Biden’s Relief Plan Is More—Much More—of the Same

Actually, it is hyperbole. The American Rescue Plan is many things, but a paradigm shift it is not. First of all, two-thirds of its cost are one-off emergency measures such as rebate checks, public-health funding, unemployment insurance, and state and local support; except for the latter, all that was in relief bills former President Donald Trump signed. Yes, Mr. Biden hopes to make some provisions permanent, such as boosting the child tax credit to as much as $3,600 per child and expanding the earned-income tax credit (EITC) for childless adults. But they represent just 6% of the price tag.

Second, those safety-net expansions don’t reverse the trends of the last 40 years, they amplify them. In that time, no major safety-net program was abolished or even substantially narrowed, although the use of welfare did decline after work requirements were added in 1996. Federal income support rose by more than half to 4.3% of gross domestic product between 1979 and 2019. The safety net, far from withering in the face of austerity and neoliberalism, has survived and even flourished under presidents of both parties.

The EITC, one of the U.S.’s most potent antipoverty tools, was signed into law by President Ford, enriched by President George H.W. Bush, extended to childless adults by President Clinton, made more generous for married couples by President George W. Bush, then expanded again by President Obama. The child tax credit was part of Republicans’ “Contract With America” in 1994, enacted by President Clinton, expanded and made more refundable (i.e., became a cash grant to parents who paid no tax) by President Bush, made even more refundable by President Obama and extended to families making up to $400,000 by President Trump.

What about the rest of the safety net? Legislators haven’t touched Social Security since the early 1980s, Medicare was extended to prescription drugs by President Bush, and President Obama expanded Medicaid and introduced subsidized insurance exchanges in the Affordable Care Act.

Efforts to kill or “reform” those entitlements have largely failed: President Bush gave up on private Social Security accounts, Mitt Romney’s proposal to shift Medicare to private insurers went down with his presidential bid, and President Trump failed to repeal the ACA. President Clinton may have declared the era of big government over in 1996, but government—as measured by domestic spending’s share of GDP—has grown under every president since.

Conditions attached to the safety net have changed, such as through the work requirements in some states, starting with welfare in 1996. Mr. Trump sought to curb benefits to noncitizens. Yet in other ways conditions have eased: Work is less of prerequisite for the child tax credit.

On taxes, Democrats and Republicans disagree on whether the rich should pay more, and thus the top rate fluctuates depending on who is in power. But no president in the last 40 years has raised tax rates on lower-income Americans. In fact most have lowered their tax burden. Now, 43% of households pay no federal income tax, according to the Tax Policy Center. (The pattern for excise and payroll taxes is more mixed.)

None of this should come as a surprise: the U.S., like most societies, has become more generous as it has become richer. The safety net is much loved. Even programs like Medicaid and the Affordable Care Act that weren’t popular to start with have become so with time. Yes, income inequality has widened, but that reflects deep-seated trends in wages, capital gains and wealth. Once taxes and social programs are taken into account, inequality by some measures hasn’t changed since 1986.

How is it possible for presidents to keep cutting most Americans’ taxes while expanding the safety net? In great part, by borrowing. No president since Mr. Clinton has made deficit reduction a priority. Presidents Bush, Obama and Trump all enacted big, deficit-busting plans within two years of taking office. Mr. Obama did have to agree to spending caps in 2011, but those caps began to loosen just two years later.

So Mr. Biden hasn’t so much changed the paradigm as turned the dial on the existing paradigm up to 11. By making the child tax credit entirely refundable, he has effectively severed any linkage to paid work. By promising only the richest 2% will have to pay higher taxes, he is further cutting back the overlap between those who benefit from the federal safety net and those who pay for it.

And since there is no guarantee that he will actually get his tax increases or that they will cover the cost of his plans, he is also turning up the dial on deficits. Mr. Biden is thus acutely reliant on interest rates remaining historically low—just like his predecessors, only more so.

Write to Greg Ip at [email protected]