One would hope that a massive, multi-trillion dollar legislative package being pushed under the guise of badly-needed COVID relief would be strictly limited to pandemic-related provisions, not long-standing Democratic policy proposals. Unfortunately, seeking responsibility in Congress is often a fool’s errand.
In fact, the American Rescue Plan Act (ARP) is filled with spending hardly justified by the current economic situation. While many limited-government supporters recognized the need for compensation to businesses and individuals whose lives were being turned upside down by public health orders, the economic situation has changed dramatically since mid-2020. While Congress could improve the recovery in a number of important ways and the economy remains below its full potential, the ARP would spend many times the current output gap.
An example of this is the $350 billion Congress proposes to spend on state and local aid. Early on in the pandemic, panicking states were demanding massive bailouts, warning of dire fiscal situations should their pleas be ignored.
Yet as the year went along, doomsday scenarios of state revenues declining by 8 percent or more were proven false. State revenues declined by a far more manageable 0.4 percent overall. Meanwhile, local revenues actually increased by $29.8 billion. California, for example, went from predicting a $54.3 billion deficit to proposing a FY 2021 budget with record spending that maintains a $15 billion surplus. Nevertheless, California would receive aid funding under the ARP. All told, ARP would shell out to state and local governments 116 times what states lost in revenue.
Another less-publicized but arguably worse provision would spend $86 billion to bail out insolvent union workers’ pension funds. Democrats have been trying unsuccessfully to pass this bailout for years, but have failed because they insist on making the funds unconditional on any changes to prevent future pension failures and resulting bailouts. If ARP passes, your tax dollars will go to direct grants to structurally unsound pension funds, with no effort to ensure that taxpayers won’t be on the hook for another pension bailout in the future.
Yet another obvious example was only kept out of the bill thanks to the Senate parliamentarian. The limits of the legislative tool Democrats are using, budget reconciliation, kept a $15 federal minimum wage from devastating small businesses across rural America. Nevertheless, Democrats attempted to include a provision that would saddle small businesses already struggling with depressed demand and enforced closures with huge increases in labor costs — in a coronavirus relief package.
Even the $1.9 trillion price tag official budget scorekeepers have put on the ARP is somewhat misleading. The National Taxpayers Union Foundation (NTUF) has documented how, should certain “temporary” provisions be extended, the true cost of the legislation would balloon to well over $3 trillion.
At the same time, Congress has declined to pursue relief measures that would not cost the federal government a cent. NTUF has repeatedly urged Congress to set standards preventing states from taxing out-of-state remote workers, a situation which could lead to big tax bills and even double taxation for unsuspecting workers. While there have been several legislative attempts to fix this problem, the provision is not a part of ARP despite tax filing season ending in a matter of weeks.
Other changes could also help Americans with little impact on taxpayers. Removing outdated regulatory barriers to telemedicine would improve convenience of medical care and reduce costs for consumers, without costing the federal government anything but the need to dispose of unnecessary red tape.
Democrats appear set both on excessive deficit spending and using pandemic relief as a tool to achieve long-standing policy aspirations. Whatever the case for a big “stimulus” package in the wake of COVID, this latest bill is not what any economist or expert would draft.
Andrew Wilford is a policy analyst with the National Taxpayers Union Foundation, a nonprofit dedicated to tax policy research and education at all levels of government.
