COVID-19 economic relief should focus on those hit hardest
While the pandemic has taken a significant toll on all Americans, the economic impact of COVID has been quite disparate. For example, the information services industry has seen output growth of more than 20 percent over the past year. On the other hand, the air travel and performing arts industries have seen declines of more than 60 percent. If you are an opera singer work is very hard to come by, but if you produce online video content, business has never been better.
Since the start of the pandemic, we have been calculating monthly poverty rates for the country as a whole, as well as for certain demographic groups. These poverty rates paint a clear picture of the toll that the pandemic is taking and who is being hit hardest. As Congress and the Biden administration debate the next COVID-19 relief package, we believe that relief should be right-sized and targeted to those who have been struggled the most as a result of the pandemic.
Over the past six months, poverty has risen dramatically — nearly doubling the largest annual increase in poverty since the 1960s and adding more than eight million people to the ranks of the poor. The rise in poverty has been most pronounced for Blacks, children, and those with no more than a high school degree.
Past federal relief packages have been successful in blunting this trend. In the first few months of the pandemic, our estimates show poverty falling as stimulus payments and expanded unemployment insurance more than offset the considerable loss in earnings. Because many of the benefits in the CARES Act were temporary, however, poverty then rose as these benefits lapsed. The most recent relief package passed at the end of 2020 also offered some temporary assistance, but we expect poverty to once again rise as its provisions expire in March or April and the pandemic persists.
Recognizing the continued crisis that many Americans are facing, the Biden administration has proposed an American Rescue Plan that would provide $1.9 trillion in additional relief. Congressional Republicans have on the other hand put forth a much tighter $618 billion proposal.
Backed by our research, we believe the next relief package should be targeted to those most adversely affected by the pandemic and seek to improve the economic well-being of those in greatest need. While some components of the proposal are well targeted, such as the extension of expanded UI and SNAP benefits, others, such as the proposed stimulus payments, are much less so. Under the White House’s plan, a married couple making $150,000 would receive the same amount of stimulus relief as a married couple who been forced to shut down their restaurant and are now earning no income at all and struggling to put food on the table. Expanding the payments but lowering the thresholds for eligibility for the full amount would help better target this relief towards those in need.
The proposed expansion of the Child Tax Credit is also poorly targeted. While making the credit refundable will benefit many low-income families with children, the full expanded credit will go to families with incomes up to $400,000. The need for relief there is certainly less dire.
The proposed expanded unemployment insurance is supposed to provide relief for those who have lost their jobs, but many who are no longer working due to the pandemic are slipping through the cracks. For example, in some states those who are forced to quit their jobs to be with their children because schools are closed for in-person learning are not eligible for UI.
While the extent of relief during the pandemic has been unprecedented, federal support has been unpredictable. Unemployment supplements expired in July despite speculation they would be extended. Congress then passed a second round of relief in December only to have the president pull his backing for the legislation and then sign it. This uncertainty adds to the stress individuals and families face as they worry about how they will make ends meet. To reduce uncertainty, the next round of relief should include provisions to automatically adjust the duration of benefits such as unemployment insurance and SNAP based on current economic conditions while the impact of the pandemic persists. For example, the relief package could guarantee supplemental benefits until employment rates approach pre-pandemic levels. That way Americans in poverty and those at risk for falling into poverty would not have to worry that legislative delays would mean they can’t pay their bills.
The prospect of widespread vaccinations and the subsequent decline in COVID cases and rebound in the economy gives reason for hope. In the meantime, however, additional relief should be designed to help those who are hit hardest by the pandemic weather the storm.
Bruce D. Meyer is the McCormick Foundation Professor at the University of Chicago Harris School of Public Policy. James X. Sullivan is the Gilbert F. Schaefer College Professor of Economics at the University of Notre Dame.
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