Challenges of Equitable Rapid Response Cash Payments

The Issue:

As businesses stop, layoffs skyrocket, and consumers hunker down, there is a rapidly growing consensus about sending people cash directly to help them cope with the economic fallout of the coronavirus pandemic. Cash transfers have been successfully carried out as a rapid-response to emergency economic disruptions, such as a natural disaster with a targeted affected zone and population, as well as more prolonged and widespread efforts to address poverty in many low- and middle-income countries. But, these cash transfers require a necessary infrastructure for the disbursement of funds. For the United States to effectively use cash disbursements to help people during the coronavirus crisis, it will also require finding the appropriate infrastructure to ensure that the payments are rapid, widespread and equitable — and are able to get to those who are in most desperate need, who are often the hardest to reach.

Effectively disbursing cash in the coronavirus crisis requires finding the infrastructure to ensure that payments are rapid, widespread and equitable.

The Facts:

• Millions of people across the world have been recipients of cash transfers, with programs that have established ways for distributing awards. Cash transfers are now the top recommended policy strategy by UNICEF to support economically vulnerable families and children in low- and middle-income countries. These cash infusions are ongoing and a permanent feature of this policy landscape, for example, prevailing conditional cash transfer programs across Latin America and Africa. As such, an infrastructure has evolved for the disbursement of cash organized through government efforts, economic development agencies, non-governmental organizations, humanitarian aid or equivalent charitable organizations. The use and successful implementation of cash transfers to date though has been targeted to the people and families in circumstances and settings who are suffering the most. Cash transfers as public policy has gained some support in the United States, in particular universal basic income proposals touted by proponents such as Chris Hughes, Andrew Yang, Y Combinator, Give Directly and others. But, in the U.S., unlike existing ongoing social programs of income support, a countrywide rapid response to an acute crisis does not have an existing infrastructure.
• Rapid cash transfers in the United States to combat the economic consequences of the coronavirus pandemic would need to rely on existing systems for disbursement. Senate Majority Leader Mitch McConnell (R., Ky.) introduced legislation March 19, calling for taxpayers to receive up to $1,200, with married couples eligible to receive as much as $2,400 with an additional $500 for every child. Few details were available as to how the payments would be made in this proposal. A cash infusion policy is only as effective as the infrastructure that can support its disbursement. Many of the existing and proposed programs that currently target low-income families in the United States to disburse credits or refunds rely on the tax system. A letter from six Senators to Senate leaders McConnell and Schumer proposes that, beginning almost immediately, checks are sent through the mail to taxpayers, seniors on Social Security would receive payment from the Social Security Administration, veterans would receive payment from the Veterans Administration. Supplemental Security Income recipients and recipients receiving other types of public benefits such as food stamps would similarly receive these transfers through their existing electronic benefit transfer (EBT) cards.  
• Some basic estimates demonstrate the challenges of the implementation of cash transfers for low-income individuals and families who might bear especially high risks. Existing cash transfer efforts globally most typically rely on a charitable organization or agency for disbursement, and accordingly, the targeted population is well defined. But this infrastructure — indeed any national inclusive infrastructure — does not exist in the United States, and the demand for a rapid response to the crisis may leave many people out. 
• Reaching low-income people through the tax system can be difficult. Many families do not file taxes even when it is in their best interest — when doing so would award them a cash refund. We do not have precise statistics on how many low-income individuals and families engage formally with the tax system but best estimates suggest that only 1 in 5 who are eligible for the earned income tax credit — the largest tax refund available — actually file and receive the benefit (on average about $2,476 during 2019). 
• Disbursement through the U.S. postal system would be an alternative. However, low income individuals and families are also highly mobile, with recent data suggesting that up to 20 percent move to a different residential address in one year, and many have no reliable addresses, making the successful mailing of checks to them suspect. Furthermore, nearly 500,000 families and individuals experience homelessness on a single night in the United States or are unsheltered, again with no reliable address to which checks could be sent. 
• An alternative to mailing checks is to have direct deposits to bank accounts but this too could miss the approximately 6.5 percent of the population who is unbanked—where no one in the household had a checking or savings account. Approximately 8.4 million U.S. households, made up of 14.1 million adults and 6.4 million children, were unbanked in 2017, according to the Federal Deposit Insurance Corporation. Low-income, less educated, minority-headed, and unemployed households have unbanked rates well above the national average: more than a quarter of households with incomes below $15,000 do not have bank accounts. Cash transfers via check is not the same as cash in the hands of people: converting checks into cash is not an equitable affair because of check cashing fees imposed by banks and alternative (sometimes predatory) financial service vendors (see here). Efforts to find people through existing EBT cards are admirable but many income eligible families are not connected to or receiving these types of public benefits. For instance, only 85 percent of individuals who qualified for Supplemental Nutrition Assistance Program (SNAP, formerly known as food stamps) received benefits in 2016. And further, with dramatic devolution of authority over social benefits to states and counties, the idea of a seamless federally generated response is riddled with hurdles.   
• Cash transfers—equitably distributed—will help people weather the storm in the short term, for example by being able to pay rent or utility bills, or to buy groceries. Its longer-term or broader macroeconomic benefits will be limited. Providing cash offers an important safety net, especially for people who do not have adequate savings to support them during a severe economic downturn. But the public health mandate of sheltering or quarantining with resulting closure of businesses will preclude people from spending freely on a range of goods and services that are big boosts to the overall economy (and a source of employment for many low skilled workers), including in the entertainment, retail, and tourism industry, and this could limit the overall long-term and macroeconomic stimulus from such a cash infusion.