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Deploy the safety net

Deploy the safety net
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The meltdown of the U.S. labor market because of the novel coronavirus is unprecedented in modern time. More than 30 million Americans have filed first-time claims for Unemployment Insurance (UI) in the past six weeks, resulting in unemployment rates in some states not seen since the Great Depression of the 1930s. To put this figure in perspective, the net reduction in employment between 2007 and 2009 was less than 9 million. While we have yet to see where net employment will end up a few months or even years from now, the mammoth short-run drop is ominous. In light of this crippling shock to household incomes, it is reasonable to ask whether federal action in deploying the power of the social safety net matches that which occurred during the Great Recession.

During the Great Recession, Congress provided additional funds to almost every major program in the safety net. In a sequence of legislation, Unemployment Insurance (UI) was greatly extended, reaching a maximum of 99 weeks eligibility compared to the normal 26 weeks. Maximum benefits in the food stamp program were increased an average of 13 percent, the earned-income tax credit (EITC) was expanded for families with three or more qualifying children and the federal child tax credit was made more generous to low-income families. The share of state Medicaid expenses paid by the federal government was increased by about 10 percentage points, HUD was given over $13 billion for increased housing assistance, a one-time payment was given to Social Security and disabled recipients, more funds were provided for Head Start and child care and the Temporary Assistance for Needy Families (TANF) received an additional $5 billion emergency appropriation. 

This relief kept 4.5 million people out of poverty and, amazingly, kept the after-tax and transfer poverty rate from rising at all from 2008 to 2009. But with a few exceptions, all this recession-related relief was temporary and allowed to expire after the Recession. 

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By comparison, the congressional safety-net response to the current pandemic has been anemic. Eligibility for UI has been expanded to cover self-employed workers and independent contractors, and an additional $600 per week of benefits through the end of July is provided, but only 13 additional weeks of eligibility was enacted. 

States are authorized to increase food stamp benefits to already-existing maximums, but no increase in overall benefits has been provided. HUD received an additional $12 billion for its housing assistance and community development grant programs, but only a small share was directed toward housing vouchers, which are the most effective at alleviating housing instability and homelessness. The federal share of state Medicaid expenses has again been raised, but by less than in 2009. 

But, aside from the smaller response to the UI, Food Stamp, housing and Medicaid programs, no increased funding has been provided for tax credits, the TANF program, Social Security or disabled recipients, or Head Start and child-care programs. With the severity of the current downturn compared to the Great Recession, this response is clearly inadequate. 

As Congress returns to discuss next steps, more needs to be done. Because of the lack of a vaccine and the need for social distancing to continue for months, unemployment will remain high. Emergency UI legislation adding more weeks of benefits closer to that provided in the Great Recession is needed, and states need help to meet the crushing obligations on their UI trust funds. 

Food stamps have been shown to be effective at alleviating food insecurity. But current benefit levels need to be increased beyond their role as a mere supplement to families’ own incomes. USDA should also expand the online delivery pilot project to the entire nation so recipients can safely receive delivered groceries with food stamp dollars. The federally imposed work requirements and time limits for TANF should be suspended by Congress and additional funds appropriated to states for basic cash assistance. TANF is the sole program in the safety net that provides cash assistance to the non-disabled poor, but most states in the two decades after welfare reform shifted TANF spending away from cash assistance and toward in-kind help such as transportation vouchers, out-of-wedlock childbearing and marriage counseling, among others.

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Much of this aid is not targeted to the poor. Since 2020 is the first fiscal year that states must pay the full 10 percent of the expanded Medicaid health coverage, the percentage of Medicaid expenditures paid for by the federal government should be increased at least to the level provided in the last recession. Moreover, Congress could increase the subsidies offered on the federal and state health exchanges to help those displaced from work continue to provide health insurance to their families. 

Housing choice vouchers should be substantially increased to enhance housing security and reduce the scourge of homelessness. While the EITC is tied to work, which millions currently lack, there are a number of crucial first responders bravely working daily to provide food and medical relief to families. These workers would be greatly aided with an expanded EITC, especially among childless workers.

Some will be concerned that the expanded safety net will create disincentives for workers and families to return to normal activities, and thus hamper the recovery. The experience of the Great Recession shows that such concerns are unwarranted.  Almost all their provisions were temporary and the economy rebounded with one of its longest economic expansions in recorded history, adding 22 million jobs in the next 10 years.  It is time to take action and to deploy the safety net.

Robert A. Moffitt is Krieger-Eisenhower Professor of Economics at Johns Hopkins University (moffitt@jhu.edu). James P. Ziliak is Gatton Endowed Chair in Microeconomics at the University of Kentucky (jziliak@uky.edu).