Striking Graph

The Tax Policy Center (TPC) published a chart (below) that compares the income distribution of the benefits of TCJA and ARPA, the just-enacted COVID relief bill or however you want to characterize it. The differences are quite striking with ARPA going heavily to the bottom fifth of the population and TCJA to the top fifth with a lot to the very top.

Here’s the graph and a link to Howard Gleckman’s blog post with more detail:

Caveats: The chart does not reflect TPC’s latest estimates that include more of ARPA’s provisions (see here for an update). Doing so would enhance the amount going to the lower end by a bit. Also, the estimates do not include the suspension of the various provisions of TCJA’s offsetting tax increases under the CARES Act. One of the suspended provisions raised a lot of revenue from taxpayers who make more than $500,000/yr (about $70 billion in tax savings for 43,000 taxpayers under the CARES Act’s suspension of the disallowance of noncorporate losses) so including it would skew the distribution of TCJA’s provision even more toward the top. Since those changes were in the CARES Act, one cannot tag TCJA for that, but I have a hard time seeing how helping out folks with million-dollar incomes qualifies as COVID relief. See Clint Wallace, The Troubling Case of the Unlimited Pass-Through Deduction: Section 2304 of the CARES Act, U of Chicago Law Review Online for a more detailed and thorough case than I made in my March 2020 post.

One criticism of comparing the two distributions is that their respective purposes were different (tax “reform” versus COVID relief or stimulus). Notwithstanding that, a few similarities:

• Both were big ticket bills financed by federal government borrowing: $1.9 trillion for ARPA and $1.5 trillion TCJA.  The $1.5 trillion score for TCJA is probably low because (1) the CARES Act pumped up its tax cut by suspending some of its offsetting tax increases (and not be small amounts), (2) CBO has found the business taxes declined by more than estimated by JCT, (3) the SALT deduction cap workarounds for pass-through entities green-lighted by the IRS in November will further dilute one of TCJA’s biggest offsetting tax increases (pretty much exclusively for high income households), (4) etc.
• Both bills passed on party line votes.
• The opposition party criticized each bill as handing out pork/candy to the enacting party’s base – e.g., TCJA’s much pilloried QBI deduction (i.e., the 20-percent deduction for business income) for Republicans’ base of business owners and ARPA’s perhaps overly generous education aid as a sop to the Dems’ teacher union allies rather than furthering their basic purposes.

It is easier to justify deficit spending when the economy is in at least recession (a point contested by Republican critics of the ARPA) than when it was humming in 2017 when TCJA passed. Moreover, one of the biggest ticket items in ARPA is the $1,400 recovery rebates (about one-fifth of the total cost according to the Committee for a Responsible Federal Budget for an earlier version of the bill). Since the de facto don of the Republican Party (for better or worse, Trump) advocated for this in December, the Republican criticism that the package is overly generous on that score is tinged with hypocrisy. Excluding the rebates/checks would bring ARPA’s total price tag below TCJA’s.

That said, I have a hard time seeing the need for the checks – especially to those whose incomes are largely unaffected by the pandemic (most of the recipients) – and much lower and better targeted aid to state and local governments would have been sufficient. The ballooning of the savings rate – to record levels – is good evidence of the lack of targeting and how overly generous the previous rebates were. I get that speed and administrative ease was of the essence in spring 2020 but it’s hard to keep making that case almost 12 months later. Slightly reducing the income limits, as ARPA did, is hardly the answer; focusing on drops in income from 2019 and/or excluding those whose main income is from steady sources (social security, pensions, investment income, etc.) would be the better approach. Cutting unemployment benefits to satisfy moderate Dems (i.e., Manchin) seemed particularly cruel and uncalled for. Those are the people that really need relief and help, rather than most of the rebate recipients.

The saving grace may be that much/most of the money is being saved (bidding up stock and bond prices rather than scare consumer goods), which may have helped prevent the rebates from igniting inflation. Whether better targeting by the rest of ARPA and its larger size will put an end to that grace, I do not know. In any case, there are obviously better ways to spend the money (needed basic infrastructure improvements, for example). But at least most of it is going to folks at the lower end of the income distribution.