Here are two awful facts about the coronavirus pandemic: It has caused more than 419,000 deaths in the United States. And public health measures to contain it drove unemployment from 3.5 percent of the labor force to 6.7 percent, with lower-wage service workers hardest hit.
It isn’t too early to start talking about the implications of this reality, which could pose yet another source of populist discontent if not appropriately addressed.
The coronavirus windfall extends well beyond plutocrats such as Elon Musk, whose net worth grew from $24.6 billion in March to more than $170 billion in December, thanks to a run-up in the stock price of Tesla, his electric-vehicle company.
Rather, the wealthiest 10 percent of households — roughly 13 million families — which own 88 percent of all stocks, benefited from an 18 percent increase in the S&P 500’s total return during 2020.
Much of the stock market’s rise can be traced to government policy: the Federal Reserve’s commitment to zero interest rates, which stabilized the broader economy, but also encouraged yield-hungry investors to buy shares in lieu of bonds.
A simultaneous 15 percent rise in the median home sale price, to an all-time high of $320,625, benefited all homeowners, but especially owners of houses that could fetch the highest prices. This reflected coronavirus-related demand for single-family living spaces but also, again, Fed interest-rate policy, which helped make mortgages cheaper.
In 2020, if you owned residential real estate or corporate shares, money flowed your way, and you didn’t really have to work to get it, except for the mental effort it took not to panic and sell everything in March when the market temporarily tanked.
What goes up must come down: Many on-paper gains during the plague year may prove transitory. It is also true that government to some extent protected lower-income workers, through extended unemployment benefits and the Paycheck Protection Program for small employers. We probably cannot know the complete impact of the pandemic on wealth and income distribution until it’s over and “normal” times return.
But the data already suggest it is unjustifiable, distributionally, to consider paying nearly all U.S. households $1,400 “stimulus” checks, on top of the $600 already approved in December by Congress, as a bipartisan coalition, stretching from President Biden to Sen. Marco Rubio (R-Fla.), wants to do.
This plan would provide at least some cash to households earning well above the median income, including 75 percent of households in the 90th to 95th percentiles of the income distribution scale, which would get an average of $1,383 each. Money would even go to 13.4 percent of households in the 95th to 99th percentiles, which would receive an average of $90 each, according to the Tax Foundation. Only the top 1 percent would be totally excluded.
The combined cost of the $600 checks and the proposed $1,400 add-on would be $631 billion, a fantastic sum about double what Medicare spent on hospital insurance in calendar 2019 and only about $60 billion less than the Defense Department spent in fiscal 2020.
Instead of showering these amounts on a U.S. population whose members in many cases weathered 2020 intact (or better), Congress and the Biden administration should target low-wage workers in the sectors most severely affected by the economic crunch.
Policymakers should also consider ways in which the government, via the tax code, could tap into some of the essentially unearned extra wealth that already prosperous Americans reaped amid the plague year.
Good candidates would be elimination of the tax deduction for mortgage interest, which cost the Treasury $30 billion in 2020, and about 60 percent of which accrued to households earning upward of $200,000. Also in need of a trim is the exemption from capital gains tax for home-sale profits ($250,000 for individuals and $500,000 for couples). This break totaled $35.9 billion in 2020.
Speaking of capital gains, the top rate, now 23.8 percent, should be nudged closer to the 37 percent top rate for ordinary income.
These would be levies on “rent,” in the Econ 101 sense of profits acquired by controlling existing resources, not generating new wealth. They’d pose little risk of harming incentives, much less indicate premature hawkishness about the deficit.
Carefully targeting “stimulus” checks to those who need them, while clawing back some of the 2020 real estate and stock bonanza, would send two salutary messages: that a Democratic-controlled U.S. government intends to spend dollars according to genuinely progressive principles, not populist slogans — and that it doesn’t intend to borrow every dollar it spends.
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