WASHINGTON — The economic relief plan that is headed to President Biden’s desk has been billed as the United States’ most ambitious antipoverty initiative in a generation. But inside the $1.9 trillion package, there are plenty of perks for the middle class, too.
Whether they are direct stimulus payments, an array of tax benefits or an expansion of the Affordable Care Act, the bill will bring a big economic lift to middle-income families. In some cases, those households will have weathered the pandemic relatively unscathed, and those who are concerned about the cost of the legislation have suggested that the definition of middle class has expanded to include families who are actually well-off.
An analysis by the Tax Policy Center published this week estimated that middle-income families, those making $51,000 to $91,000 per year, will see their after-tax income rise by 5.5 percent as a result of the tax changes and stimulus payments in the legislation. The increase for that income group is about twice as generous as what it received after the 2017 Tax Cuts and Jobs Act.
Targeting a relief package more narrowly to help those solidly in the middle class has been challenging, given the cost of living varies widely in different parts of the United States.
“For a lot of the country, $160,000 buys you the house on the hill,” said Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center, who pointed out that a couple making that level of income in New York City, for example, would be stretched.
Marc Goldwein, the senior policy director for the Committee for a Responsible Federal Budget, estimated that a family of five with household income of $150,000 could receive about $10,000 from the federal government this year, suggesting that the stimulus package would do much more than alleviate poverty.
Many economists argue that directing aid to the poorest will have the biggest benefit because they are most likely to quickly turn around and spend the money on groceries, rent and other necessities, stimulating the economy. However, after a year of avoiding travel and dining, middle-class families are also likely to splurge as the pandemic subsides.
The Biden administration and Democrats in Congress are betting that by flooding the economy with cash they can kick-start a faster recovery.
Here are some of the ways that bill will help the middle class.
This time around, Americans will receive stimulus checks of up to $1,400 per person, including dependents.
The size of the payments are scaled down for individuals making more than $75,000 and married couples earning more than $150,000. And they are cut off for individuals making $80,000 or more and couples earning more than $160,000.
Those thresholds are lower than in the previous relief bills, to better ensure that those who need the checks the most receive them. But they will still be one of the biggest benefits enjoyed by those who are solidly in the middle class.
Tax Credits for Parents
The relief package, known as the American Rescue Plan, includes some important changes to existing tax policy to help families with children who have been struggling to care for them as the pandemic closed schools.
The most significant change is to the child tax credit, which will be increased to up to $3,600 (for children under 6) for 2021 from $2,000 per child. The credit, which is refundable for people with low tax bills, is $3,000 per child for children ages 6 to 17.
The existing credit tops out for individuals earning more than $200,000 and couples earning more than $400,000. As with the stimulus payments, the expanded credit will phase out for individuals making more than $75,000 and married couples earning more than $150,000.
The stimulus payments would be $1,400 for most recipients. Those who are eligible would also receive an identical payment for each of their children. To qualify for the full $1,400, a single person would need an adjusted gross income of $75,000 or below. For heads of household, adjusted gross income would need to be $112,500 or below, and for married couples filing jointly that number would need to be $150,000 or below. To be eligible for a payment, a person must have a Social Security number. Read more.
Buying insurance through the government program known as COBRA would temporarily become a lot cheaper. COBRA, for the Consolidated Omnibus Budget Reconciliation Act, generally lets someone who loses a job buy coverage via the former employer. But it’s expensive: Under normal circumstances, a person may have to pay at least 102 percent of the cost of the premium. Under the relief bill, the government would pay the entire COBRA premium from April 1 through Sept. 30. A person who qualified for new, employer-based health insurance someplace else before Sept. 30 would lose eligibility for the no-cost coverage. And someone who left a job voluntarily would not be eligible, either. Read more
This credit, which helps working families offset the cost of care for children under 13 and other dependents, would be significantly expanded for a single year. More people would be eligible, and many recipients would get a bigger break. The bill would also make the credit fully refundable, which means you could collect the money as a refund even if your tax bill was zero. “That will be helpful to people at the lower end” of the income scale, said Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax & Accounting. Read more.
There would be a big one for people who already have debt. You wouldn’t have to pay income taxes on forgiven debt if you qualify for loan forgiveness or cancellation — for example, if you’ve been in an income-driven repayment plan for the requisite number of years, if your school defrauded you or if Congress or the president wipes away $10,000 of debt for large numbers of people. This would be the case for debt forgiven between Jan. 1, 2021, and the end of 2025. Read more.
The bill would provide billions of dollars in rental and utility assistance to people who are struggling and in danger of being evicted from their homes. About $27 billion would go toward emergency rental assistance. The vast majority of it would replenish the so-called Coronavirus Relief Fund, created by the CARES Act and distributed through state, local and tribal governments, according to the National Low Income Housing Coalition. That’s on top of the $25 billion in assistance provided by the relief package passed in December. To receive financial assistance — which could be used for rent, utilities and other housing expenses — households would have to meet several conditions. Household income could not exceed 80 percent of the area median income, at least one household member must be at risk of homelessness or housing instability, and individuals would have to qualify for unemployment benefits or have experienced financial hardship (directly or indirectly) because of the pandemic. Assistance could be provided for up to 18 months, according to the National Low Income Housing Coalition. Lower-income families that have been unemployed for three months or more would be given priority for assistance. Read more.
The legislation also bolsters the tax credits that parents receive to subsidize the cost of child care this year. The current credit is worth 20 percent to 35 percent of eligible expenses with a maximum value of $2,100 for two or more qualifying individuals. The stimulus bill increases that amount to $4,000 for one qualifying individual or $8,000 for two or more.
The value of the credit will be calculated by taking up to 50 percent of the value of eligible expenses, up to certain limits, depending on household income. The law would begin to reduce the credit below 20 percent for households with income of more than $400,000.
Cheaper Health Insurance
After four years of being on life support, the Affordable Care Act is expanding, a development that will largely reward middle-income individuals and families, since those on the lower end of the income spectrum generally qualify for Medicaid. The relief legislation expands the subsidies for buying health insurance. As a result, a 64-year-old earning $58,000 would see monthly payments decline to $412 from $1,075 under current law, according to the Congressional Budget Office.
The legislation will now make upper-middle-income Americans eligible for aid to buy plans on the government exchanges, and premiums for those plans will cost no more than 8.5 percent of an individual’s modified adjusted gross income.
Another benefit to the middle class is that the stimulus package makes it easier for newly unemployed workers to get insurance through a federal program called COBRA, which allows people to buy their former employers’ health benefits. COBRA premiums will be fully paid for through September.
A Rescue for Pensioners
One of the more controversial provisions in the legislation is the $86 billion allotted to fixing failing multiemployer pensions.
The money is a taxpayer bailout for about 185 union pension plans that are so close to collapse that without the rescue, more than a million retired truck drivers, retail clerks, builders and others could be forced to forgo retirement income. The plans cover about 10.7 million active and retired workers, many of whom are middle class and work in fields like construction or entertainment where the workers move from job to job.
The legislation gives the weakest plans enough money to pay hundreds of thousands of retirees — a number that will grow in the future — their full pensions for the next 30 years.
But the measure has drawn criticism because the pensions were failing well before the pandemic.