A new round of $1,400 stimulus checks could equal at least 20% of the money low-income families bring home in a full year, according to tax policy experts running the numbers on President-Elect Joe Biden’s proposed financial rescue plan to lift up households rocked by the pandemic’s economic fallout.
And that’s just the start.
Factoring in the expanded tax credits in Biden’s $1.9 trillion “American Rescue Plan,” those projected cash influxes could rise even higher for people living at the income ladder’s lowest ends.
“Right now, the smartest thing we can do is act big,” Treasury Secretary Nominee Janet Yellen said Tuesday at her Senate confirmation hearing, adding that America was already in a “K-shaped economy” before the pandemic, with a stark and growing divide between the haves and have nots.
That echoes what Biden said last week when calling for a spending plan that “does not come cheaply” but “will cost us dearly” if lawmakers don’t enact it.
New projections from tax policy think tanks suggest just how big Biden and Yellen want to go.
For starters, the $1,400 checks would be just over 22% of all the money for houses making up to $18,031, according to the Tax Foundation.
The average amount in stimulus payments per household in that bottom income tier would be $1,942, researchers said, and the average amount would $2,245 for people making between $18,031 and $31,300. That’s nearly 10% of after-tax income for people within this range.
“For the bottom quintile, it’s really a huge increase they are going to see,” Erica York, an economist at the right-leaning think tank.
The Institute on Taxation and Economic Policy, a left-leaning think tank, took it a step further and analyzed the cash value of Biden’s call for $1,400 checks on top of the recent $600 rounds, as well as expansions in the earned income tax credit and child tax credit, two tax provisions geared at lower income earners.
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There’s a combined $3,650 payout for the lowest-income households (people averaging $10,900 yearly incomes) which represents one-third of their money in a year. People making $30,500 would bring in $3,430 according to the research, representing 11% of their annual income.
For the bottom 60% of incomes, the new round of direct payments, plus the two expanded tax credits would average $3,520, equaling around 11% of annual income, the Institute on Taxation and Economic Policy researchers said.
Right now, the Child Tax Credit offers $2,000 for qualifying child dependents below age 17 and up to $1,400 can be lumped into a person’s income tax refund. The credit would be completely refundable in Biden’s plan and the payouts would rise to $3,600 for kids under age 6 and $3,000 for children ages 6 to 17.
Biden would also beef up the Earned Income Tax Credit for 2021. The payout would almost triple to around $1,500 for childless workers and bring the credit’s income limit to approximately $21,000 from $16,000.
Keep in mind, Biden’s proposal is just his opening offer in the bid for more relief to an economy struggling to rebound. From February to March, 40% of the jobs under $40,000 vanished, according to Federal Reserve Chairman Jerome Powell, a proponent of more spending. After double-digit jobless rates in the spring, the unemployment rate stands at 6.7%. December was the first time in eight months that the economy lost jobs.
Also of note: There are still other provisions targeting struggling workers in Biden’s proposal, like more money for supplemental federal unemployment benefits that would be distributed over a longer period. Supplemental weekly benefits would rise to $400 from $300 and last through September instead of March.
The question is whether Congressional Republicans will go along with the Democratic president’s plan.
“Unfortunately, Biden’s swampy stimulus package — which makes Obama’s 2009 stimulus look like a dime-store bargain — is full of the same failed big-government policies that will line the pockets of state officials and bloated government agencies,” according to a statement from two economists at the Heritage Foundation, a right-leaning think tank.
Obama’s American Recovery and Reinvestment Act of 2009 had a $787 billion price tag.
“Stimulus checks might appear to be a generous benefit, but is sending billions of dollars to the vast majority of Americans who have not lost their jobs or had hours cut truly a wise use of taxpayer dollars?,” said Matthew Dickerson, director of the foundation’s Grover M. Hermann Center for the Federal Budget, and Paul Winfree, director of the Thomas A. Roe Institute for Economic Policy Studies within the organization.
“We are not out of the COVID-19 situation yet and this is what we need,” according to Steve Wamhoff, director of federal tax policy at the Institute on Taxation and Economic Policy.
“I think what’s reckless is to not do enough,” he said, saying too little spending hampered the recovery from the Great Recession. “We would be reckless not to act.”