About a month ago, Congress promised to provide some immediate relief to Americans financially slammed by the coronavirus crisis: cash payments of $1,200 per person and $500 per child, delivered as quickly as possible. Today, tens of millions are still waiting for the Internal Revenue Service to print and mail paper checks, a process that could drag on through September.
Amazingly, this appears to be about as swiftly as the U.S. government can act. Which means it needs a much better system for delivering money to people in emergencies.
The payments — part of the $2.2 trillion Cares Act, signed into law March 27 — are supposed to provide a lifeline as measures to contain the pandemic leave millions of people with no source of income. They cover all but the better off, with benefits starting to taper at an annual income of $75,000 for individuals and $150,000 for couples. Congress tasked the IRS with tracking down and paying qualified recipients, estimated to number between 150 million and 170 million.
Problem is, the IRS lacks the information needed to make all those payments electronically. It has sent money — largely successfully — to the roughly 80 million taxpayers who provided direct deposit information with their 2018 or 2019 returns. That leaves about 70 million to 90 million who fall into one or more less fortunate categories. Most of these filed returns but didn’t use direct deposit. Others are among the nearly 10 million who earned too little to file a tax return, or the 14 million adults who don’t have a checking or savings account.
If the IRS can’t get banking details, it will mail people paper checks at a rate of about 5 million a week (all with the dubious novelty of President Donald Trump’s name in the memo line). Non-filers and the unbanked — disproportionately poor and black or Hispanic — will be among the hardest to track down. So the people who need the money most will probably get paid last, or not at all, leaving them to rely on expensive overdrafts and payday lenders to make ends meet. Many who receive paper checks will go to check-cashing outlets (assuming those are open for business), where they will pay exorbitant fees and further expose themselves and others to infection.
To its credit, the notoriously understaffed and underfunded IRS has been working hard to get the money out faster. Officials have scrambled to create (somewhat glitchy) websites where taxpayers and non-filers can enter banking details. They have worked with the Social Security Administration and other agencies to make payments via DirectExpress debit cards, which are used by some 4.5 million participants in federal safety-net programs (an estimated 3 million of whom are unbanked). They have added a website link with information on how to open an inexpensive, quality-accredited bank account completely online.
There’s more the government can do. It can boost outreach, for example with public service announcements urging people to get their money sooner by obtaining and providing bank details. It can enable payments to private prepaid debit cards and to digital apps such as Venmo and Square Cash. It can help people to correct errors, for example by allowing them to change bank details when payments bounce back from closed accounts. Crucially, the Federal Reserve should use its power under the Expedited Funds Availability Act to require that banks make stimulus money available to customers immediately. It’s absurd that people must wait days for a government payment or check to clear.
Even with those improvements, the process will take time. Smaller cash stimulus programs required a couple of months each in 2001 and 2008. A better system can and should be built. Here’s how:
—Task the IRS with creating a permanent database of payment details for the entire U.S. population, with a portal where people can quickly and easily update their information. If necessary, the government can partner with financial technology companies such as Plaid and Yodlee, which have developed ways to verify identities and account details in a matter of seconds.
—Fund the IRS. Over the past decade, Congress has starved the agency. From 2010 to 2018, funding declined an inflation-adjusted 17% and staff shrank 22%. This loss of people and skills is crippling. Without competent professionals, the agency can’t do its essential work even in ordinary times. During an emergency, threadbare resources make it vastly harder to rise to the challenge.
—Make real-time payments a reality. Delayed payments slow down the U.S. economy and weigh heavily on the poor, fueling demand for the overdrafts and payday loans that cost people an estimated $31 billion in 2018. The Fed can speed things up at once by requiring banks to make more types of funds available immediately — and, in the medium term, it can implement the nationwide real-time retail-payment service that it has long been promising. The U.K., Mexico and many other countries have had such fast payment systems for years.
—Get more people banked. Make safe, quality-accredited options — accounts with low monthly fees, free transfers and no overdraft charges — available to people wherever they sign up for government benefits. Consider providing free accounts to people who need them, either by subsidizing traditional accounts or by authorizing the Fed to offer transaction accounts to individuals.
The Cares Act marks the fourth time in 20 years that the government has sought to support the economy by sending money directly to people. It won’t be the last. With the Federal Reserve’s recession-fighting resources severely depleted, cash payments will almost certainly play a larger role. The government must be prepared to make them quickly.
Editorials are written by the Bloomberg Opinion editorial board.
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