This is the fourth post in a series NTU is publishing on the American Rescue Plan (ARP), the $1.9-trillion COVID relief bill supported by President Biden and House and Senate Democrats. The series seeks to examine what’s next for Congress and taxpayers regarding many aspects of this significant legislation. Here are the others, on Child Tax Credit expansion, state taxation of unemployment, premium tax credit expansion, and Employee Retention Tax Credit expansion.
Perhaps the most visible element of the American Rescue Plan (ARP), President Biden’s COVID relief plan that just became law, is the $1,400 checks going to most Americans (and, for parents, to their children). The provision is also the single most expensive part of ARP, costing taxpayers $410 billion, or more than 20 percent of the legislation’s $1.9 trillion cost.
Recent polling and data on how Americans spent the March 2020 $1,200 direct payments from the CARES Act indicates that lawmakers could have safely cut the $1,400 payments in half, saving taxpayers more than $100 billion while still supporting families who most need the help.
A Bloomberg/Morning Consult poll released in February (paywalled) found that more than a third of respondents would “mostly” put the new round of stimulus checks toward savings. Others would put their checks towards items, services, investments, or savings not directly tied to families’ struggles during the pandemic:
- 34 percent would mostly put the check in savings;
- 11 percent would spend most of the check on home improvements;
- 6 percent would spend most of the check on investments in the stock market;
- 5 percent would spend most of the check on vacations or trips; and
- 3 percent would spend most of the check on investments in cryptocurrencies.
More than 40 percent of households making more than $100,000 per year reported their intention to save the check, while more than 35 percent making between $50,000 and $100,000 per year reported they would save the check.
Data from how consumers spent the $1,200 CARES Act checks reveals similar habits:
- Households making $100,000 or more spent between 60 and 65 percent of the money on savings and debt payments; and
- Households making between $50,000 and $100,000 spent 60 percent (or more) of the money on savings and debt payments.
This polling and data indicates lawmakers could have taken several steps to reduce the size and scope of direct payments, short of cutting them from the legislation altogether:
- Reduced the size of the direct payments (Senate Republicans offered $1,000 per adult and $500 per child, 71 percent and 36 percent of the size of the ARP payments, respectively);
- Phased out checks at lower income thresholds (Senate Republicans offered to start phasing out for individuals making more than $50,000 and couples making more than $100,000, with phase-outs complete at $75,000 and $150,000, respectively; ARP starts the phase out at $75,000/$150,000 and closes it at $80,000/$160,000);
- Reduced the size of the direct payments for dependents (the CARES Act dependent payment was $500, 41 percent of the $1,200 payment to adults, and parents will already see a $1,000 (or $1,600) boost to the Child Tax Credit under ARP).
It’s worth noting that for families and individuals truly struggling right now, ARP already does a lot to support them not including the checks: $300-per-week enhanced unemployment benefits through August for any individual who has lost a job, $250- or $300-per-month per-child tax credit expansion, temporary expansions to the Child and Development Care Tax Credit (CDCTC) and Earned Income Tax Credit (EITC), 100-percent subsidies for unemployed or furloughed individuals electing to temporarily keep their employer health coverage through COBRA, and temporary and significant expansions to Affordable Care Act (ACA) premium tax credits (PTCs) that offset the cost of purchasing health insurance on the ACA marketplaces.
The $1,400 payments were unnecessary for many individuals and families that are not financially impacted by the pandemic in a negative way, and this third round of checks in particular may get saved or stored away rather than spent on essentials.