Back at the beginning of the coronavirus crisis in the United States in March of this year, two Democratic representatives (Tim Ryan of Ohio and Ro Khanna of California) proposed that the federal government give at least $1,000 to every American making less than $65,000 a year. Three Democratic senators (Michael F. Bennet of Colorado, Cory Booker of New Jersey, and Sherrod Brown of Ohio) proposed that the federal government send $2,000 to every American adult and child plus a $1,500 check in the summer and a $1,000 check in the fall, as long as the “public health emergency” continued.
Not to be outdone by Democrats in a presidential election year, Republicans put forth their own stimulus-check plans. Republican senator Mitt Romney of Utah called for every American adult to “immediately” receive a $1,000 check from the federal government until other government aid could arrive. Another Republican, Sen. Josh Hawley of Missouri, proposed that the federal government provide families experiencing financial hardship with a monthly benefit of $1,446 for a family of three, $1,786 for a family of four, and $2,206 for a family of five lasting through the end of the coronavirus emergency. The benefit would be available to single parents making less than $50,000 and to married parents making less than $100,000.
What ended up passing was the Coronavirus Aid, Relief, and Economic Security (CARES) Act. It instituted a refundable tax credit to be applied to 2020 tax returns but advanced to taxpayers now based on their 2018 or 2019 tax returns. An “economic impact payment” of $1,200, plus an additional rebate of $500 per qualifying child, was sent by the federal government to every American whose income was less than $75,000 (single) or $150,000 (married filing jointly). The rebate phased out at $50 for every $1,000 of income earned above those thresholds. The CARES Act passed the Senate by a vote of 96-0 and passed the House by voice vote over the objection of one of the few principled House members, Thomas Massie (R-Ky.).
Some conservatives have defended Republican support for the CARES Act. Jennifer Burns is an associate professor of history at Stanford University and a research fellow at the Hoover Institution — a think tank based on the Constitution, representative government, peace, personal freedom, private enterprise, limited government, and “the safeguards of the American system.” She is also “the leading independent expert on Ayn Rand and the American conservative movement” and is working on a biography of Milton Friedman. In an opinion piece for The Hill titled “Granting Cash Payments Is a Conservative Principle” that was published soon after the passage of the CARES Act, she makes the case that making government cash payments is a conservative principle.
Although “today, cash grants or universal basic income (UBI) seems a classic Democratic Party idea, associated with upstart presidential contender Andrew Yang,” the “first president who embraced the idea was Republican Richard Nixon” and “the name most associated with the reform was Milton Friedman, the face of free-market economics for his generation.” As Burns explains about Friedman,
Friedman came up with the idea of “a minimum income” during a crisis many liken to coronavirus: the Great Depression. As a young economist, Friedman struggled to reconcile his belief in markets with the suffering he saw all around him. A conversation with Swedish socialist Gunnar Myrdal suggested a way forward: a plan for guaranteeing “a minimum income for all.”
The idea of setting a “floor” under each member of society resolved several problems. First was the basic support to those who couldn’t make a living, even if they worked. More broadly, the idea could ameliorate the failings of capitalism without deconstructing capitalism itself. Markets would remain intact. They’d even be strengthened, by giving the poor money to spend.
Over time, Friedman’s commitment to the idea grew. Originally conceived during hard times, Friedman maintained his support of the basic concept even during the prosperous 1960s. He came up with a new twist — send the money through the IRS — and called it a “negative income tax.” The proposal was widely debated among conservatives and liberals.
And as she explains about Nixon,
President Nixon seized upon the idea when he came into office, calling it the Family Assistance Plan…. Supporters
inside the administration included George Shultz, who later headed the Treasury Department and the State Department under President Ronald Reagan. But conservatives were not unanimous in their support. Although the [Family Assistance Plan] was carefully designed to avoid penalizing work, some conservatives worried it was an unearned handout. Joining them in opposition were liberals who felt the benefit was too stingy. [The Family Assistance Plan] made it into Congress, but didn’t make it out.
Burns sees today’s populist, “newer wave of conservatives, tied closely to President Trump” as those leading “the push for immediate and universal cash support.”
But she is not just speaking as an observer of the American conservative movement. Opines Burns,
Cash payments are a way to acknowledge the importance of the crisis without growing the government in ways conservatives consider misguided. Although they seem like a big spending liberal program, they rest upon a fundamental belief in individual decision making and the power of spontaneous order over top-down planning.
The relief program could stimulate interest in cash as part of conservative industrial policy — a deliberate program of economic development keyed to the needs of Republican voters and incorporating traditional Republican principles.
Both the coronavirus crisis and the long history of UBI show how cash grants can resonate with conservative principles of individualism, efficiency and government doing more with less. In the long recovery that lies ahead, ideas like cash that can bridge both partisan and intra-party divides should be taken out of the archive and put to work.
Since when are cash payments from the federal government a conservative principle? What happened to the conservative mantra of fidelity to the Constitution, federalism, limited government, fiscal conservatism, private property, less government, lower taxes, individual freedom, the free market, and free enterprise? Aren’t cash payments from the federal government the very antithesis of those things?
