskey and Andy Smarick and by my AEI colleague, Fredrick Hess, Biden has supported three big universal or nearly universal subsidies that would reduce the expenses of low-income people but at great cost (due to poor targeting). He has proposed universal public pre-K for 3- and 4-year-olds, nearly universal free college, and nearly universal forgiveness of “tuition-related” undergraduate debt. The cost of the latter two would amount to $3 trillion according to figures cited by Hess, and both are likely to lead postsecondary institutions to increase tuition in order to capture some of the benefit. Given that non-poor youth and young adults are overrepresented among college-goers, these policies are not especially progressive. Biden’s proposed doubling of the maximum Pell grant amount would be more progressive, but inflationary nonetheless.
Of course, the likelihood of this entire agenda being enacted into law—Democratic Congress or no—is infinitesimally small. If I look into my crystal ball—which I got at a weird garage sale, so take that for what it’s worth—I see a number of poverty-related bills being signed into law by President Biden before the Democrats lose one or both houses of Congress in 2022.
I would predict at least one large pandemic-related bill that will include another round of nearly-universal “stimulus” payments, expansions to the food stamp program, unemployment insurance, and other safety net benefits; support for small businesses; and investments in testing. I predict multiple large reconciliation bills that will raise corporate and top individual tax rates, embed a temporary* child allowance into law, and expand Obamacare. I see a modest increase in the minimum wage, perhaps paired with an earned income tax credit expansion. And there might be a modest expansion in the housing choice voucher program, possibly with some attempts to ease land use regulations and zoning.
But who knows? Future Self is not going to trick me into strong predictions and then pounce on me in 2024 while reading this in his self-driving car.
Previous articles from “The Biden Agenda”:
Scott Winship is a resident scholar and the director of poverty studies at the American Enterprise Institute.
Photo by Spencer Platt/Getty Images.