And what does he stand to gain if his gamble pays off?
The American Rescue Program (ARP) was signed by President Joe Biden on March 11. Its ramifications are still being analyzed and discussed this week. For many, the bill is the clearest way for the United States to build its way out of the economic calamity caused by the COVID-19 pandemic. It is a significant act of wealth redistribution that could become permanent. Many Democrats view the bill as necessary to avoiding a political bloodbath in the 2022 midterm elections.
Other liberals herald the relief bill as a fundamental shift in the Democratic approach to fighting poverty. Its scale and broad approach are unrivaled in recent American history. They clearly repudiate the small government ethos that has characterized American politics for decades. Even Barack Obama’s 2009 stimulus package was much smaller than it needed to be due to bipartisan concerns about the deficit. That watered-down bill was much less popular than Biden’s policy and led to large rallies and protests that have not arisen this time around.
Most importantly, the bill overturns the Democratic rejection of direct cash payments to the poor that has been central to the party for the past three decades. While the Republican war against government was a key part of welfare’s demise, the Democratic Party was the group that actually killed the direct cash approach, and now the party hopes to bring it back better than ever before.
Cash welfare, which has a long history, was mostly rejected by the New Deal in favor of large public works programs such as the Works Progress Administration (WPA) and the Civilian Conservation Corps (CCC). But the United States began to use this approach in the 1930s with programs like Aid to Families with Dependent Children.
The most salient problem with the New Deal-era cash welfare programs is that they were not working by the 1980s and 1990s. Median annual earnings declined by $1,600 between 1972 and 1996. The poverty rate was 15.1% in the mid-1990s, a substantial rise from 11.1% in the early 1970s. There is an association between grinding poverty and the crime rate, which reached its 20th century high in 1991.
There were real, intrinsic problems with cash welfare. The program that distributed it did not pay enough. Program structures led to benefits being phased out for slightly higher earners. Even liberals have admitted that under the rules of Aid to Families with Dependent Children, “such aid might discourage their parents from seeking more work hours or higher wages lest they earn too much to qualify for public support.” These real problems were exacerbated by racist fearmongering and a shift by policy leaders towards analyzing cultural issues.
The backlash in the 1990s was bipartisan. When Bill Clinton famously criticized welfare, instead of being completely captured by Republican talking points, he was expressing fears rooted in Democratic policymaking dating back nearly three decades. He articulated many of these concepts when he argued in 1996 that most families in poverty at that time were “trapped on welfare for a very long time, exiling them from the entire community of work that gives structure to our lives.’’
Clinton introduced a new, more conservative approach to combating poverty. His plan was to tie benefits to having a steady job. The direct cash payments that had previously characterized welfare were almost entirely cut. Instead, Clinton focused on the Earned Income Tax Credit and other policies designed to accompany steady employment. His efforts made sense in the mid-1990s. It was a period when the crime rate was high, inner cities were dangerous, and the unemployment rate was low. With the growth of the internet, it seemed as though jobs were everywhere. The idea was that Americans could simply work their way out of poverty with the government’s help.
The problem with Clinton’s approach was twofold. First, there was friction in the tax credit system. Millions of Americans either do not know about the policy or do not file a tax return for one reason or another. Around 20% of eligible people do not use up to $7 billion meant to help them out of poverty.
But more importantly, the so-called workfare programs did not come along with a job guarantee that would have made them truly effective. Yes, many people were forced to work, but at poverty wages and under terrible conditions. Millions of Americans were still kept out of the labor force by the fluctuations and stresses of the private labor market. A job guarantee would have raised wages, created competition for labor, and ensured that people had the means to secure the disposable income that is essential for emerging from poverty. As Eric Levitz writes in New York, “unless we guarantee every American job — and require employers to pay workers ‘middle class’ wages — there are going to be millions of working-age, nondisabled Americans whose market incomes leave their families in poverty.” But a job guarantee went against the grain of low spending and low taxes that characterized the post-Reagan era, and so it was a non-starter.
Now, the Biden administration is partially embracing the New Deal model of fighting poverty. It is removing any disincentives for work by simply providing cash with no strings attached. There is no focus on means testing for the child allowance in the bill and modest means testing for the $1,400 checks. Biden’s bill almost entirely upends the previous national consensus on the expansion of the welfare state. It remains to be seen, both in November 2022 and after, whether this approach will work.