Why Biden’s American Rescue Plan Cutting Poverty Is A Massive Win For America
Analysts say the American Rescue Plan is “the most far-reaching anti-poverty legislation [passed] in more than 50 years" in the United States.
The $1,400 stimulus checks already hitting people’s bank accounts days after President Joe Biden signed the American Rescue Plan into law are a major feature of the latest COVID-19 relief plan passed by Congress. The president’s first major piece of legislation represents a generationally historic shift in welfare policy, and multiple studies have found a lesser-covered but no less crucial benefit: that the bill could cut child poverty in half in 2021.
“I would say this is the biggest anti-poverty plan we’ve seen in the country since the [expansion] of Social Security back in the 1960s,” Zachary Parolin, a Columbia University researcher, said in an interview with NowThis.
Parolin and his team published an analysis of the $1.9 trillion plan in January that found the law could reduce the overall poverty rate from 12.6% to 9%, with larger reductions for Black and Hispanic families. It’s a significant reform in a package with specific beneficiaries ranging from Native American programs to Black farmers.
The Columbia research is backed up by other independent analyses. The Urban Institute, a nonprofit research organization, found that four key elements of the widely popular American Rescue Plan would cut the projected poverty rate for 2021 by more than one-third, and cut the child poverty rate by more than half.
The focus on poverty in the package, which gained no Republican support, also marks a shift among a Democratic Party that for more than 25 years has eschewed and stigmatized welfare — and the success of progressives including Sen. Bernie Sanders (I-VT) and his allies.
Both the Columbia and Urban Institute studies cite a new child allowance in the American Rescue Plan, which essentially converts an existing child tax credit into a “near-universal benefit,” as Vox described, including giving families up to $3,600 annually for kids 5 and younger and $3,000 annually for children aged 6 to 17.
The other three key elements of poverty reduction cited by the Urban Institute are the $1,400 stimulus payments, the extension of unemployment insurance benefits, and the extension of food stamp assistance, or Supplemental Nutrition Assistance Program (SNAP) benefits for families.
Vox correspondent Dylan Matthews wrote that it’s “the most far-reaching anti-poverty legislation in more than 50 years” and compared Biden’s efforts to those of former President Lyndon B. Johnson, who presided over a “massive decline” in poverty.
Currently, the child care tax credit in the U.S. is $2,000 annually per child under the age of 17.
“The expanded credit is not only more generous — it currently maxes out at $2,000 per kid under 17 — but also includes in its scope poor families that don’t qualify for the full $2,000 per year under the current rules. For the first time ever, families with no taxable earnings will be able to claim the full credit,” Matthews explained.
Parolin told NowThis that the credit “is the closest thing we’ve ever had to an unconditional cash transfer to families with children.” He also cited other high-income countries, including in the European Union, that already give families with children “some type of cash benefit on a monthly or at least a regular basis.” Child poverty rates in Europe have historically been lower than in the U.S.
“The U.S. for a long time has been one of the only countries, high-income countries, without this type of support for families,” Parolin said.
The IRS will pay out the benefit periodically to recipients, according to the law, rather than as a sum wholly allocated to families as part of a tax refund. The benefits could start hitting accounts as soon as this summer.
New York Times reporter Jason DeParle wrote that despite the “technocratic terms” of expanding an existing tax credit, the benefit is “essentially a guaranteed income for families with children, akin to children’s allowances that are common in other rich countries.” The Times calls it a “policy revolution” in aid for children.
The American Rescue Plan also includes key benefits for adults not raising children
While the expanded child allowance is a main factor in cutting child poverty by half, analyses have also studied the effects of the $1,400 payments and expansion of unemployment benefits. The plan also includes an expansion of the earned income tax credit (EITC) for adults without children.
Chuck Marr, the senior director of federal tax policy at the nonpartisan Center on Budget and Policy Priorities, said the EITC increase is “vital” for more than 17 million adults in lower-paying jobs who are not raising children. Their benefits could triple, according to Marr.
“The EITC is a highly successful wage subsidy that's earned bipartisan support over the years, but the current credit largely excludes adults who aren’t raising children in their homes, and it completely excludes young childless adults trying to gain a toehold in the labor market,” Marr wrote in January. He added that Biden’s plan “recognizes that now’s the time to fix this glaring flaw.”
Other elements of the robust American Rescue Plan include subsidies for low-income people living in states that have not, or refused to, expand Medicaid health insurance under the Affordable Care Act as well as billions of dollars in housing assistance, for people who are experiencing or at risk of homelessness.
Parolin and other researchers also emphasized that while the effects on poverty could be immediate and dramatic, they currently only apply to 2021. Biden and some congressional Democrats support making the changes permanent.
“Here’s the catch: the policies will expire in 2022,” Parolin said. “So next year and in future years, poverty rates will go up if Congress doesn’t extend some of the measures that are passing right now.”
The president is touring the country in the coming weeks to promote the law, spending time this week in Pennsylvania meeting with small business owners. Vice President Kamala Harris made a similar visit to Colorado, and both plan to visit Georgia — where voters handed Democrats two crucial Senate wins, allowing them to pass such legislation — on Friday. In addition to touting the immediate benefits for workers, Democratic leaders are hoping success of the ARP will lead to gains for the party in the 2022 midterms. Biden and Senate Majority Leader Chuck Schumer (D-NY) have spoken about learning from the lessons of the 2008 financial crisis, “when Congress was too timid and constrained in its response,” Schumer said. Democrats want to make sure the government response to crisis is sufficient and make sure that voters know the real-life impact of policy.
The new law is a major break from last year’s $2 trillion COVID-related bill that disproportionately benefited the rich under the Trump administration. But some moderate Republicans are interested in social welfare reform.
Proposed legislation from Sen. Mitt Romney (R-UT) would make an expansion of family and child allowances permanent, “though it would also cut other social programs,” Vox reported. Parolin also pointed to links between childhood poverty and poorer health, education, and long-term financial outcomes.
“If the child tax credit sticks and is made permanent in future years, this will be seen as a turning point in the development of the American welfare state, no doubt about it,” Parolin told NowThis. “This transfer would help to separate that intergenerational transmission of poverty and make sure that the children growing up today live healthier, better lives well into the future.”
Clarification: This article quotes Columbia University researcher Zachary Parolin, who said: “I would say this is the biggest anti-poverty plan we’ve seen in the country since the introduction of Social Security back in the 1960s.” Social Security was significantly expanded in the 1960s, but the Social Security Act was first passed in 1935. The article has been updated to reflect that.