Tax Relief to Support Workers and Families during the COVID-19 Recession

House Budget, Addressing the Economic Impacts of COVID-19: Views from Two Former CBO Directors, June 3, 2020
WM Subcommittee on Special Revenue Measures, Tax Relief to Support Workers and Families during the COVID-19 Recession, June 18, 2020 

In general, the current economy is more medical furlough than recession. Increasing and adding benefits for many turns it into paid sick leave funded by government, which is entirely appropriate. The danger is that if benefits are extended for too long a period, people will desire to stay unemployed, leading to a situation where more money is chasing a decreasing supply of goods and labor. If this turns into an upward cycle of more benefits and less economy, not just stagflation, but Hyper-Stagflation is possible.

This crisis shows some of the systemic weakness in the economy. Too many people are paid too little. This creates a second-tier economy of low wages and subpar products. More pay through a higher minimum will mean better products and more people working. If layoffs result from a higher wage, a paid training program (to meet opportunity costs of trainees) from ESL to Associates degrees will add to a push for higher wages. A higher minimum wage could also be used to recalculate benefits for retirees and the disabled. The increased economic activity and higher revenues would pay for themselves.

Low wages do not benefit shareholders, who receive a normal profit. Other workers benefit because their wages rise with the minimum. Only the CEO-Donor class are made worse off. Their wage theft is natural, given their low marginal tax rate in comparison to the time of Eisenhower and Kennedy (whose tax cuts only took effect in 1965), The differential between productivity and wages started about a year after the tax cuts took effect. The effect was multiplied in 1982.

Low family wages are also a problem exposed by the current medical furlough. The EITC and Child Tax Credit were enacted on a bipartisan basis, with Republicans in the lead. Sadly, benefits are inadequate and non-refundable. This could and should be fixed. Permanent tax reform with a Subtraction Value Added Tax levied on employers with a credit for a median income for each child of $1000 a month, with pay and with no income cap will solve this problem permanently and needs no pay-for to offset it.

Attachment One: Disproportionate Impact of COVID-19 on Communities of Color, Ways and Means, May 27, 2020

Attachment Two - Tax Reform, Center for Fiscal Equity, February 21, 2020