March 10, 2021 – Today, without a single Republican vote, Congress passed a sweeping $1.9 trillion relief and recovery package that will provide crucial support to millions of working families; dramatically reduce the race, gender, and income inequalities that were exacerbated by the crisis; and create the conditions for a truly robust recovery once the virus is under control and people are able to resume normal economic activity.
Crucially, the American Rescue Plan extends key pandemic unemployment insurance (UI) provisions, which are essential to aid those workers hardest hit by the crisis. These include Pandemic Unemployment Assistance (PUA), which provides benefits to many groups of workers who fall through the cracks of our regular UI system, like gig workers; Federal Pandemic Unemployment Compensation (FPUC), which boosts weekly benefits by $300; and Pandemic Emergency Unemployment Compensation (PEUC), which extends unemployment benefits by an additional 25 weeks. The implementation of these provisions in this pandemic has been uneven, slow, and problematic due to our failure to invest in or modernize state UI offices over the last several decades. Nonetheless, these expansions to our UI system are crucial lifelines for tens of millions of U.S. families and have showed the promise of what UI should be in future recessions. The package also exempts the first $10,200 in UI benefits received in 2020 from taxation, sparing tens of millions of families who relied on UI throughout the pandemic an unexpected large income tax bill.
Another enormously important aspect of the bill is the inclusion of $350 billion in aid to state and local governments. This is a huge departure from mistakes made in the aftermath of the Great Recession, when the lack of sufficient aid to state and local governments led to spending cuts that delayed recovery by over four years. Today, even though revenue shortfalls stemming from the COVID-19 shock now look to be smaller than what was forecast in the middle of last year, the state and local aid remains crucial and will set the stage for a strong, safe, and equitable recovery. The package wisely includes prohibitions against states using this aid to cut taxes instead of making needed investments and providing crucial services. So long as it is used for its intended effects, it will be a huge boon for recovery.
The bill also temporarily expands the child tax credit to $3,000 per child ($3,600 per child under age 6). Crucially, the benefit would be fully refundable, meaning children’s benefits will not be held hostage to their parents being able to find work. The benefit is phased out for higher earners, while families eligible for the full credit would get payments of $250 per child ($300 per child under 6) per month from July through the end of the year. This is a long overdue investment in America’s future. It will make an enormous dent in child poverty, and Congress and the White House should move quickly to make the credit permanent.
We are disappointed that the provisions to raise the minimum wage to $15 by 2025 were stripped out. This is an enormous missed opportunity to help ensure not just a strong recovery, but also an equitable one. A $15 minimum wage, phased in gradually by 2025, would increase the earnings of 32 million low-wage workers—a majority of whom are essential or frontline workers—by a total of $108 billion dollars. It would lift up to 3.7 million people—including an estimated 1.3 million children—out of poverty, and disproportionately benefit women of all races, and Black and Hispanic men. We know from recent experience—the peak before the COVID recession—that even very low unemployment rates do not translate into strong wage growth for low- and middle-wage workers when strong labor standards and institutions are not in place. A $15 minimum wage is unquestionably essential for relief and recovery, and we urge Congress and the White House to move expeditiously to pass it.
The bill has many other important provisions, including stimulus checks, rental and food assistance, money for vaccine distribution, an expansion of Affordable Care Act subsidies, money to reopen schools, and more. Some concerns have been raised that this package might be “too large,” but those concerns are misplaced. This bill gets the economics right—it is at the scale that is needed. It is also likely to spread fiscal relief over time in a way that will support the recovery.
Crucially, however, some relief provisions in the current bill will need to be extended beyond their current, arbitrary end dates. The UI provisions, for example, are set to expire the first week of September, less than six months from today. Even in the best case scenario, the unemployment rate will be elevated in September and expanded UI provisions will still be necessary. By then, Congress and the White House should have put in place long-run reforms to the UI system that include reliable automatic triggers based on economic conditions. Unemployed workers have historically been at the mercy of Congressional whim as to whether and when they would receive expanded relief during recessions. Just this past December, extended benefits were allowed to lapse, causing unnecessary economic insecurity for millions. A more efficient and humane UI system would let automatic triggers do the heavy lifting of providing needed aid to jobless Americans.
The passage of the American Rescue Plan is a moment of great progress in U.S. economic policy. It is not perfect, but it is an enormous departure from the profound mistakes of prior downturns, when Congress’ refusal to provide sufficient relief and recovery measures caused needless suffering for millions, exacerbated racial inequality, and delayed recoveries by years. To ensure fiscal support is sustained in the future, a second package of public investments, some financed by progressive revenue measures and including strong labor protections for workers, must be the next step.
The Economic Policy Institute (EPI) is a nonprofit, nonpartisan think tank created in 1986 to include the needs of low- and middle-income workers in economic policy discussions. EPI believes every working person deserves a good job with fair pay, affordable health care, and retirement security. www.epi.org