For weeks, a handful of moderate Democrats in the Senate have been fighting to prevent $1,400 COVID-relief checks from reaching their own upper-middle-class constituents. It has never been all that clear to the public — or, by all appearances, to the senators themselves — why they wanted to restrict eligibility for these relief payments so badly. It is not as though Joe Manchin or Jeanne Shaheen are opposed to welfare for the affluent in all forms. To the contrary, Shaheen has lambasted Republicans for restricting the state-and-local-income (SALT) deduction, a tax subsidy that primarily benefits well-off homeowners.
Nor could the moderates’ opposition be chalked up to (superstitious) fears of high deficits: Every Democratic senator has already tacitly agreed to support a $1.9 trillion stimulus package, and eligibility restrictions under discussion were always too minor to significantly impact the legislation’s bottom line.
Nor could moderates claim to have the public on their side; the relief checks were overwhelmingly popular in their initially proposed form. And on this issue, one can’t attribute the moderates’ resistance to fealty to corporate interests; large retailers love stimulus checks.
Nevertheless, despite the fact that Senate moderates had no coherent political or substantive argument for their position, the Democratic leadership caved to their demand Wednesday. As the Washington Post reports:
Under the plan passed by the House, individuals earning up to $75,000 per year and couples making up to $150,000 per year would qualify for the full $1,400 stimulus payment. The size of the payments then begins to scale down before zeroing out for individuals making $100,000 per year and couples making $200,000.
Under the changes agreed to by Biden and Senate Democratic leadership, individuals earning $75,000 per year and couples earning $150,000 would still receive the full $1,400-per-person benefit. However, the benefit would disappear for individuals earning more than $80,000 annually and couples earning more than $160,000.
That means singles making between $80,000 and $100,000 and couples earning between $160,000 and $200,000 would be newly excluded from a partial benefit under the revised structure Biden agreed to.
Here are the two big downsides to this measure:
• It means that 12 million fewer adults and 5 million fewer kids will receive relief checks from the bill. Whereas 91 percent of U.S. households would have received a check under the previous proposal, now only 86 percent will. That’s not a huge difference. But these days, elections are often won in the margins. And Joe Biden’s Electoral College win in 2020 was contingent on the support of affluent, longtime Republicans who decided to cross the aisle. Now, a bunch of these voters will end up receiving less in direct cash assistance from Joe Biden than they did from Donald Trump.
• Since Democrats chose to narrow eligibility by accelerating the phase down in the value of the checks, they effectively engineered a confiscatory marginal tax rate for a small band of workers: A single taxpayer who earned $80,000 in 2020 will effectively pay a 70 percent tax rate on their last $5,000 of income. And since Americans have the option to claim a relief check on the basis of their 2021 incomes, Democrats have now actually given some workers a strong incentive to work fewer hours, so as to avoid a radically higher tax rate. That isn’t a huge concern for progressives. But “discouraging work” is typically the sort of thing moderate Democrats don’t want fiscal policy to do. Meanwhile, those who took on extra hours last year — assuming that they would not pay a 70 percent rate on income above $75,000 — are not happy!
So, what do Democrats gain at the cost of denying checks to 12 million potential 2022 voters? How much money did Joe Manchin “save” the U.S. Treasury?
According to a Democratic who spoke with the Washington Post’s Jeff Stein: $12 billion.
Which is to say, it makes the relief package 0.63 percent cheaper.
Slate’s Jordan Weissmann reports that the move is partially motivated by the byzantine rules of the budget-reconciliation process, which imposes a cap on how much money each committee is allowed to spend. One reason the Democratic leadership decided to cave to moderates on checks was that they wanted to make sure that the Senate Finance Committee’s appropriations remain under its assigned limit once the Congressional Budget Office scores the bill. Twelve billion dollars isn’t much in the context of the entire bill, but could be enough to keep the Finance Committee’s section under its ceiling.
But this still doesn’t constitute a rational basis for creating a 70 percent tax rate on income above $75,000 — while giving 12 million voters a reason to resent your party. The Finance Committee has jurisdiction over the $350 billion pool of fiscal aid to state and local governments. That is more than six times larger than the revenue shortfall these governments are expected to collectively face this fiscal year. There are sound reasons for providing state and local governments with more fiscal space than they require to meet existing obligations; in many parts of the country, municipal governments have been hollowed out in recent decades. But from a political and substantive perspective, shaving $12 billion off a pile of money that many red states are probably going to spend on tax cuts makes more sense than canceling relief checks to a significant minority of the Democratic base.
Moderates must stop putting their fringe obsessions ahead of the Democratic Party’s best interests. Now is not the time to put centrist ideological purity above political pragmatism.
