Congress’s Covid Income Redistribution – WSJ

Speaker Nancy Pelosi said this weekend that House Democrats plan to pass a new $2.4 trillion relief bill “that puts money in people’s pockets.” So it’s worth highlighting how the $2.2 trillion Cares Act that passed in March has disproportionately helped blue states that imposed stricter coronavirus lockdowns and have been slower to recover economically.

The Bureau of Economic Analysis on Thursday published its second-quarter state personal income report, and the data show how lockdowns affected earnings and government income transfers. Personal incomes last quarter grew a whopping 34.8% as transfer receipts (854%) more than offset lower earnings (minus-27.5%).

But what a difference a lockdown makes. Earnings dropped most in states like New York (-36.8%), New Jersey (-31.5%), California (-30.8%) and Connecticut (-29%) with stricter and longer closures. States like Utah (-14%), Arizona (-18.1%), Texas (-21.6%) and Florida (-22.3%) that let more industries operate and others gradually reopen had smaller declines.

Construction was forced to shut down almost entirely and contributed significantly to earnings reductions in New York (3.1 percentage points), Washington (2.48) and New Jersey (1.62). States that allowed residential and commercial construction this spring like Arizona (0.25), Florida (0.62) and Georgia (0.80) experienced much smaller earnings declines.

Most states paused nonessential health care during the early days of the pandemic, but some states maintained restrictions longer and broader than necessary to respond to or prepare for an infection surge. Hence health-care earnings fell much more in New York (-3.79), New Jersey (-3.73) and California (-2.28) than in Florida (-1.57), Arizona (-1.58) and Texas (-1.86).

Notably, state and local government accounted for less than 10% of the earnings declines in Democratic states that crushed their economies and are now begging Congress for relief. But they already benefited enormously from the gusher of federal transfer payments this spring including the $1,200 relief checks, Medicaid and food-stamp increases, and especially the $600 enhanced weekly unemployment benefits.

We calculated the per-capita annualized increase in transfer payments, and many Democratic-run states received nearly double what GOP-run states did: New Jersey ($14,033), Illinois ($9,223), New York ($9,030), California ($8,673), Washington ($8,511), Oregon ($8,258) and Connecticut ($7,879) versus Texas ($6,450), Indiana ($6,085), Tennessee ($5,430), Florida ($5,399), Georgia ($5,353) Arizona ($5,326) and Utah ($5,184).

Those seven Democratic states hauled in 24% more in transfer payments relative to their share of the U.S. population while the seven GOP states collected 23% less. Yet these Democratic states continued to boast much higher unemployment rates in August: New York (12.5%), California (11.4%), Illinois (11%), New Jersey (10.9%), Washington (8.5%), Connecticut (8.1%) and Oregon (7.7%) versus Utah (4.1%), Georgia (5.6%), Arizona (5.9%), Indiana (6.4%), Texas (6.8%), Florida (7.4%) and Tennessee (8.5%).

Democratic states have maintained stricter business restrictions, which many small businesses couldn’t survive even with Congress’s paycheck-protection loans. Enhanced unemployment benefits may also have reduced the incentive for workers who were laid off in the spring to return to work even after the $600 expired in August and President Trump substituted $300 weekly.

University of Chicago economists recently estimated that 76% of unemployed workers made more from the $600 weekly jobless benefit enhancement than by working; the median wage replacement rate was 145%. The longer workers stayed unemployed the more extra cash they received, and many probably have savings they can draw on while they stay on the labor market sidelines.

The economic intelligentsia is warning that the recovery will run out of steam without another multi-trillion-dollar relief package, but then why are states that received more government largesse this spring doing so much worse economically?

Journal Editorial Report: Paul Gigot interviews Dr. Martin Makary of Johns Hopkins University. Image: Dado Ruvic/Reuters

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