September 29, 2021

Democrats Plot Massive Government Handouts


KEY TAKEAWAYS

  • Democrats’ reckless tax and spending spree will vastly expand Americans’ reliance on government programs.
  • They want to make recently expanded Obamacare subsidies permanent and redesign the child tax credit into a monthly allowance detached from work.
  • Through other programs, Democrats would have Washington exert tremendous control over child care, preschool, and higher education. 

With their reckless tax and spending spree, Democrats are aiming to do more than burden Americans with higher taxes and more debt. They intend to transform our economy, imposing sweeping policies that will dramatically change how Americans interact with the federal government.

Democrats Expand Cradle-to-Grave Welfare, Even at Higher Incomes

Democrats Plot Massive Government Handouts

Their scheme will increase Washington’s control over Americans’ lives, from health care to college choices to how they care for children and other loved ones. Democrats’ new programs expand society’s dependence on government all across the socioeconomic spectrum, failing to promote work on one end and providing lavish subsidies detached from financial need on the other. This is an unsustainable promise of benefits that the country cannot afford.

expanded ACA subsidies

Democrats are moving to make permanent their dramatic expansion of Affordable Care Act subsidies. They had made this benefit more generous in their partisan “COVID-19 relief” law in March, but it was only temporary. Under that expansion, lower-income people pay nothing for their ACA coverage. It set the benchmark silver plan premium at $0 for people making annual salaries below 150% of the federal poverty level. People who received unemployment insurance at any time last year will pay $0 in premiums for a silver plan if they qualify for ACA coverage. Others, regardless of their income, pay no more than 8.5% of their income for ACA insurance. All of these changes would become permanent.

The original Obamacare subsidy limit on income – 400% of the federal poverty level – was also removed, expanding the ACA to higher-income people. This expansion will mean hundreds of dollars in subsidies each month for people who previously were ineligible for ACA plans. According to a Kaiser Family Foundation study tracking these changes, a family of two adults with a 5-year-old child who live in central Missouri and have an annual income of $100,000 – or 460% of the federal poverty level – would receive a monthly subsidy of $875, or $10,500 per year. Another study pointed out the inequality resulting from the policy change. Older adults with high incomes receive significant savings from the subsidy expansion while younger families with lower incomes do not get the same treatment. 

government-run paid family and medical leave

Democrats want to transform how people take time off for family or medical reasons, by creating a federal entitlement to 12 weeks of taxpayer-paid leave. Under the program, people can apply when they become a parent, if they have a serious health condition, for reasons connected to a family member’s military deployment, or if they are caring for a sick relative. These relatives include spouses and children, but also siblings, grandchildren, spouses of family members, and others related by blood or “affinity” – basically anyone the Treasury Department decides is just like family. People qualify based on their recent earnings, which means they do not have be employed when they apply.

The benefits replace part of people’s wages. The amount is prorated if they claim caregiving credit each week for fewer hours than they typically worked in a week, though people cannot get credit for more hours than in their regular workweek. People with higher incomes can get significant benefits. Two working parents who each earned $250,000 annually could each apply to care for a newborn child, each claiming credit for the same number of hours they typically worked each week. They each could get roughly $1,200 a week for 12 weeks – $28,800 combined.

Workers who currently get paid leave through their job, or whose employer was planning to set up a paid leave program, could see that option disappear. In general, Democrats’ bill would reimburse employers for some, but not all, of the costs of their paid leave programs, and only if the employers comply with certain requirements. Employers could decide it is easier and cheaper to have their workers go through the federal program instead.

Nine states and the District of Columbia have their own paid leave programs in place or are preparing to start one within the next few years. Even though the Democrats’ plan will send grants to the states for their programs, those programs would have to meet certain standards. They also could decide it is easier to let Washington handle it directly.

American families already have to deal with the paperwork and headaches of filing taxes with the Internal Revenue Service once a year. Democrats’ plan would require them to go through another faceless bureaucracy at the Treasury Department to take paid time off for family or medical reasons, rather than arranging it with the employer they see every day.

