As anyone running a household knows, spending a lot of money does not necessarily mean getting value in return. As of this writing, the estimated cost of physical and social infrastructure proposals being debated on Capitol Hill lies somewhere between $1.2 trillion and $4.7 trillion. That’s a lot to load on a $21 trillion economy with a national debt rising above the gross domestic product. The magnitude of such spending poses major risks. Too much stimulus could trigger more inflation. Too much debt could tie legislators’ hands far into the future.
Wrongly targeted spending could be a lost chance to help millions of families wondering how they will pay their bills. Brookings Institution analysts report that “the pandemic hurt low-wage workers the most — and so far, the recovery has helped them the least.”
For an amount near the low end of what lawmakers are fighting over, workers, including the nearly half living on low wages, could have more money to raise their children, paid sick days, job training, and some savings for retirement and emergencies. Millions could have higher wages and healthcare coverage. Millions of disabled and elderly people could move above the poverty line. Much of this could be done by modifying existing programs and policies.
At the top of this social “infrastructure” list is extending the temporary expansion of the child tax credit, enacted in the $1.9 trillion American Rescue Plan in March. This will make a big difference for struggling workers. Previously, federal child tax credits were highly regressive — targeted to higher-income families. The one-year expansion now pays families earning $150,000 a year the same amount per child as those making $30,000 a year. Congress might do well to make the tax credits even more progressive. It will be hard for lawmakers to eliminate these allowances once people get used to them.
Directing help to people most in need both saves taxpayers money and reduces the likelihood of inflation. If Congress made college or day care free for everybody, for example, providers facing a surge in demand would probably increase prices. In the long run, the resulting inflation might make services harder to afford for all but the wealthiest and most subsidized. Middle- to lower-income families could end up worse off. A scholar from the conservative American Enterprise Institute recently called for greater progressivity in child care subsidies along with increased funding. “Childcare assistance should target low- and middle-income families and maximize choice,” she suggests.
Life at the bottom of the economy would be better if Congress required employers to provide workers with a few paid sick days and carefully raised the federal minimum wage. Most higher-income workers take paid sick days for granted. Millions of low-wage workers don’t get any. These changes would cost taxpayers virtually nothing. Compromise on raising the minimum wage could be reached by giving states some flexibility to adjust the minimum wage for differences in regional and local labor markets.
About 8 million disabled and elderly people receive Supplemental Security Income under a program designed to plug gaps in Social Security. Over the years, access to SSI and its benefits has deteriorated dramatically. About two-fifths of recipients now live in poverty. Congress could take major steps to improve SSI.
For $30 billion to $50 billion a year, every worker could have prudently invested retirement savings and a bit of money for emergencies. This would involve setting up a universal system similar to those in England and Australia and making sure at least a few hundred dollars each year are put into an account for each worker without the means to save. Government help is needed for those at the bottom whom the labor market fails. Employers now contribute about $11,600 annually in retirement benefits to workers near the top of the income scale (at the 90th wage percentile), $2,200 for workers with median income, and almost nothing for workers near the bottom, according to the Bureau of Labor Statistics.
Policymakers could help cover several million more low-income people by getting the 13 states that have not expanded Medicaid to do so. Administrative and legislative nudges could take many forms, including adjusting Medicare rates to encourage states to meet coverage targets or expand Medicaid to cover low-income people now left out. Congress could take a lot of pressure off the federal budget by keeping the growth of Medicare costs at or below the general rate of inflation by either tightening price controls or allowing agencies more negotiating leverage. The impact would be systemwide and could free funds for other necessities.
Budget negotiators should not forget that bringing Social Security into financial solvency will cost something on the order of $250 billion a year for 75 years. Though this task is not on its radar now, Congress must act on it sometime during the next decade — the sooner, the less painful. If nothing else, lawmakers should keep the country’s most valued social program in mind when considering ill-conceived spending increases, such as free college and child care for well-to-do families.
That’s my list of asks for working-class infrastructure so far. Other than fixing Social Security, Congress could probably get most of this done for less than $200 billion a year and add relatively little to the national debt.
Too much spending for people too high up the income ladder may spur inflation in the cost of needed services and make it harder for people at the edges of the subsidized population to afford them. Demanding a mountain of money to appease all factions may result in neither agreement nor progress.
Karl Polzer is the founder of the Center on Capital & Social Equity.
