How Biden’s $ 1.9 trillion Covid aid plan avoids a welfare cliff

Kevin Dietsch / UPI / Bloomberg via Getty Images

President Joe Biden wants to avoid another unemployment benefit cliff.

Rather than abruptly ending unemployment benefits, as was the case for millions of Americans the day after Christmas, Biden wants to gradually phase out aid over time.

The mechanism for accomplishing this is known in the art as the “automatic stabilizer”.

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The concept offers advantages for the autopilot. Workers are weaned from support as the economy heals, as demonstrated by measures such as a state’s unemployment rate. The benefits may also increase as conditions worsen.

Economic data determine the duration and level of benefits, not Congress, which may not respond to a crisis in a timely manner.

These automatic shifts help families in financial difficulties and, according to proponents, give them more security about household income. They also stimulate demand and spending during recessions, when supporters say the economy needs an upturn.

Biden’s recent $ 1.9 trillion aid proposal suggests that he would work with Congress to implement these triggers.

Janet Yellen, who was confirmed as Treasury Secretary by Biden on Monday, echoed that sentiment in recent Senate statements.

“Automatic stabilizers play a vital role in mitigating the negative effects of the recession,” she said in writing on Thursday.

“I am eager to work with Congress to automatically adjust the length and amount of relief based on health and economic conditions so that future delays in legislation do not affect recovery and families’ access to the benefits they need,” she added added.

However, the automatic increase in benefit payouts increases mandatory federal spending and, according to opponents, may increase the budget deficit. The approach could also artificially increase the unemployment rate, they argue.

If enacted, the policy would be different from Washington’s previous pandemic strategy.

For example, the CARES Act set specific end dates for a weekly benefit supplement of $ 600 (July) and two programs for the self-employed and the long-term unemployed (December).

A compromise in the eleventh hour extended the two programs, but came too late for millions. They will expire again after April 11 if no further intervention is made – a so-called performance cliff that cuts income support for nearly 9 million people even if the economy weakens in the meantime.

Democrats like Senator Ron Wyden, D-Ore., The new chairman of the finance committee, proposed laws earlier in the recession to create automatic triggers.

For example, Wyden’s plan would have fully maintained the $ 600 a week improvement to the CARES Act until the state’s average unemployment rate fell below 11% over three months. The subsidy would decrease by $ 100 per week for every 1% decrease in that unemployment rate, until it falls below 6%.

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