As many as eight million by our estimate, in part by gutting many of Clinton’s successful welfare reforms.
By Casey B. Mulligan and Stephen Moore
Feb. 25, 2021 6:31 pm ET
President Biden’s $1.9 trillion Covid-relief package is being sold as an effort to “get America back to work.” It will do the opposite. We estimate that between five million and eight million fewer Americans will be employed over the next six months if the bill passes.
The bill would create one of the largest expansions in government welfare benefits since the birth of the modern welfare state. In combination with December’s $900 billion package, the new bill would expand the safety net to include six months of weekly $400 bonus unemployment benefits on top of the normal weekly benefits, a $3,000-a-child tax credit, an expansion of food stamps and rental assistance, $2,000-a-person checks, and expanded health benefits.
The Biden plan is welfare reform in reverse. It would repeal many of the successful work requirements dating to the Clinton era, and it contains only minimal requirements in exchange for its cash payments and other benefits.
There’s more. Unlike wages and salaries earned from work, many of these benefits are tax-free. So the after-tax equivalent of receiving a paycheck versus government benefits is even more tilted against working. There is no 7.65% payroll tax deducted from an unemployment check, as there would be on a paycheck. Unemployment benefits are subject to income taxes in most of the country, but six states don’t count them as taxable income.
In Kansas, a family of four with two unemployed adults who had earned U.S. median wages could get paid, including the Biden add-on package, the after-tax equivalent of more than $135,000 on an annual basis without working an hour. In Massachusetts, where state unemployment benefits are the highest in the nation, the figure is $170,000. This doesn’t include any housing or rental assistance the family may also receive. The Biden package of benefits would exceed the wages and salaries of at least 85% of households.
We support a safety net for people who lose their jobs, but benefits this generous are unfair to those who work full-time but get paid less than those on government assistance. Even in the poorest states, such as Mississippi, a family of four with kids could collect benefits of well more than $100,000 on an annual basis.
Supplemental unemployment-insurance benefits in the range of $400 a week would offer roughly 60% of unemployed workers more money for not working than for returning to their jobs. During the last serious recession, in 2009, the supplemental benefits under the Obama stimulus were $25 a week.
We predicted on these pages that when the original Cares Act passed in early 2020, the added benefit would reduce employment by millions when jobs came back. Sure enough, Labor Department statistics verified that millions of jobs went unfilled last summer even as unemployment was historically high.
What will happen this time around? The combination of benefits are likely to reduce employment by five million to seven million jobs. The $15 minimum wage, if it stays in the bill, would bring the total to more than eight million.
Many Americans will always choose the dignity of work over government handouts. But the Biden benefit package makes going back to work a money-losing proposition.
If Mr. Biden and the Democrats want to encourage employment, they should suspend payroll taxes for jobs that pay $100,000 a year or less. This would provide all workers an immediate 7.5% raise and would cut the cost to employers of hiring unemployed workers back by the same percentage. This would cost the government less than $1.9 trillion.
President Biden’s bill will make millions more Americans dependent on checks from the government, not an employer. Could that be the point?
Mr. Mulligan, a professor of economics at the University of Chicago, served as chief economist on President Trump’s Council of Economic Advisers. Mr. Moore is a co-chairman of the Committee to Unleash Prosperity, where Mr. Mulligan is a senior fellow.