Rather than Heroes Act, let’s dust off this old idea

The math of House Speaker Nancy Pelosi’s latest bailout legislation, misleadingly called the Heroes Act, is mind-boggling. It leads my boggled mind to dust off a 60-year-old idea of Milton Friedman’s: The negative income tax.

There has already been roughly $3 trillion in coronavirus response spending approved. The Heroes Act contains another $3 trillion, for a total of $6 trillion.

Only a fraction of this is to pay for direct COVID-19 related health-care expenses. The bulk of it is to prop up the economy in one way or another.

The aggregate, $6 trillion, is more than $18,000 for every person in the United States. Or over $72,000 for a

family of four.

Income support for those who have lost their jobs due to the economic shutdowns to contain the disease could be provided for a fraction of that. Giving every unemployed worker a $50,000 check to cover a year’s living expenses would only cost $1.8 trillion.

Income support and directly-related COVID-19 health-care expenses should be the sole focus of the federal response. Instead, the Heroes Act floods scores of programs with arbitrary amounts of money, with negligible attention to need or effectiveness.

For example, the act provides more than a trillion dollar bailout for state and local governments. In combination with previous appropriations and other forms of financial relief, such as the federal government picking up a larger share of Medicaid expenses, state and local governments would receive around $1.6 trillion in federal assistance. According to an analysis by the Tax Foundation, that equals 88% of everything state and local governments in the United States were projected to collect in local taxes, prior to the pandemic.

That’s vastly in excess of even the most dire prognostication of what the pandemic hit to local revenues will be.

Some in Congress, on the left and right, understand that the focus should be on income support. Unfortunately, their proposals call for subsidizing payrolls rather than replacement income for those who lose their jobs.

The idea is to keep workforces in place. That way, once the economy recovers, people won’t have to go looking for new jobs. And businesses won’t have to try to find new workers. People wouldn’t suffer the psychological and social effects of unemployment. And businesses could get a quicker restart. Several European countries take this approach.

The problem is that the employment configuration coming out of the pandemic might be different than it was going in. We might need fewer waiters and more Amazon stock clerks.

Moreover, not every business needs a payroll subsidy to survive or maintain its workforce. Many businesses are doing OK even during the pandemic. So, the program would either be hugely wasteful or have to get into the difficult process of establishing and enforcing criteria for eligibility.

Given how mind-boggling the numbers have become, perhaps the time is ripe for a discussion of income security generally, rather than strictly in response to the pandemic.

A universal basic income is an idea that’s been percolating in liberal and technocratic circles for a while. The idea would be to give everyone in the country a certain amount of money every year. No strings or requirements.

The problem is that universal means that it’s massively expensive. And doesn’t do enough to provide an income floor for those at the low end of the income scale.

Over a half century ago, Friedman had a better, more targeted idea. Establish an income floor. People not otherwise reaching it would get a subsidy, administered through the income tax system. Hence the name: negative income tax.

The Earned Income Tax Credit is a form of negative income tax and is the most efficient and effective anti-poverty program we have. But it is only available to those who work, so not as much help in a period of high unemployment.

The income floor could be set at the federal poverty level. Leave Medicaid in place and expand eligibility to include anyone whose medical expenses exceed a certain percentage of income. The United States could have a firm safety net for the provision of food, shelter and health care. And for no more, and probably less, than the country is spending now on inefficient anti-poverty programs of marginal effectiveness.

Having such a safety net in place would also clarify policy choices in situations such as a pandemic, and better expose the wastefulness of scattershot approaches such as the Heroes Act.

Call it the De-Boggling of the Mind Act.