American Rescue Plan Act Will Help Millions and Bolster the Economy

The American Rescue Plan Act, which Congress has passed and President Biden is expected to sign on March 12, will provide needed help to tens of millions of people, reduce high levels of hardship, help school districts address student learning loss, and bolster the economy.

The economy remains weak, the jobs recovery has lost momentum, and there are 9.5 million fewer jobs than in February of 2020. Black and Latino unemployment is 9.9 percent and 8.5 percent, respectively, well above the white unemployment rate of 5.6 percent — which itself is too high. The economy won’t return to its full potential until 2025, the Congressional Budget Office projects; the number of people employed won’t return to pre-pandemic levels until 2024; and unemployment won’t fall below 4 percent until 2026.^[1]

Hardship remains extraordinary; it’s particularly acute among Black, Latino, and Indigenous people and immigrants; and households with children also have been particularly hard hit.^[2] Nearly 81 million adults (35 percent of all adults) reported between February 17 and March 1 that their household found it somewhat or very difficult to cover usual expenses in the past seven days, and that figure rises to 41 percent for adults living with children. Some 22 million adults (11 percent) said their household sometimes or often didn’t have enough to eat in the past seven days, rising to 14 percent among adults in households with children. An estimated 13.5 million adults in rental housing (19 percent of adult renters) said they were not caught up on rent, rising to 28 percent among adult renters with children.

The American Rescue Plan Act can dramatically reduce hardship and begin to set the stage for a stronger and more equitable recovery.The American Rescue Plan Act can dramatically reduce hardship and begin to set the stage for a stronger and more equitable recovery. Its key provisions to meet these goals include:

• Expanded and extended unemployment benefits;
• Expansions in the Child Tax Credit and Earned Income Tax Credit;
• Continuation of key food assistance provisions now in place and new investments in WIC;
• Expansions in health coverage;
• Increased housing assistance;
• Fiscal aid for states, territories, tribes, and localities;
• Funding for K-12 schools; and
• Emergency funds to help families facing hardship.

The Act includes other provisions as well, including a new round of stimulus payments, public health investments, paid leave provisions, additional child care funding, and aid to businesses. These are not covered in this paper.

This legislation will help millions of people, but the nation would need fewer stopgap measures during hard times if we had permanent policies to ensure universal health coverage, adequate jobless benefits, and supports for households struggling to make ends meet. Charting a course for an equitable recovery will require turning to these long-term, underlying investment deficits and policy gaps.

Unemployment Benefits

The American Rescue Plan Act will extend critical unemployment benefits that are helping jobless workers pay their bills and care for their families.^[3]

Not only are there now 9.5 million fewer jobs than in February of 2020, but a disproportionate number of job losses over the past year are in industries that pay low wages. (See Figure 1.) Since the steep job losses of last spring, workers of color and those without a bachelor’s degree have endured a far slower jobs recovery than white workers and college graduates. The lowest-paying industries accounted for 31 percent of all jobs in February of 2020, but 55 percent of jobs lost since then.

The December relief package reinstated a federal unemployment benefit increase, provided more weeks of benefits so that jobless workers wouldn’t lose them while the nation struggled with COVID-19 and its economic fallout, and continued the Pandemic Unemployment Assistance (PUA) program, which expands benefit eligibility to more jobless workers. These provisions are slated to expire in mid-March, and the American Rescue Plan Act will extend them through September 6. The early September cutoff, however, is problematic compared to the end-of-September date in President Biden’s plan. Unemployment, particularly among workers of color and workers without a college degree, will likely remain elevated in the fall; extending benefits through September better aligns with a time when — unlike August — Congress will be in session and focused on budget matters (with the fiscal year ending on September 30) and thus well positioned to extend benefits if necessary. The early September timing makes a benefit lapse, which would hurt families and disrupt states’ ability to administer jobless programs, likelier.

Share Chart on Facebook Share Chart on Twitter

Chart

Tax Credits

The American Rescue Plan Act will make the full Child Tax Credit available to 27 million children in families with low or no income, increase the size of the Child Tax Credit, and provide an expanded Earned Income Tax Credit (EITC) for far more low-paid adults without minor children at home — driving a historic reduction in child poverty and providing timely income support for millions of people.^[4] (See Appendix Tables 1-3 for state-by-state data.)

