A new way to increase economic opportunity for more Americans

Income inequality at the start of 2020 was worse than it has been at any time in the last 50 years, and that was before the coronavirus hit. Now we face the reality that 8 million Americans have fallen into poverty with the pandemic, even as Jeff Bezos made over $10 billion in one day last year.

As the pandemic drags on with the new year, Americans struggle to cope with reduced economic opportunity. Despite broad public concern about increasing income inequality, there has been little consensus about how to address the problem, which we should be thinking about right now.

We want to suggest an idea to give low income Americans necessities accounts similar to cash transfers but with strings attached. Recipients would only be able to use the funds to pay for basic items and services, such as housing, groceries, and health care. This would give recipients flexibility while having them stay focused on buying essential items.

This proposal is an alternative to unrestricted cash transfers that can be spent on anything, an idea that attracted significant interest thanks partly to Andrew Yang pushing for such transfers in the 2020 race. Economists tend to consider cash transfers one particularly efficient form of support because they can allow recipients to spend the money on what they want rather than what a lawmaker or bureaucrat thinks is best for them. Indeed, evidence shows that cash transfers do not significantly discourage people from working, and they have significant positive impacts for recipients.

An issue with unrestricted cash transfers, however, is that the majority of Americans simply do not think they are a sustainable solution to income inequality. This reluctance is reflected with our elected representatives, who have continued to reject such proposals. Indeed, the chances that Congress could enact broad unrestricted cash transfers, at least for now, are slim to none. On the one hand, many individuals and families would greatly benefit from regular cash infusions, from a current version of the relief packages last year. On the other hand, proposals like this have gone nowhere in Congress, and people cannot survive off of intentions alone.

Our idea could solve this. We ran a national survey with 2,500 people to gather insight into public notions of redistribution. It confirms that, by a margin of almost three to one, Americans strongly prefer the necessities accounts as compared with the unrestricted cash transfers to assist low income Americans. A strong majority supports necessities accounts since the strings attached to this program address concerns of recipients using funds unwisely. These results hold across age, race, gender, education, and political affiliation. This is not a partisan issue across the country.

How potential recipients feel about such a program matters. So we asked low income Americans about their preference as potential beneficiaries of either program. Despite a small preference for unrestricted cash transfers, respondents in this group were actually very close to indifferent between receiving necessities accounts and unrestricted cash transfers. In fact, a significant minority chose necessities accounts and saw the restrictions as a rather useful guide for making smart choices to spend the money.

Taxpayers overall strongly prefer necessities accounts to unrestricted cash transfers, and low income Americans, who are largely indifferent between the two redistribution methods, can still decide how to spend money across several essential items. These results make necessities accounts a strong policy choice to increase economic opportunity.

Developing and launching a program for necessities accounts would of course take time. Some might also argue that, because such a program would be costly, we should cut other social support programs. So while we realize this new program would be costly, we do not believe it is an alternative to any current social support program. In the survey itself, respondents preferred necessities accounts despite being clearly told that this new program would be paid for with a broad increase in taxes.

As Congress develops its agenda this year, it must get to work crafting legislation to enact necessities accounts. They will assist low income Americans in a way that may gain traction. Many Americans need help getting back on their feet as we dig out of the coronavirus downturn. Necessities accounts can provide that help in a way that actually has a chance of success in a divided nation that needs to unite to survive.

Zachary Liscow is an economist and a professor for Yale Law School who has served on the staff of the White House Council of Economic Advisors. Abigail Pershing is a recent graduate for Yale Law School who now works with the European Court of Human Rights as a Robina Foundation fellow.