Half a century ago an eminent economist, Arthur Okun, coined the term “misery index” — when the combined unemployment and inflation rates hit double digits, it’s misery for the party in power.
That’s where the Democrats are today; if it stays there, November will spell misery. The misery index was largely responsible for the defeat of two incumbent presidents, Gerald Ford and Jimmy Carter.
There is very little Democrats can do to change the macro picture over the next six months. That rests with the Federal Reserve and global events.
However as Congressional Democrats struggle to put together a much-delayed budget measure, there are things they can do to help those most hurt by the ravages of inflation. At the top of that list would be the child tax credit, more specifically to make it refundable, which would provide more assistance to 25 million poor children, lifting 2 million kids out of poverty.
The Republicans, in their 2017 tax bill, doubled the child tax credit to $2,000 per child up to a couple earning up to $400,000. The Democrats last year raised it more and made it refundable, which means that poor families that pay little or no taxes get the benefit.
But that was not extended, so the level and the non-refundability reverted to pre 2021 levels. The credit shouldn’t go to upper-middle-class families, but that’s settled.
Making it refundable and providing much needed support for those millions of poor kids is precisely the sort of family-friendly measure a child tax credit should be about. Inflation always is unfair: It impacts more on the poor who do not have discretionary options.
Congressional Democrats are trying to devise a budget (after failing last year) that would set aside a slice for deficit reduction. If that leaves $1 trillion, over a decade, most of it will be taken up by climate expenditures and expanding the Affordable Care Act. But there would be enough room to squeeze an estimated $66 billion over ten years — that’s the estimate of the liberal but reliable Center for Budget and Policy Priorities — for poor children.
Critics, many Republicans and Sen. Joe Manchin (D-W.Va.), have charged making it refundable would create incentives not to work. There even are charges that some recipients would spend the extra money on drugs rather than their kids.
No doubt there are irresponsible poor parents — just as there are irresponsible United States Senators or irresponsible campaign contributors.
Okay, let’s assume several hundred thousand of the beneficiaries, mainly single parents, might leave the work force as a study by the Niskanen Center projects. But it goes on to project a huge decline in childhood poverty, millions of poor children with a healthier experience, more likely to stay in school, to get a job pay taxes.
That’s a terrific trade-off, a hell of an investment.
It’s bogus to say this investment would be inflationary. Jason Furman, the former chair of the Council of Economic Advisers and a relative inflation hawk, has written the inflationary effects would be de minimus.
Since most politicians can’t really do much about inflation before the next election, they spout off. Republicans talk about slashing spending — usually without saying what spending — or offer false bromides like ‘energy prices would be lower if President Biden hadn’t cancelled the Keystone Pipeline.’
The relief spending last year contributed to the higher inflation as top Democratic economist Larry Summers predicted. His public pronouncements infuriate the Biden political team. They should have thought twice before they capitulated to the left and dumped him from the economic advisory team during the presidential general election.
The left’s flavor du jour now is to blame inflation on corporate greed. I would never underestimate unmitigated greed, but this is more talking point than policy.
As a young reporter, my first big story was covering Richard Nixon’s wage and price controls, where the government literally set all prices and wages. (A shout-out to anyone who can identify the two men who ran wage and price controls for Nixon?) It brought down the inflation rate for the president’s reelection in 1972. Then it created a bubble that burst — and there was raging inflation in subsequent years. It took Fed chairman Paul Volcker’s painful medicine to return to normal.
Hopefully the return to normal won’t be nearly as painful this time.
In the meantime, it should be an easy call for the politicians to provide help for those hardest hit — tens of millions of poor children.
(FYI: Donald Rumsfeld and Dick Cheney ran wage and price controls for Nixon.)
NOTE: This post has been updated from the original to correct the spelling of Jason Furman’s name.
Al Hunt is the former executive editor of Bloomberg News. He previously served as reporter, bureau chief and Washington editor for The Wall Street Journal. For almost a quarter century he wrote a column on politics for The Wall Street Journal, then The International New York Times and Bloomberg View. He hosts Politics War Room with James Carville. Follow him on Twitter @AlHuntDC.