Together, the Child Tax Credit and EITC now lift more children above the poverty line (5.5 million) than any other program. The American Rescue Plan Act will make the full Child Tax Credit available to children in families with low or no earnings, raise the maximum credit from $2,000 to $3,000 per child and $3,600 for children under age 6, and extend the credit to 17-year-olds. The increase in the maximum amount will begin to phase out for heads of households making $112,500 and married couples making $150,000. The Act will lift 4.1 million additional children above the poverty line — cutting the remaining number of children in poverty by more than 40 percent — and lift 1.1 million children above half the poverty line (referred to as “deep poverty”). Among the children that the Child Tax Credit expansion will lift above the poverty line, some 1.2 million are Black and 1.7 million are Latino.^[5]

The American Rescue Plan Act also will raise the EITC for low-paid working adults who are not raising children at home and now get only a tiny credit. It will raise the maximum EITC for these so-called “childless workers” from about $540 to about $1,500, raise the income cap for them to qualify from about $16,000 to at least $21,000, and expand the age range of those eligible to include younger adults aged 19-24 who aren’t full-time students and those 65 and over. That will provide timely income support to over 17 million people who work for low pay, including the 5.8 million childless workers aged 19-65 (excluding full-time students aged 19-23) who are now the lone group that the federal tax code taxes into, or deeper into, poverty because the payroll taxes (and in some cases, income taxes) they owe exceed any EITC they receive.

These expansions will help push against racial disparities. Currently about half of all Black and Latino children get only a partial Child Tax Credit or no credit at all because their families’ incomes are too low to qualify for the full credit. This design flaw in the current Child Tax Credit comes on top of long-standing employment discrimination, unequal opportunity in education and housing, and other factors that leave more Black and Latino households struggling to make ends meet. Similarly, the 5.8 million childless workers who are taxed into, or deeper into, poverty are disproportionately people of color: about 26 percent are Latino and 18 percent are Black, compared to 19 percent and 12 percent of the population, respectively.

In two historic firsts, the American Rescue Plan Act will also extend a federal supplement to help Puerto Rico expand its local EITC and will correct a long-standing limitation by which only families with three or more children in the Commonwealth can claim the Child Tax Credit. This will be the first time Puerto Rico receives federal EITC dollars since the program’s inception nearly half a century ago, and the first time that families with one and two children may claim the Child Tax Credit since it was established in the late 1990s. Both credits will provide a crucial boost to hundreds of thousands of families in Puerto Rico, whose poverty rates of 43 percent overall and 57 percent for children are among the highest in the country.

Food Assistance

The American Rescue Plan Act will extend and expand nutrition assistance to help address today’s extraordinarily high levels of hunger and hardship.^[6]

The number of households struggling to put enough food on the table spiked last spring due to COVID-19, remained nearly three times its pre-pandemic levels over the summer, and rose even higher in late 2020. Food hardship has disproportionately affected households with children, especially Black and Latino households. Between 6 and 10 million children live in a household in which the children didn’t eat enough in the last seven days because they couldn’t afford enough food, compared to 1.1 million children in December of 2019. The current figure includes 27 percent of children in Black households and 22 percent of children in Latino households, compared to 9 percent in white households.

The American Rescue Plan Act will extend, through September, a 15 percent increase in SNAP benefits from December’s relief package that is slated to expire in June — likely before the economy has recovered and while food insecurity remains high. (See Appendix Table 4 for state-by-state impacts.) It will allow states to continue, through the summer and through the end of the COVID-19 public health emergency, the Pandemic EBT (P-EBT) program, which provides grocery benefits to replace meals that children miss when they do not attend school or child care in person. Extending this benefit through the summer is important, providing a bridge to help families until school reopens, hopefully fully in-person, for the next school year.

The Act also will provide funds to modernize the WIC nutrition program for low-income women, infants, and children, support innovative service delivery, conduct robust outreach, and temporarily raise the amount of fruit and vegetables that participants can get. These steps will improve a critical program that has been proven to boost health and cognitive outcomes for children but served fewer individuals in fiscal year 2020 than the prior year despite the surge in food hardship during the pandemic. And it will add $1 billion to the capped block grants for food assistance that Puerto Rico, American Samoa, and the Northern Mariana Islands receive instead of SNAP, enabling them to better meet their residents’ food assistance needs over the next several years.