Democrats say the program will ensure people who don’t get paid leave at work or through their state can get it, and that it will replace at least two-thirds of income for most workers. It’s unclear if everyone would participate, though, especially if they cannot afford to forego some of their salary. This may have happened with California’s paid leave program. The state reported that from 2017 to 2019, claims paid to workers earning the lowest amounts – less than $20,000 – dropped by 6%, while those paid to people making $100,000 or more increased by 33%. The legislature passed a bill to boost the wage replacement rates, but the governor vetoed it, citing the high cost.

monthly child allowance

The Democrats’ legislation would fully redesign the Child Tax Credit to match their preference for welfare without work. Modeled after provisions they enacted in their partisan “COVID relief” law, the CTC would be reestablished as a monthly, fully refundable child allowance. Parents or caregivers could get a monthly payment of up to $300 for children under the age of six and $250 for children six and up, with a gradual phaseout based on income. The IRS, which often struggles to perform its primary mission, will be tasked with setting up a remarkably complex program, including an internal tribunal to adjudicate between taxpayer claims for the same allowance.

Unlike the previous credit structure, which included earned income refundability thresholds to incentivize work, recipients would not be required to earn any income to receive the credit. In some cases these monthly payoffs – stylized as “tax refunds” – will go to people who do not intend to work or pay income taxes at all. In one fell swoop, Democrats would undermine our nation’s welfare model – which largely tries to leverage work requirements to lift people to self-sufficiency – and repurpose our tax code to advance their partisan vision of the welfare state.

The CTC itself is not a partisan policy; Republicans led the charge to create the credit in 1997 and doubled its value in the 2017 tax law. Since its creation, however, it has always focused on supporting working families. Democrats could have worked with Republicans to refine and extend this support, but they chose to use the program to stealthily get the country one step closer to a universal basic income.

New Child Care and preschool entitlements

Democrats propose spending $450 billion on massive child care and preschool entitlement programs. They could have worked with Republicans to improve upon programs like Head Start and the Child Care and Development Block Grant that have had support from both sides of the aisle. Instead they are pushing policies without input from Republicans.

Under the child care program, only children from families earning up to 100% of state median income are eligible in the first year, but the limit goes up each year. At the House Education and Labor Committee markup, Democrats removed the income limit, which they originally set at 200% of SMI, starting in 2025, making more high-income families eligible. For comparison, the CCDBG program caps eligibility at 85% of SMI. To be eligible for the child care subsidies, families cannot have more than $1 million in assets. One parent has to be doing one of the eligible activities, such as working, job training, receiving health treatment, or going to school. Under the program’s sliding fee scale, parents would pay nothing for child care if they make up to 75% of SMI, while families making above 150% of SMI pay no more than 7% of their income. Democrats’ bill would make all licensed child care programs eligible, but providers would have to comply with requirements and regulations dictated by Washington. They would have to do things like follow new state wage scales that pay staff a “living wage” and equal the salaries of elementary school teachers in the state.

Democrats’ universal preschool program would expand public education by two years on the young end, requiring participating states to offer it to all 3- and 4-year-olds, regardless of financial need. As with child care, parents currently choose from a variety of options for their preschool-aged children. These include child care centers; faith-based, nonprofit, and for-profit providers; family child care homes; Head Start centers; and public schools. There are no guarantees that all types of providers will be able to meet the rules the new program sets for states, which also include paying preschool staff wages equal to those of elementary school staff with similar experience and education.

These new programs would dramatically increase Washington’s role in decisions about early childhood care and education. In states that participate, providers that cannot meet the program requirements will struggle to compete with providers that will become free or lower cost for parents, and they could be forced to close. House Republicans warned that Democrats’ plan could leave parents with fewer choices in the care of their young children. 

“Free” Community College

Democrats also would expand public education by two years for older students, promising tuition-free community college. The federal government already provides more than $120 billion each year in student financial aid, largely through loans and Pell Grants. Students get Pell Grants based on their financial need, and because the average grant for students at public two-year colleges is higher than the average tuition and fees, tuition is free or low-cost for many students. Democrats’ new program is not based on need; students from families with high incomes would be eligible. With the average in-state tuition and fees at a public two-year college of $3,770 a year, a wealthy family could get a government benefit worth more than $7,500 over two years that they could have afforded themselves. Democrats also are making students eligible regardless of their citizenship or immigration status.

Students currently use their Pell Grants and student loans at the school where they decide they will do best. That could be a community college, private two-year school, or public or private four-year university. Democrats’ new promise of “free” tuition could push students toward community colleges – which have had low completion rates – when they might do better at another type of school. According to the National Student Clearinghouse, only 42% of students who enroll in public two-year colleges finish their degree or certificate within eight years.

Democrats’ new program requires states to set their tuition at $0. At first, the federal government would give states grants equal to 100% of the median resident tuition rate for all the states, on a per student basis, but that would decrease to 80% within several years. To participate, states would need to find the money to cover any difference between the nationwide rate and the tuition they currently charge, plus a matching payment that eventually covers 20% of the median resident tuition.