Prepared by lead researchers in guaranteed income and cash transfer policy at the Jain Family Institute.
Democratic and Republican legislators this week have proposed several emergency cash transfer programs to provide relief amid the economic strain caused by COVID-19. This brief underscores the key differences among the new proposals, and how they compare to the best existing evidence on cash transfers.
From the “Mincome” experiments of the 70s, to the Alaska Permanent Dividend, the EITC, GiveDirectly’s unconditional cash transfers in Kenya, and one of the largest basic income policy implementations in the world in Maricá, Brazil, JFI researchers have assessed the impacts of cash transfer policies worldwide and the case for a basic income.
Empirical evidence shows that:
- There is little evidence that cash transfers decrease the motivation to work.
- Cash transfers do not lead to spending on “temptation goods.”
- Cash transfers reduce inequality, and have had multiple positive impacts on recipients’ welfare, alongside positive spillover effects for non-recipients.
Based on our research, the answers to these key questions will determine the effectiveness of proposed legislation:
Does the cash transfer forego a means test?
Means testing of existing welfare benefits has obstructed the efficient disbursement of funds or other benefits, and overburdens the most vulnerable with circuitous qualification tests that hinder their ability to receive immediate emergency funds even if they ought to qualify. Policymakers who are worried about the distributive outcomes of a universal benefit should recoup expenditures ex-post through the tax code, rather than requiring paperwork which may deter the neediest recipients up front.
Is the cash transfer large enough?
Policymakers may intuitively want to tie the disbursement amount to federal poverty estimates. Though the Supplemental Poverty Measure developed by the Obama administration in 2011 exhibits significant improvements from the Official Poverty Measurement which preceded it, the measurement excludes some expenses rendered critical by the COVID-19 crisis. Notably, the cost of healthcare and childcare are deducted from a benefit recipient’s income, rather than being calculated into the essential “bundle of goods” constituting the baseline measure. Given that expected costs associated with contracting the coronavirus are not covered by the most recent legislation eliminating co-pays for COVID-19 testing for many insurers, policymakers should be conscious of the limitations of the SPM as a guideline for disbursement size. While empirical evidence on the optimal size of transfer is scarce, a comparison between a $1000 and $500 monthly transfer finds the positive macroeconomic effects to be greatest as a result of the highest transfer.
How long should the cash transfer be disbursed?
Both the public health emergency and the economic downturn may last for months to come. Studies suggest that cash transfers offer the greatest benefits when administered on a consistent basis over longer periods of time. Existing precarity and gaps in the social safety net are a sufficient basis for unconditional cash transfer policies even without the added urgency of this historic pandemic. Responsive cash transfer policies should extend as long as possible to give income stability to individuals and to the economy. Any pandemic-specific legislation should include stipulations to renew cash transfers as the economic crisis continues, or in the event of another downturn.
What safety net programs should accompany the cash transfer?
Cash transfers work best when administered alongside existing social safety net programs. In fact, absent other protections,cash transfers have been shown to increase inequality if implemented as a replacement for existing welfare benefits. Proposals to expand state-level SNAP benefits and Medicaid funds serve separate, important functions alongside a cash transfer policy to mitigate the dramatic economic impact of the COVID-19 pandemic on working and middle class people.
Is the disbursement mechanism efficient?
Congress lacks an all-inclusive mechanism to immediately disburse funds to all Americans. The most expansive proposals, such as those of Waters and Khanna, suggest utilizing the existing capacity of the social security administration, unemployment agencies, and electronic benefit transfer (EBT) card administration. Payroll taxes and tax rebates proved an inefficient mechanism when implemented during the 2008 crisis, taking up two months to administer. As large-scale layoffs leave more people jobless in the continued pandemic, many families need assistance immediately.
Does the bill include children?
Parents are especially vulnerable to both economic downturn and health risks. Bills that fail to include added stipulations for adults with children will not meet the urgent needs of families in the current COVID-19 pandemic. Research suggests that cash transfer programs have the greatest impacts for children in low-income families, including positive impacts on educational outcomes, greater parental investment, and improved health outcomes. Because the existing Child Tax Credit is means-tested and not fully refundable, the poorest families and often the youngest children are excluded if an unconditional cash benefit including a child allowance is not implemented.
The chart below compares existing proposals based on the above key issues and questions.
Importantly, stipulations that require individuals to prove that their incomes have been affected directly by coronavirus, or to prove that they have had the virus, are at odds with efficient disbursement of cash to all who need it. Particularly since testing for the virus has been dramatically limited, with many individuals without preexisting health risks being told to just stay home, this kind of condition on aid will hamper appropriate support for those who need it. Similarly, proposals for a “phase-in” of those eligible (i.e. individuals must be above certain income thresholds to receive the benefit) discriminate against the poorest individuals and families in much the same way as a work requirement would. Moreover, bills without a plan for the continued economic distress expected to result from the pandemic are shortsighted, and fail to provide a mechanism to repeat the cash transfer in the event of major rises in unemployment.
Eleven states have passed refundable CTCs ranging in value from $180 to $1,750 per eligible child.
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