Health

The American Rescue Plan Act will make comprehensive health coverage more affordable and accessible for millions of people during the current crisis.^[7]

Comprehensive health coverage is important under any circumstances because it improves people’s access to care, financial security, and health outcomes. But preserving and extending coverage is even more important now, during COVID-19 and its economic fallout, because it will shield families from financial hardship and support public health efforts, easing people’s access to testing, treatment, and vaccines. Those who have low incomes or are uninsured, in particular, have faced unprecedented challenges. The relief measures that policymakers enacted over the last year in response to COVID-19 and its fallout did not extend health coverage or make it more affordable.

To make marketplace coverage more affordable, the Act eliminates or vastly reduces premiums for many people with low or moderate incomes who enroll in plans through the Affordable Care Act (ACA) marketplaces and provides new help to people with somewhat higher incomes who face high premiums. (See Figure 2.) This provision lowers premiums for most current marketplace enrollees and will expand coverage to 1.3 million people who would otherwise be uninsured.^[8] In addition, the Act improves affordability and decreases the number of uninsured people by:

• protecting marketplace enrollees, especially those whose income fluctuated last year, from having to repay large portions of their federal premium tax credits;
• making it easier for those getting unemployment benefits to afford coverage; and
• assisting people who recently lost their job and want to continue their current coverage to afford so-called “COBRA” coverage through September.

In addition, the Act will increase financial incentives for the 14 states that have not implemented the ACA’s Medicaid expansion to do so, which would provide critical coverage to nearly 4 million uninsured people (if all states adopted the expansion). And it will strengthen Medicaid coverage in other ways — for instance, with higher federal matching funds to help more seniors and people with disabilities get services in the community instead of nursing homes, a new state option to extend Medicaid or Children’s Health Insurance Program coverage to 12 months after childbirth for postpartum people, and an option to cover uninsured people for testing, vaccines, and treatment of COVID-19.

Share Chart on Facebook Share Chart on Twitter

Chart

Housing

The American Rescue Plan Act includes critical housing assistance for millions who are struggling to pay rent and avoid eviction, and badly needed funds for communities to address homelessness during the pandemic.^[9]

As noted, some 13.5 million adults — nearly 1 in 5 adult renters — report that they are not caught up on their rent, and renters likely already owe tens of billions in back rent and will need more help paying rent in the coming months. (See Figure 3.) More than 5 million renters say they have lost employment income and expect to be evicted soon. Struggling renters are disproportionately households with children and people of color, particularly people who are Black or Latino. Communities are struggling to provide safe, non-congregate shelter and housing options to the more than half-million people experiencing homelessness. Evictions and homelessness may exacerbate the spread of COVID-19 and cause severe hardship.

Share Chart on Facebook Share Chart on Twitter

Chart

The American Rescue Plan Act provides critical relief to reduce evictions and other housing-related hardship. This relief will supplement $25 billion in rental assistance aid in December’s relief package (which will likely help only a fraction of those behind on rent) as well as the Biden Administration’s action to extend a Centers for Disease Control and Prevention order prohibiting most evictions through the end of March. The Act builds upon these efforts by providing $21.6 billion in emergency rental assistance for low-income renters who have lost income or are experiencing other hardship and risk losing their housing; $5 billion for Housing Choice Vouchers for people recovering from homelessness and for renters at greatest risk of homelessness; $5 billion for homelessness assistance through the HOME Investment Partnerships Program; $750 million in housing aid for tribal nations and Native Hawaiians; $139 million for rural housing assistance; $100 million for housing counseling services for renters and homeowners; and $20 million to support fair housing activities. It also provides $10 billion to help homeowners who are experiencing financial hardship due to COVID-19 maintain their mortgage, tax, and utility payments and avoid foreclosure and displacement.

State Fiscal Aid

The pandemic has imposed massive additional costs on state and local governments to fight the virus, deliver services despite public-health-related restrictions, and help struggling people and businesses. These substantial, unexpected costs will continue in the months ahead even if the pandemic is ultimately contained. Many millions of people, particularly low-income people and people of color, are struggling with hunger, have large unpaid rent bills, face mental health challenges as a result of the pandemic, or are enduring other forms of extreme hardship.^[10] Millions of children have effectively lost a year of schooling. Households, as well as millions of struggling small businesses, will require unprecedented levels of support to make it through the pandemic and to recover from the harm done. While other forms of federal support provide important direct assistance, states and local governments will also need to deliver a wide range of localized supports and services and to sustain them over a long period of time.

