Stimulus bill would boost incomes of poorest Americans by nearly $4,000

Author: AIMEE PICCHI / CBS MONEYWATCH Writer: Derrick Shaw
income tax rates percent finance cuts IRS 1040 hike generic return. ISTOCKPHOTO via CBS News.

The $1.9 trillion stimulus package proposed by President Joe Biden would deliver significant financial assistance to the poorest U.S. households, who have faced higher rates of income and job losses during the coronavirus pandemic, a new analysis finds.

Under the plan advancing in the House Ways and Means Committee, the next stimulus bill would send $1,400 to eligible people, as well as expand the Child Tax Credit (CTC) and the Earned Income Tax Credit (EITC). Altogether, the three programs would provide a 33% boost to the pre-tax incomes of the poorest 20% of Americans — or a $3,590 hike per family — according to the Institute on Taxation and Economic Policy.

The three programs — a third round of stimulus checks, plus the two expanded tax credits — would provide a similar dollar amount of average benefits to 95% of U.S. households, the ITEP analysis found. But the impact would be much greater for lower-income households because the benefits would represent a larger share of their income. That’s important because the lowest-earning households are more likely to spend that money quickly, providing a boost to the economy while 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 into the hands of people who will spend it,” he said.

Middle- and high-income Americans have recovered faster during the economic downturn caused by the pandemic than lower-income households, partly because the latter are more likely to work in industries that have taken a bigger hit, such as restaurants or retail.

That’s creating different spending patterns, with households earning more than $78,000 mostly socking away their second stimulus checks, the $600 payments the U.S. started sending out in December, according to a recent study. By contrast, families below that income have tended to spend the money.

A $3,590 benefit

The benefit from the three programs would provide a total income boost of $3,590 for the poorest fifth of Americans, who earn an average of $10,900 annually, ITEP found. The benefit to the middle 20% of households would be similar, at $3,370, but would have a smaller proportional impact because of their higher average income in that quintile, at $51,500 per year.

Another study from the Tax Policy Center found a similar boost from the proposed stimulus plan, with its analysis projecting the bottom one-fifth of American earners would see income gains of 20% on an after-tax basis. Two-thirds of the proposed benefits would be directed to households earning $91,000 per 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, it said.

“The House Ways & Means Committee could have done a better job targeting both economic impact payments and the enhanced CTC,” Howard Gleckman of the Tax Policy Center wrote in a blog post. “Still, its bill would provide substantial relief to low- and moderate-income households at a time when many are in deep economic distress.”

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