In the second part of this series, we continue last week’s conversation with Professor Jesse Rothstein on the economic response to COVID-19 through a Q&A with Professor Hilary Hoynes, Professor of Public Policy and Economics and Haas Distinguished Chair in Economic Disparities. Last week, we discussed Congressional efforts to address the economic crisis by incentivizing businesses to retain their workers and expanding Unemployment Insurance (UI). This week, Professor Hoynes helps us understand additional social safety net supports, and to assess Congress’s response. 

The CARES Act includes a one-time cash payment of $1,200 for individuals earning less than $75,000, including funding for each member of a married couple and $500 per child. How should we interpret or assess this response?

First, we need to distinguish between stimulus and relief. During most economic crises, the conversation focuses on stimulus – and we do need stimulus, because there’s a reduction in aggregate demand and we want people spending. What is unique about the current crisis, however, is that while there is massive unemployment, we are not in a position for stimulus because we are all sheltering in place. What we are really looking for is relief. 

If we think about the CARES Act within this context, the bill is a good, modest relief measure. 

There are four goals for relief. We would like the relief to be:

• distributed quickly;
• targeted towards those who are in need;
• flexible; and
• without administrative hassle.

This bill will get the relief out relatively quickly. It was flexible in that it provides dollars. That’s good. But almost by definition, it was not very targeted: it is eventually phased out, but at a fairly high income level. There was a tradeoff between speed and targeting: the more means testing you include, the longer it will take to distribute. This might be a time when we are willing to worry a bit less about targeting because speed is of the essence. 

One of the problems is that in order to distribute the funds quickly, the government needs addresses for those receiving the payments. This is determined based on tax filer status: people who have already filed their taxes for the most recent year (2019) or for last year (2018). The upside is that we can use this immediately available information to distribute the payments right away. The downside is that the people who might be most in need of the $1,200 are not tax filers. That includes people on Supplemental Security Income (SSI) as well as very low earning prime-aged individuals who do not file because their earnings are not high enough. In order to get access to this $1,200, those groups will need to jump through more hurdles and file their taxes today to be eligible. This initially applied to seniors as well, who do not file because they just have Social Security income. After receiving some pressure to do so, the Treasury Department recently announced it will use information from the Social Security Administration to identify eligible seniors.  

So the upside is that the payments are flexible and should get out there quickly. But the downside is that there are important groups left out. 

How about the SNAP (food stamps) component? 

If you read the headlines in the paper, you would think that a lot is happening with SNAP (food stamps). But there really is not. I think the next package will need to lean much more heavily into SNAP.

Most of the SNAP provisions were in the Families First Coronavirus Response Act. First, the Act put a temporary hold on the work requirements that were just coming into play for prime-aged, Able Bodied Adults Without Dependents (ABAWDS). Unfortunately this is not permanent. It should be.

Second, the USDA spends money on school lunch programs, and schools are currently closed. The bill allows states to top up families’ SNAP debit cards with the dollars that states would have been spending on school lunches – so essentially, adding more SNAP resources in lieu of the school lunch programs. But the funding is relatively modest. And USDA has really slowed the authorization of these measures. This provision is also prone to potential problems because states do not know whether they are responsible for determining which SNAP households have kids in school. The mechanics of doing this could therefore be quite time-consuming. 

Finally, the Families First Act provides flexibility to increase SNAP benefits for up to two months, for those not receiving the maximum benefit.

The bills should have included a straight-up increase in SNAP benefits. SNAP is very targeted: benefits are distributed to those who most need assistance, and who tend to spend the benefit right away. In addition, food is one of the few things that everyone is buying right now, even though they are not doing much of anything else. 

How does this compare to previous efforts to provide cash assistance during times of need?

The 2009 stimulus was smaller than this relief package. It also had several of the features and limitations that I just described. In addition, it included certain income eligibility requirements; that was definitely worse. In the current bill, if I have no earnings and am just living on SNAP and whatever I can find, I am eligible for $1,200. I will need to take affirmative steps to get it, whereas if you filed taxes last year you’ll get it automatically. 

In terms of SNAP, in contrast to the minor provisions in this package, the 2009 stimulus provided a 17% increase in SNAP benefits across the board.

How can the government provide safety net assistance most effectively during times of need? What has worked in the past?

What we know is really important, now more than ever, is the speed at which we distribute the assistance. It doesn't do much good if it takes six months, because the crisis is happening now. People have rents to pay, and those who have lost income are already feeling the pinch. So the thing that's really important is the speed at which we get those additional dollars out. 

We should think about how we can streamline hassles to make the current benefits get out to as many people as possible. For example, to be eligible for SNAP, you not only need to fill out lots of paperwork, but you also typically have an in-person interview for final verification. We don't want to do in-person interviews now: no one should be going anywhere, and this is a big hurdle that slows things down even when we are not sheltering in place. So, converting in-person interviews to phone interviews, eliminating and extending recertification periods – the research shows that these practices slow down the process of receipt and generate inequities in access. We want to get rid of this. Governor Newsom has issued an Executive Order to waive the requirement of in person interviews. 

What did the bills do well?

This was really fast for Congress to pass a major relief effort, compared to how long it took in 2009. And it was much more bipartisan than what we saw in the response to the Great Recession. This might have something to do with the fact that there is a Republican in the White House, but that is just speculation.

In addition, increasing the federal match to pay for Medicaid was a good thing. It should have been more – we did more during the Great Recession and states are experiencing huge costs on the front lines of the crisis. What we know from the Great Recession is that aid to states is quite effective: While states spend significantly, they cannot run deficits the way the federal government can. 

As my colleague Jesse Rothstein noted last week, I agree that the actions around small business loans and creating incentives for employers to keep their workers on payroll will make it easier to turn on the switch when we get back to business. The Unemployment Insurance (UI) provision was very strong, including by expanding UI to gig economy workers. I was initially a bit disappointed that the bill provided a flat $600 in UI rather than increasing the replacement rate relative to an individual’s earnings, which would have been a more targeted way to make UI more generous. But then I learned that the coding time to operationalize the replacement rate would take months or at least weeks. Given the need for speed, I lean towards thinking that the flat fee makes the most sense at this point in time. 

What are your concerns? What else needs to be done?

I am really worried about the fact that, while we have made some progress on income replacement, we are not doing anything about spending. I think that rent is one of the big holes. In many states, including here in California, there has been a moratorium on evictions. But that doesn't mean that you are not incurring these rental costs. And do we think these households will be able to pay the rent they have incurred over the three or more months?

We also need to increase SNAP: that is obvious, easy, and effective. 

We could also be doing more to decrease hassle, particularly when people are not supposed to be leaving their houses. For example, we could pre-populate tax returns and send them to people and say, “from the W2s I see on file, this looks like your tax return. If you sign this form and put it in the self-addressed, stamped envelope, you will get the $1,200.” We have the information from their earnings. All they need to do is specify their family members and we could call it a day. 

Of course, we will also need to provide more income. And then, once we move through this, we need to push stimulus to get people spending as soon as possible. The idea is that there are two phases to the policy response – the first is relief. We need people to shelter at home; therefore, we need to support them in being at home. And that is all about reducing the spread of the virus. And then in the next phase, when we move out of that, we will want people to spend in a conventional, stimulating way. A traditional stimulus package will be needed then.