The CARES Act struggles to live up to its name.

by William J. Arnone, CEO of the National Academy of Social Insurance

Many have made the point that the next round of cash payments must not repeat the flaws of the CARES Act. One critical factor in the delays in getting urgently needed cash into peoples’ pockets was that the Act conditioned its cash rebates to those with taxable incomes below certain threshold amounts. Such income-testing is counterproductive.

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Photo by Sharon McCutcheon on Unsplash

Now is not the time for this approach. Means-tested programs require features that are incompatible with the need for speed in addressing an economic disaster of the magnitude we are now facing. One feature is the basis for verifying eligibility. A related defect is the use of such income to reduce the amount of payments made. Both defects increase the likelihood of delays in implementation.

A program in which all are eligible and payments are the same to all does not involve any time-consuming administrative procedures. As a result, payments will be made virtually immediately by the U.S. Treasury. Millions of beneficiaries in financial stress cannot afford either delays in payments or errors in amounts.

To address concerns that such payments should not go to those who do not need them, the Internal Revenue Service should use a claw-back approach, in which payments made in 2020 are considered taxable income for higher-income recipients and subject to progressive tax rates. This back-end approach will reduce up-front transaction costs involved in eligibility determinations and payment computations, and will not cause needless delays in payments.

As Congress considers another round of economic relief, it needs to revisit the cost-effectiveness of its approach. A simpler, more straightforward, and truly universal system is urgently needed.

To learn more about Income Movement, including how to urge Congress to pass more efficient financial assistance during this time, please view our website at incomemovement.com.

This guest blog post was authored by William J. Arnone, the Chief Executive Officer of the National Academy of Social Insurance.

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