The $ 1.9 trillion stimulus package proposed by President Joe Biden would provide significant financial support to the poorest American households, who have experienced higher income figures and job losses during the years. corona pandemic, finds a new analysis.
Under the plan advancing in the House Ways and Means Committee, the next incentive bill would send $ 1,400 to eligible people, as well as expand Child Tax Credit (CTC) and Earned Income Tax Credit (EITC). In all, the three programs would boost the pre-tax income of the poorest 20% of Americans by 33% – or an increase of $ 3,590 per family – according to the Institute on Taxation and Economic Policy.
The three programs – a third round of incentive checks, plus the two comprehensive tax credits – would provide a similar dollar amount of average benefits to 95% of US households, the ITEP analysis found. But the impact would be much greater for lower-income households, as the benefits would represent a higher proportion of their income. That’s important because the lowest-earning households are more likely to spend that money quickly, boosting the economy and stabilizing their own households, ITEP director of federal tax policy Steve Wamhoff told CBS MoneyWatch.
“There are reasons why this is important at the micro level – helping people who need it – but also at the macro level, the best way to do that is to get money from people who will spend it,” he said.
Middle- and high-income Americans have recovered faster than lower-income households during the economic downturn due to the pandemic, in part because the latter are more likely to work in industries that have been more affected, such as restaurants or retail.
That creates different spending patterns, with households typically earning more than $ 78,000 take away their second stimulus checks, According to a recent survey, the $ 600 payments that the US began to send out in December are. In contrast, lower-income families tend to spend the money.
An advantage of $ 3,590
The benefit of the three programs would provide a total income of $ 3,590 for the poorest fifth of Americans, who earn an average of $ 10,900 annually, ITEP discovered. The benefit to the middle 20% of households would be similar at $ 3,370, but would have a smaller proportional impact due to their higher mean income in that quintile at $ 51,500 per year.
Another study from the Tax Policy Center found a similar impetus from the proposed stimulus plan, with its analysis predicting that the lowest one-fifth of U.S. earners would see an after-tax income increase of 20%. Two-thirds of the proposed benefits would be spent on households earning $ 91,000 a year or less, the Tax Policy Center found.
About 11% of the benefits would be enjoyed by households in the top 20% of earners, or those with incomes of $ 164,000 or more, he said.
“The House Ways & Means Committee could have better focused on both economic impact payments and the improved CTC,” Howard Gleckman of the Tax Policy Center wrote in a blog post. “Still, the bill would provide significant relief to low and middle income households at a time when many are in deep economic distress.”
Child tax credit
One of the major changes in the incentive effort would be a revision of the child discount. Under the plan, the CTC would expand to $ 3,600 for kids up to 6 years old and $ 3,000 for kids up to 17 years old.
The current limit of the CTC is now $ 2,000 for many families, although benefits for the poorest families are limited. That is one of the reasons why some anti-poverty advocates have pushed for a review of the tax credit. For example, researchers from Stanford University and Syracuse University found last year that ‘the vast majority of children in households in the bottom decile [or bottom 10%] of the national [income] distribution is completely ineligible “for the credit.
Under the Democrats’ plan to expand the CTC, an additional 4.1 million children would be lifted out of poverty, according to the Center on Budget and Policy Priorities, a left-wing think tank. The plan would also make the tax credit payable on a monthly basis, rather than being claimed annually when you file your taxes.
In other words, a family with three children under the age of 6 would receive an annual CTC of $ 10,800, which would be deposited into their bank account by the IRS in monthly payments of $ 900.
The proposal would also extend the Earned Income Tax Credit to more childless, low-income workers, increasing the maximum tax credit for childless adults from about $ 530 to about $ 1,500. It would also increase the income limit from about $ 16,000 to at least $ 21,000 to qualify, the CBPP said.
Overall, the biggest boost to a lower-income household’s finances is likely to come from the proposed $ 1,400 checks, the ITEP analysis found. But for families with children, the benefit of the expanded CTC can be significant – even in some cases, it surpasses the boost from a third stimulus check, the analysis found.