Biden Stimulus Could Make 2021 Even Stronger
President Biden outlined what he hopes will be the first half of an economic stimulus plan. In addition to $350 billion in state and local government aid, $170 billion for K-12 schools and higher ed institutions, $50 billion for COVID-19 testing, and $20 billion toward a national vaccine program, here are the highlights of the $1.9 trillion American Rescue Plan that would impact individuals:
Enhanced Checks: An additional $1,400 to households that qualified for the first $1,200 payment under the Cares Act and the second ($600) round, enacted before the end of 2020. The proposed $1,400 would be available for individuals with income (wages, Social Security, and/or pension) under $75,000 ($150K MFJ).
Money for Older Dependents: The Biden plan would expand eligibility for dependents. The first two extra payments for dependents were only available for kids under age 17, while the proposed money would go to all dependents, regardless of age.
Increased Supplemental Federal Unemployment Benefits: $400 per week (on top of state unemployment programs) through the end of September. The $300/week supplement from the December plan only runs through March 11.
Extension of eviction and foreclosure moratoriums: These protections were set to expire Jan 30 and under the proposal, would be in place until September 30.
Increase federal minimum wage: $15/hour from current $7.25/hour. While states can set their own minimum wages (29 states, plus the District of Columbia, Guam, and the Virgin Islands have minimum wage rates higher than the federal minimum wage), Congress last raised the federal minimum wage in 2009.
Expansion of paid sick and family leave: The Biden plan would expand the universe of workers who could claim sick and family leave due to COVID-19 through September 2021. The plan calls for a $1,400 per week maximum, up to a full wage replacement of up to $73,000 annually.
Increase Child and Dependent Care Tax Credit: For 2021, the Biden plan would make the credit available to more families, would increase the credit amount to $3,000 per child ($3,600 for each child under the age of 6), and would make it fully refundable (meaning even those who don’t owe taxes will get the money) to households that earn below $125,000. The credit would be partially available for those earning between $125,000 and $400,000.
Expansion of the Earned Income Tax Credit (EITC): For 2021, the Biden plan would allow more Americans to claim EITC by increasing the income limit from those making less than $16,000 to $21,000, by allowing those who are over age 65 to claim the credit, and would increase the tax credit for those who do not have children.
Increase the Supplemental Nutrition Assistance Program (SNAP): The $900 billion in stimulus that passed in December instituted a 15 percent increase in monthly SNAP benefits for the first half of 2021. The Biden plan builds would extend the time horizon through September.
Expand healthcare coverage: When the Affordable Care Act was rolled out under the Obama Administration, a number of Americans who needed insurance made too much money to qualify for government subsidies. The Biden plan would expand the current income caps to 8.5 percent of an individual or family’s income on premium contributions and would increase the subsidy amount for lower income Americans.
Another round of stimulus seems more important as cases of COVID spike across the nation and slowdown the recovery. The Biden plan attempts to brighten the dim outlook for the economy in the coming months, or at least until a large portion of Americans are vaccinated.
Although the near term looks ominous, economists are expressing great optimism about the second half of the year. Jennifer McKeown of Capital Economics believes that 2021 growth “in many major economies will surprise on the upside,” as consumers will be eager to spend some of their built-up savings accumulated since last March. Similarly, Alicia Levine, the Chief Strategist at BNY Mellon Investment Management points to a recovery “by the middle of the year,” as Americans unleash “a large amount of pent-up private demand.”
In fact, after shrinking by 3.6 percent in 2020, the consensus among economists is that the U.S. economy will grow by more than 4 percent this year, which would be “the strongest pace in 20 years,” according to Diane Swonk, Chief Economist at Grant Thornton. With a boost of additional stimulus in the range of $750 billion - $1 trillion, economists at Morgan Stanley and Goldman Sachs are predicting an even stronger pace of 5.9 and 6.4 percent, respectively.