Burns is exactly right. The federal government’s handing out cash to Americans is a conservative principle, and has been for quite some time. The CARES Act was not the first time the federal government sent stimulus checks to Americans.
The first Bush tax cut, the Economic Growth and Tax Relief Reconciliation Act (EGTRRA), was signed into law by George W. Bush on June 7, 2001. The EGTRRA lowered federal income tax rates, capital gains taxes, and the estate tax. It also included, for the first time in American history, a stimulus check from the federal government. Single filers with no dependents could get an amount up to $300, single parents could get one up to $500, and married couples could get one up to $600. Checks were sent in the mail over a 10-week period from July 23 through September 24, depending on the taxpayer’s Social Security number.
The Economic Stimulus Act of 2008 was signed into law by Bush on February 13, 2008. It too provided taxpayers with a stimulus check from the federal government. Individuals could receive an amount up to $600 and married couples could receive one up to $1,200, plus an additional benefit of $300 per dependent child. The “tax rebate” was phased out for taxpayers with incomes greater than $75,000 (single) or $150,000 (married couples) at the rate of 5 percent of the income above the thresholds. Direct deposits were made during the first half of May 2008 and paper checks were sent out during May, June, and July.
But conservatives don’t just support cash payments from the government when there are extenuating economic circumstances. Rather than being the exception to the conservative mantra, cash payments by the government are the rule. There are three main cash-payment programs in the United States — all of them supported by conservatives.
When Americans think of welfare they generally think of programs such as Temporary Assistance to Needy Families (TANF) — formerly known as Aid to Families with Dependent Children (AFDC) — which pays assistance in cash directly to recipients to spend as they choose. The TANF program “assists families with children when the parents or other responsible relatives cannot provide for the family’s basic needs.” States receive block grants from the federal government to design and operate programs that are intended to accomplish four goals:
- to provide assistance to needy families so that children may be cared for in their own homes or in the homes of relatives;
- to end the dependency of needy parents on government benefits by promoting job preparation, work, and marriage;
- to prevent and reduce the incidence of out-of-wedlock pregnancies and establish annual numerical goals for preventing and reducing the incidence of these pregnancies; and
- to encourage the formation and maintenance of two-parent families.
States determine the amount of assistance payments, the range of other services to be provided, and the rules for determining who is eligible for benefits. The fiscal year 2020 TANF budget was $15.2 billion. Although conservatives sometimes call for increased welfare work requirements, they don’t have any philosophical objection to the government’s handing out cash to the “poor” or “disadvantaged” or “needy.”
There are two parts to Social Security. The Old-Age and Survivors Insurance (OASI) program provides monthly benefits to retired workers, families of retired workers, and survivors of deceased workers. The Disability Insurance (DI) program provides monthly benefits to disabled workers and families of disabled workers. For those born between 1943 and 1954, the full retirement age is 66. For those born in 1960 or later, the full retirement age is 67. Early retirement with reduced benefits is available for those who have reached age 62, no matter what year they were born.
The Social Security program is funded by a 12.4 percent (10.03 percent OASI and 2.37 percent DI) payroll tax (split equally between employers and employees) on the first $137,000 of an employee’s income. Self-employed individuals pay the full 12.4 percent, but receive a deduction toward their income tax equal to 50 percent of the amount of the Social Security tax they pay. One must pay Social Security taxes for a minimum of 40 quarters to be eligible.
Because some of the taxes they pay are termed Social Security taxes, most Americans believe that they are entitled to receive Social Security benefits because they “earned” them by “contributing” to the system over the course of their working life. But there is no connection between the taxes one pays into the system and the benefits that one receives from the system. Social Security benefits are figured on the basis of one’s “primary insurance amount,” the average of a worker’s 35 highest years of earnings (up to a particular year’s wage base), adjusted for inflation. And Congress can
- change the arbitrary formula that is used to calculate benefits;
- reduce or eliminate benefits at will;
- increase Social Security taxes without increasing Social Security benefits;
- raise or eliminate the wage base upon which Social Security taxes are figured at any time;
- pay Social Security benefits in perpetuity regardless of the amount of Social Security taxes that are collected;
- raise the retirement age; and
- increase the taxes owed on Social Security benefits.
Although Social Security is an intergenerational wealth-redistribution scheme, conservatives regularly put forth plans to save, reform, overhaul, or privatize it.
Refundable tax credits
A regular tax credit is a dollar-for-dollar reduction of the amount of income tax owed. Tax credits may reduce the tax owed to zero, but if there is no taxable income to begin with, then no credit can be taken. Tax credits, like their cousins tax deductions, are always a good thing. A refundable tax credit is treated as a payment from the taxpayer like federal income tax withheld or quarterly estimated taxes paid. If the “payment” is more than the tax owed after regular tax credits are applied, then the taxpayer receives a refund of money he never actually paid in. And no amount received as a tax refund is counted as income when determining eligibility for federal welfare programs.
