Dear Editor,

Biden’s signature $1.9 trillion pandemic legislation, the American Rescue Plan (ARP), has been enacted. Unlike the $4 trillion of pandemic relief passed in 2020, this bill was not bipartisan. As a result, competing blue / red narratives are dueling to shape public perception of its contents, but the complexity of the bill inhibits one from understanding the details. How much of that spending is actually targeted at pandemic mitigation, how much is general economic stimulus, and how much is social spending unrelated to Covid?

The bull’s eye is spending directly on pandemic prevention and on relief for the effects of economic lockdowns. In this category, the ARP includes $7.5 billion for vaccine distribution and $48 billion for contact tracing. Federal unemployment subsidies ($300 weekly) tally up to an estimated $242 billion, and the ARP also targets $29 billion directly to the restaurant industry. An additional $25 billion of rent assistance (on top of $25 billion in December) is also direct relief, as is $5 billion for utility bill subsidies. Extending a paid sick leave mandate that expired in December counts, as does $15 billion in new small business grants (similar to PPP). Finally, ARP provides $88 billion in grants and infrastructure subsidies for (mostly urban) transit systems.

Keeping score - that’s $459 billion aimed directly at Covid prevention and relief.

The next tier is spending that counts as economic stimulus, but not as direct Covid prevention or relief. Ironically this category includes the most popular part of the law - direct $1,400 payments to individuals, totaling a projected $414 billion. This isn’t direct relief because it isn’t targeted at people who lost income due to Covid; instead, it’s available to anyone making up to $75,000 or couples making up to $150,000.

The ARP also provides $171 billion in additional education assistance, with $123 billion of that for K-12 (on top of $54 billion last December and $13 billion in the CARES Act - a combined $190 billion for K-12). Ostensibly these funds are to help schools reopen; however, deeper analysis reveals that these funds have little to do with Covid. The Congressional Budget Office estimates that only 5% of the $123 billion in school “relief” funding will be spent this fiscal year, while the rest will be paid out through 2028.

Clearly most ARP education spending isn’t going toward HVAC or PPE. If the goal is to reopen schools in person, why spend up to 95% after the pandemic? And why did Senate Democrats vote unanimously to block an amendment that would have made relief funding conditional on reopening in person (provided all teachers were vaccinated)? An analysis from researchers at Georgetown University found that public districts that opted to go remote-only generally had financial surpluses. Los Angeles public schools, which kept their doors shut, had an estimated $500 million funding surplus, about $1,100 a student, for the 2020-21 school year.

Similarly, the second biggest item in the ARP, $350 billion of grants to state and local governments, is not correlated to the actual impact of Covid on tax revenues. See earlier letters from yours truly for details. A generous description would label these payments economic stimulus; a cynic would describe them as bailouts for underfunded public employee pensions. The ARP says that relief grants may not be used “for deposit into any pension fund” but this is merely optics. Money is fungible. States can fund pension deposits from their general fund and use the federal cash to make up the difference. Senate Democrats also added a provision to the ARP that actually prevents states from enacting any tax cuts or deferring any scheduled tax or fee increases IF they accept the federal money. Cue the Supreme Court to assess the constitutionality of this partisan swipe.

Next is an ambitious, $92 billion effort to expand Obamacare (ACA) and subsidize a broad group of healthcare and nutrition programs. ACA subsidies will increase and be available to households at up to 4x the poverty line. Premium subsidies for lower-income households will increase. A New York Times study estimates a household with income up to $19,000 won’t pay for premiums. For those who lose employer health coverage, the ARP will fund 100% of COBRA premiums for six months. There is also $7 billion for state, local, and territorial public health departments, $3 billion for mental health and substance disorders, $8 billion for rural Medicare and Medicaid providers and $10 billion for agriculture grants and subsidies. Some of these subsidies are Covid related but many, though they may be progressive social policies, are not.

Keeping score - that’s roughly $1,027 billion that could be categorized as economic stimulus rather than direct pandemic relief.

In the final tier we have social spending masquerading as Covid relief. To reduce childhood poverty the ARP substantially increases and expands the child tax credit. It expands the child and dependent care credit, and makes it fully refundable for the first time. And it turns the earned income tax credit (EITC) into an unearned income tax credit. The EITC was originally an incentive for lower earners to work; under the ARP even the unemployed will receive the credit. These changes have strong social policy justifications among progressive supporters but, as structured, are more akin to UBI (universal basic income) than Covid relief.

One of the most deceptive items is a $75 billion bailout for insolvent ‘multi-employer’ private pensions. The ARP will bail out the pension plans of private companies, which must be viewed as a sop to Democratic union constituents.

Keeping score - there are at least $400 billion of spending provisions in the ARP with limited correlation to direct Covid relief.

Derek Ridgley
Nederland