Democrats blocked economic stimulus bills forty times last year, when Americans desperately needed the help. But in March, they celebrated the delayed passage of the American Rescue Plan Act, a nearly $2 trillion dollar stimulus package that contains a boatload of policies that, unfortunately, have not all worked to trigger a great American comeback. (Turns out paying people to not work while businesses are desperately trying to hire doesn’t inspire economic recovery.)
One provision that mimics the CARES Act, $350 billion to states and cities, has some promise. Sure, the funds favor lock-down governors by giving more money to states with higher unemployment numbers, but at least cities and states have a better understanding than the federal government does of how to get their citizens back on their feet. But the preposterous guidance issued by the Treasury Department on May 7 gives any hope whiplash.
The Rescue Plan says that state and local funds can be broadly used to “respond to the public health emergency” or “its negative economic impacts.” Of course, the negative economic impacts are plentiful: the economy is still 8.2 million jobs below its pre-pandemic peak and more than 400,000 small businesses have closed. So, you’d think, the states would have numerous ways to stimulate an economic comeback: loans for new businesses, competitions for grants, tax-reduction incentives, and the like. Nope! In the name of an “equitable” economic recovery, the Feds have distributed funds differently based on zip code.
For middle-class zip codes and above, economic recovery funds can only go to businesses and people who experienced a negative economic impact themselves. That’s a huge limitation. That means governors and mayors will not be able to offer broad economic incentives to create new businesses or hire new workers. But these are exactly the type of incentives we need: incentives to get people on their feet, supporting their families, and enabling a stable economy years after the Rescue Plan funds have been spent.
A different set of rules apply to other zip codes. For low-income zip codes, funds need not have connection with pandemic economic losses at all. For these beneficiaries, things like social worker salaries, housing costs, lead-paint amelioration, and community violence intervention programs all count as responding to the negative impact of COVID-19.
None of this makes any public policy sense, not least because the purported beneficiaries of the Rescue Plan are the ones paying the price for it. In the wake of free checks, unemployment benefits, and per-child payments, American consumer prices and home prices have spiked, laying the groundwork for runaway inflation. Inflation is a tax on the poor, whose salaries often cannot rise to keep up with inflation and who spend more as a percentage of income on volatile goods like gasoline.
The restrictions announced by the Treasury Department undermine the very law Treasury purports to implement. While the law aims to help all communities recover from the economic impact of COVID-19, the regulation provides only welfare. The Rescue Plan has done enough damage. The funds should be allowed to be put to their best use, not just fixing broken windows. At a minimum, the federal government should set the same grant rules for everyone. Failing to do so isn’t “equitable,” it’s just unfair.
May Davis is a visiting fellow at Independent Women’s Forum and former legal advisor to President Donald J. Trump.