Low-income Americans have access to three refundable tax credits: the American Opportunity Tax Credit (AOTC), the Additional Child Tax Credit (ACTC), and the Earned Income Tax Credit (EITC). The maximum AOTC is $2,500, 40 percent of which is refundable. The maximum ACTC is $1,400. The amount of one’s EITC benefit depends on a recipient’s income and number of children.
The AOTC is 100 percent of the first $2,000 plus 25 percent of the next $2,000 in qualified tuition and related educational expenses the taxpayer pays for each eligible student in each of the first four years of the student’s post-secondary education in a degree or certificate program. The maximum credit is therefore $2,500. No credit can be claimed if the taxpayer’s modified adjusted gross income exceeds $90,000 ($180,000 for married couples). There is a phase-out for taxpayers with modified adjusted gross incomes exceeding $80,000 ($160,000 for married couples). Forty percent (up to $1,000 per student) of the AOTC is refundable.
The maximum Child Tax Credit (CTC) is $2,000 per child, of which $1,400 is refundable as the ACTC. The ACTC is the refundable portion of the CTC that is available if the CTC reduces one’s tax liability to zero. In most cases, one must have $2,500 or more of earned income to be eligible for any portion of the ACTC.
The EITC is the king of the refundable tax credits. According to the IRS, “The Earned Income Tax Credit, EITC or EIC, is a benefit for working people with low to moderate income. To qualify, you must meet certain requirements and file a tax return, even if you do not owe any tax or are not required to file. EITC reduces the amount of tax you owe and may give you a refund.” For tax year 2020, to be eligible for the EITC, investment income must be $3,650 or less and earned income and adjusted gross income must each be less than
- $15,820 ($21,710 for married couples) with no qualifying children;
- $41,756 ($47,646 for married couples) with one qualifying child;
- $47,440 ($53,330 for married couples) with two qualifying children;
- $50,954 ($56,844 for married couples) with three or more qualifying children.
The maximum amount of EITC that one can receive is
- $538 with no qualifying children;
- $3,584 with one qualifying child;
- $5,920 with two qualifying children;
- $6,660 with three or more qualifying children.
The EITC functions as a universal basic income. Although conservatives sometimes call for reductions in welfare spending or the rate of increase of welfare spending, they never mention the EITC — one of the greatest forms of welfare in existence. The amount of the EITC has increased every year since 1986, when the maximum benefit was a mere $550. It increased when Democrats controlled both Houses of Congress, it increased when Republicans controlled both Houses of Congress for six years under Bill Clinton, and it increased when Republicans controlled both Houses of Congress under George W. Bush for more than four years. No doubt all of the congressional Republicans in those years emphasized in their campaigns how “conservative” they were.
Conservatism and libertarianism
The conclusion is inescapable: conservatives are welfare statists just like liberals, progressives, Democrats, and socialists. Conservatives have no philosophical objection to the federal government’s plundering some Americans for the benefit of other Americans (and itself, since the government is then viewed as a benefactor). Conservatives believe that the federal government should take money from some Americans and redistribute it to other Americans — after it is filtered through a massive government bureaucracy — in the form of subsidies, vouchers, loans, EBT cards, and grants, and through the ultimate form of welfare — cash payments.
The conservative mantra of fidelity to the Constitution, federalism, limited government, fiscal conservatism, private property, less government, lower taxes, individual freedom, the free market, and free enterprise is a smokescreen. It is a ruse to sucker those rank-and-file conservatives who may genuinely believe in some of those things to support the conservative movement, donate to conservative organizations and causes, and back the Republican Party.
When conservatives get enough Republicans elected to gain control of Congress (as during the last six years of Clinton’s presidency and the last two years of Obama’s presidency) or Congress and the White House (as during four-plus years of Bush’s presidency and the first two years of Trump’s presidency), they not only do nothing to reverse the progressive polices enacted by Democrats, they often increase their funding, expand them, and supplement them with new progressive policies of their own.
Now contrast conservatism with libertarianism. When it comes to the welfare programs of the U.S. government, libertarianism says seven things:
- The Constitution does not authorize the federal government to institute welfare programs, operate welfare programs, or give the states block grants to provide welfare programs.
- It is an illegitimate purpose of government to fund or operate welfare programs, fight poverty, establish a safety net, subsidize wages, or help the disabled, the aged, the infirm, or the poor.
- Transferring resources from one American to another — whether it takes the form of a deposit on an EBT card, a hot lunch at school, a subsidy, a voucher, a grant, or cold hard cash — is immoral, even when the government does it.
- No one is entitled to receive from the government cash or other welfare benefits no matter what his situation or how much he “needs” the money.
- “The rich” have no legal obligation to help “the poor,” no matter how much money some government bureaucrat or private organization thinks “the rich” should hand over.
- All charity should be private and voluntary, not public and forced.
- Welfare needs to be eliminated, not reformed.
Too bad those are not conservative principles.
This article was originally published in the December 2020 edition of Future of Freedom.