Voodoo Economics

From May 2021, the US federal government started sending all American families direct cash payments of $300 per month, per child under six years old ....

US Federal Child Credit Cheque

.... and $250 to those between seven and eighteen every month. 

Apparently about 90 percent of US families with children will get this new tax relief automatically, thus bringing the US Middle and Upper income earners directly into the welfare system for the first time (Although they have always had tax relief's in other ways). The restriction is that its a tapered amount, with the monthly benefits being reduced for couples earning more than $150,000 pa, or individuals earning more than $75,000 but that doesn't impact most people. 

The current tax relief system in the US has a built in flaw, that actually means that the very poorest don't get anything as you have to be paying taxes to qualify for any relief i.e. earning more than $2,500 a year, so around 10 per cent of the parents are completely ineligible, while a third of the children of the poorest parents don't get the full tax relief as their incomes aren't high enough to get the full amount.

So the Biden government hopes that the inflation bump that this new universal benefit will produce (to an inflation rate that has crept up unexpectedly to 4.2 percent as the economy opens up again), will be temporary, as the economy recovers. At its base level, inflation is caused by having too much money chasing too few goods. So the cost of goods goes up faster than wages can keep up with until you get the Germany during the great depression, or Zimbabwe under Mugabe. The fear is that this sudden influx of money, several hundred or even a thousand dollars a month in some poor families will cause demand for goods and services to rise, and peoples willingness to work in low paid jobs to diminish.

Of course no one could really think that the Biden tax relief will cause the US inflation rate to get pushed much past 5 per cent, but they do think it could hinder the recovery in many states. Because without a doubt, the benefits (welfare) trap exists, and once it kicks in, its very hard to break it. This is where you pay people more money to be unemployed, than what the job market dictates their labour is actually worth if they went to work. And some US employers are unable to fill a record number of job openings, particularly in low or semi skilled roles ... which suggests that fears about a welfare trap are not entirely unfounded.

We have this same problem in the UK, where some people go from school to the grave, and never work. They say that they won't take an unskilled job (the very few employment skills they have after leaving school, often erode rapidly, meaning the longer they are out of a job, the harder it is for them to get one that could pay more than welfare does), unless after tax they are substantially better off than staying at home on welfare .... of course that situation will never arise, so they stay at home, while immigrants, who often come from backgrounds where you work or starve, will take those jobs. 

The US has traditionally discouraged welfare dependency, by making the benefit payments lower than the take home payment of a low paid job, but by altering this delicate balance, the US is entering some uncharted (for them) economic waters, by extending the welfare system into the mainstream (Previous welfare programs involved workfare such as Roosevelt's 'New Deal') ... perhaps they hope that the thousands of immigrants queuing to breach their southern borders, will take now those jobs that those who opt to stay on welfare won't take? 

To me, it seems like a dangerous strategy to adopt, no matter the good intentions behind it ....