Could the COVID Pandemic Spark a Cash Benefit Revolution?

The $1.9 trillion coronavirus relief legislation passed by the U.S. Senate provides important relief to individuals and businesses who are hopeful for a  healthier and more economically stable 2021. However, after three rounds of widely-provided stimulus checks, bolstered unemployment insurance benefits, and expanded cash benefits to families with children, the pandemic and unprecedented economic downturn may have shifted American social policy in favor of cash. For low-income households and families with children, the move toward direct, broad cash benefits instead of programs that are indirect, means-tested, and limited in duration might prove to have a significant, long-lasting impact once the COVID pandemic ends. 

Over the past 25 years, the American social insurance and welfare systems have historically been designed with several goals in mind. The primary aim has been to provide a safety net for individuals and families facing hardship, but it also includes the goal of incentivizing work and self-sufficiency through time limits, work requirements, and in-kind benefits that are not as fungible as cash.

While in-kind and means-tested benefits have their advantages, they often require a paternalistic attitude by the government, requiring rules and restrictions surrounding the use of welfare benefits. In-kind sources of support, like Medicaid, the government-run health insurance system for low-income households, play a vital role in helping low-income households stay afloat, but still are not as flexible as cash benefits.

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The larger shift toward cash brings new fault lines in the policy debate over how best to help non-working and low-income individuals and households over the long-run. This debate is, in some ways, a continuation of debates over welfare reform in the 1990s, when conservatives were concerned about how the social safety net as it existed prior to 1996 undermined work incentives and marriage. However, the renewed use of cash benefits also brings benefit design into the discussion by emphasizing the importance of direct, clear support to struggling Americans. Rather than requiring people to navigate a complex, bureaucratic and paternalistic maze of benefit programs, cash frees people to focus on tackling the challenges they face.

Cash benefits are resurging in popularity partly because they combine the desire for greater government support by the left with the more libertarian sensibilities of the center-right. Cash does not require a heavy-handed government to regulate its use, and people can use it to fulfill their needs better than any central planner could.

There is plenty of legitimate skepticism, though. New fault lines will emerge in the policy debate if cash benefits continue to grow in popularity and use beyond the pandemic. Cash can be an important source of support, but conservatives make an important point that many drivers of poverty and deprivation have roots in non-monetary problems.

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Social and economic mobility can be encouraged through other means, including job training and access to education or greater community association and civic engagement. We should retain the lessons learned from the experience of cash welfare in the twentieth century, which was poorly designed and discouraged work. Those welfare benefits tended to disappear quickly when a beneficiary began to earn income, which required low-income households to choose between their cash benefits and embracing a work opportunity.

Even if direct cash benefits continue to gain a foothold in American public life, there will remain many questions about their limits and use. Should these benefits be restricted to relieve suffering during economic downturns, or should they be used more universally? Should these benefits replace in-kind or duplicative benefits already aimed at low-income households or families with children? How do we measure the real-time effects of these benefits, ranging from reductions in child poverty to measuring the magnitude of work disincentives?

It might be that not every policy question is resolved by moving toward cash. The limits and tradeoffs of using cash benefits may become more apparent as programs are stood up or reformed, letting policymakers refine them and figure out the role non-cash programs play in helping reduce poverty and improve economic opportunity. What is certain, however, is the pandemic and unprecedented cash relief has pushed us away from our previous way of thinking about the social safety net. Cash benefits are likely here to stay. How much it will result in empowering people to make the best use of their talents and fulfill their potential remains to be seen.

Garrett Watson

Garrett is a public policy professional interested in the intersection of economics and human well-being. He lives in Arlington, Virginia, and is an avid hockey fan and snowboarder.

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