The federal government is poised to give the typical American family enough money this year to buy a month-long vacation, a Harley Davidson motorcycle or 200 shares of GameStop. Most recipients won’t spend the money that way, but they’ll benefit from unprecedented largesse all the same.
With Congress likely to soon pass President Biden’s $1.9 trillion American Rescue Plan, the cash transfer to a typical family of four will total at least $10,000 in 2021, and considerably more for some households. The coronavirus pandemic isn’t the first crisis the government has responded to with stimulus checks and other types of cash relief. But fiscal stimulus during the last 12 months dwarfs the response during the Great Recession in 2008 and 2009, and during any other downturn since the 1930s.
Here’s how different types of aid add up to $10,000. A family of four earning less than $150,000 already received four stimulus payments of $600 per person in January. The Biden bill would include another set of payments, of $1,400 each. That totals $8,000.
The Biden bill also would also raise the child tax credit from $2,000 to $3,000, an extra $1,000 per kid, with an additional $600 for each child under 6. Families that pay little or no income tax would get the full amount of the credit in cash, and instead of coming as part of the following year’s tax return, the payments would arrive monthly. Combined, the stimulus checks and tax credits range from $10,000 to $11,200 per family, based on the age of the two children.
There’s more. The Biden bill would also boost federal unemployment insurance payments from $300 to $400 per week, through September. An increase in the child care tax credit could shave several thousand dollars off the annual cost of care, for families earning up to $150,000. For low-income workers without kids, a boost in the earned-income tax credit could put an extra $964 in the bank.
The amount of aid is so substantial that in a Feb. 24 research note, analysts at investing firm Raymond James declared, “a test of universal basic income has arrived in the United States.” UBI, as it’s known, is a controversial strategy of providing every adult citizen with an annual cash stipend, to spend as they wish. Democrat Andrew Yang proposed a UBI of $1,000 per month on an ongoing basis, when he ran for president in 2020. (He didn’t win.)
The stimulus payments going out in 2021 aren’t technically UBI, because they’re one-time transfers—or, they’re supposed to be. In reality, Biden’s bill would trigger the third set of stimulus checks, following $1,200 checks that went out last April and the $600 checks from earlier this year. Congress won’t do this in perpetuity, but the Raymond James analysis does note that “once a benefit has been created through legislation, it is very difficult to reverse.”
Stimulus checks are expensive. The batch in Biden’s bill will cost $422 billion, money the Treasury will borrow and add to the $28 trillion national debt. That’s the single-costliest measure in the bill. Economists don’t love checks blanketing most Americans, because they don’t target people who have lost income and are struggling the most. Still, Biden and his fellow Democrats promised $2,000 in additional payments last fall, if they won the White House and Congress. They did, and the $1,400 checks that would bring the 2021 total to $2,000 are a campaign promise Biden needs to fulfill, even if imprudent.
Once he’s met that promise, Biden may not seek any additional stimulus payments. Some of the new tax breaks could endure, however. The increase in the child tax credit in the Biden stimulus bill is temporary, but some policymakers argue that permanently enlarging this tax break would substantially help people living close to the poverty line, including up to 5 million children. It wouldn’t be surprising if Democrats pushed to make this change and perhaps others permanent.
Can the United States afford all this spending? Who knows!? Once upon a time, politicians tried to finance most new spending with tax hikes or spending cuts elsewhere. Such fussiness is out of fashion. Congress has passed $4 trillion in stimulus spending since the pandemic erupted last March, and Biden’s bill would push that close to $6 trillion. All of that has come from new Treasury borrowing, on the premise that massive spending now will speed the recovery and get people back to work faster, which in turn will boost output and improve tax revenues down the road. Sounds, uh, good.
Republicans are wagging their fingers, but they don’t have much room for criticism, given that the 2017 GOP tax cuts also added to the deficit, with none of the trickle-down magic that was supposed to turbocharge the economy. They’ll have more to complain about later this year, when Biden is due to unveil an infrastructure program that could top $2 trillion. There’s always more where that came from.
Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. You can also send confidential tips, and click here to get Rick’s stories by email.
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