NOTE: This analysis has been updated. The latest charts are here.
Another day, another idea for a rebate in the US.
The shift in the fiscal debate towards lump sum rebates rather than payroll tax cuts is a positive development. The full benefit of a rebate gets into people’s pocketbooks more quickly, and unlike payroll tax cuts, Congress can design rebates to aid people who aren’t employed.
But that doesn’t mean that all rebates are created equal, especially when it comes to lower- and middle-income families.
Below I’ve used the Policy Simulation Library’s tax model to roughly show how generous the most prominent policymaker proposals are across the income spectrum (the data behind the charts is here). In some cases I’ve had to make some key assumptions, which are noted at the bottom of the chart. I’ve also illustrated a 6.2% employee-side payroll tax holiday for 9 months for comparison purposes.
What this shows firstly is that every rebate proposal so far is more progressive than a payroll tax holiday. That’s a win.
It also shows that the generosity of a rebate really depends on three dimensions:
- The size of the payment
- How many payments there are
- Who’s eligible
Take Senator Hawley’s proposal for example. For families who benefit, the bill is quite generous on dimensions 1 and 2. A family of five receives $2,200 a month for the duration of the emergency, which I’ve assumed here will last for three months.
But his proposal would only help families with children; childless households get no checks. So only about 23% of all filers get a check, which on average across all filers comes to $977 total over three months, and $1,071 to filers in the $50–75K income range. All in all his plan would come to $175 billion for three months.
Contrast that with Representative Waters’ plan. She proposes $2,000 per adult and $1,000 per child each month, with the only string attached that she wants to phase benefits out to “prevent payments going to millionaires and billionaires.” Without more specificity, I’ve assumed her plan phases out at a 5% rate above $100,000 of income ($200,000 if married) to align it with other ideas.
Because Waters doesn’t attach as many strings to her rebates, they end up being larger on average. Over the same three months, they come to $8,600 across all families and $9,300 for those in the $50–75K range. In total Water’s approach would cost $1.5 trillion and give 95% of filers a rebate.
This is of course just a snapshot of where we are now in the fiscal debate. Things will keep evolving in the days — even hours — ahead. Hopefully the final bill gives help to families that rises to the sheer scale of the shock we’re experiencing.