President Joe Biden’s $1.9 trillion “COVID-19 relief” package signed in March (in combination with the $900 billion package signed into law back in December) contains the largest impediment to employment in modern times, if not in American history. That’s the conclusion I reached along with fellow economists Casey Mulligan and Stephen Moore in a new report for the Committee to Unleash Prosperity.
We estimate that because of the passage of the bill, dubbed the American Rescue Plan Act (ARPA), between 5 and 7 million fewer Americans will be employed over the next six months.
This is because ARPA is one of the largest expansions in government welfare benefits—either for not working, or for benefits not related to working—since the modern-day welfare state was created. There are numerous provisions of the bill that either pay people not to work or pay people money or government benefits that are not tied to whether they work. This bill actually weakens work requirements that were a hallmark of the Bill Clinton welfare reforms of 1996.
The provisions that discourage work incentives include:
- $300 a week supplemental unemployment benefits per unemployed worker, on top of normal benefits that can reach $400 to $600 a week depending on the state;
- A $3,000 per child tax credit;
- Expansion of food stamps;
- Rental assistance benefits;
- $2,000 per person checks ($600 under Trump and $1,400 under Biden); and
- Expanded health care benefits including Obamacare subsidies that can reach families with incomes of up to $200,000.
There are other cash and benefit programs, such as the $21,000 paid-leave benefit for federal employees ($1,400 a week for 15 weeks), student loan payment and interest suspensions, the elimination of federal income taxes applied to unemployment benefits (with certain income caps), and so on, that will disincentivize work.
The relative financial advantage of unemployment benefits versus work is enhanced by the fact that payroll taxes are not applied to unemployment payments, but they are deducted from wages and salaries. This provides a 7.65% bump in after-tax income for the unemployment benefit option.
This study comes to four conclusions:
1) In many states, a family of four—two unemployed adults with two children—can qualify for benefits (on an annual basis) that will reach over $100,000. When comparing this with a similar person who has continued to work and must pay the 7.65% payroll tax on earnings and incur other work-related expenses, the after-tax benefits of the welfare package in some states like California and Massachusetts can reach the equivalent of between $100,000 to $150,000 in income from working.
2) In six states—Alabama, California, Montana, New Jersey, Pennsylvania, and Virginia—unemployment benefits are not subject to the state income tax, so many workers can take home nearly three times the take home pay for working.
3) These benefits will have a substantial negative effect on employment. The benefits are currently scheduled to last until September, and we estimate that over this six-month period, national employment will be roughly 6 million below the baseline case without the benefits.
4) Roughly 5 to 7 million more Americans will sign up for these expanded government benefits, thus increasing the welfare rolls and dependency on government for at least six months.
In many ways this “stimulus” bill will stimulate more joblessness and more government. To read our full report, click here.