Meanwhile, while the pandemic’s hit on state revenues has been less than feared, revenues in most states remain below pre-pandemic projections, and some states have experienced severe revenue losses.^[11] Most cities and counties have received no direct federal aid to date, and revenue sources they depend upon — including hotel and restaurant charges, parking fees, and business license fees — have been hit particularly hard. Tribal nations are especially dependent on tourism and have seen their revenues collapse.^[12]

The American Rescue Plan Act provides $350 billion to help states, localities, tribal governments, and territories cover these unexpected costs and offset the pandemic’s impact their revenues. They can also use the funding to help pay for long overdue investments in broadband (a need particularly exposed by the pandemic) and for clean water and sewer infrastructure projects, as well as to provide “premium pay” to essential public workers. In addition, the Act provides a separate $10 billion to states, territories, and tribal nations for capital projects. To help ensure the funds are spent as intended, the Act requires that any state adopting tax cuts that lose revenue on net lose an equivalent amount in federal aid.

Of the $350 billion in aid, states will get $195.3 billion. Each state will receive $500 million plus its share of the remainder based on its share of the nation’s jobless workers; Treasury Secretary Janet Yellen is authorized to withhold up to half of a state’s aid for up to 12 months based on her assessment of the state’s unemployment rate. Municipalities and counties will get $130.2 billion ($65.1 billion each) — with a municipality’s allocations based largely on its population and poverty, and county allocations based on each county’s share of the nation’s population. Half the aid for cities and counties will be distributed within 60 days of the bill’s enactment, while the other half will be distributed one year after the first. Tribal nations will receive $20 billion, and territories will get $4.5 billion.

Schools

The American Rescue Plan Act includes $123 billion in new, mostly very flexible funds for school districts, which they will be able to spend through the 2023-24 school year to address the pandemic and its effects on student learning. This is the largest-ever one-time federal investment in K-12 education, but entirely appropriate in light of school funding needs.^[13]

Historically, K-12 schooling has been funded overwhelmingly by states and localities; they currently provide 92 percent of funding, with the federal government providing the rest. COVID-19, however, forced states to cut funding and created enormous financial and educational challenges that states and localities will be hard pressed to meet over the next several years without federal assistance. K-12 funding comprises about 26 percent of state budgets and states will find it very hard to fully shield that funding while meeting their balanced-budget requirements. Even before COVID-19, schools endured years of inadequate and inequitable funding. Some 15 to 20 states were still providing less funding for K-12 schools when the pandemic hit than before the Great Recession of a decade ago in per-pupil, inflation-adjusted terms. When COVID-19 hit, schools were employing 77,000 fewer teachers and other workers while educating 1.5 million more children.

The CARES Act of March 2020 provided $13.2 billion for K-12 education and December’s package provided another $54 billion, but schools will need far more to pay for distance learning, safe in-person instruction, caring for students’ physical and mental health, and, most significantly, making up for learning loss. Schools need to close the “digital divide,” so all students and teachers have access to devices and connectivity. They need to safely operate in-person schools, which will require plexiglass shields, hand sanitizer, more custodial staff, and more buses and drivers to maintain social distancing. A quarter of schools have no full- or part-time nurse, and most schools lack counselling support to help students navigate the mental-health challenges of returning to school. Many schools will need to add staff and/or portable classrooms to reduce class size to meet social distancing guidelines.

But beyond the costs of operating remotely and in person, the American Rescue Plan Act’s funds will enable school districts to make critical investments to address the widespread learning loss that the pandemic and remote learning have caused. Students on average will likely lose nine months of learning by the end of the 2020-21 school year, McKinsey & Company estimates, and students of color may well lose a full year on average. With resources, schools can lengthen school days and the school year and invest in high-quality tutoring to help students — over the course of the next couple of years — recover what they have lost. The costs of addressing all these needs could easily top $100 billion over the next few years, based on estimates from the Learning Policy Institute and McKinsey.^[14] Along with the $123 billion, the Act includes “maintenance of equity” provisions that require states to avert funding cuts to schools and school districts with high numbers of poor children.

Emergency Funds

The American Rescue Plan Act includes $1 billion for a Pandemic Emergency Assistance fund to enable states, tribes, and territories to help families with the lowest incomes cover their additional pandemic-driven expenses and avert eviction and other real hardships.^[15]

Hardship is particularly high among families with children, raising serious concerns about the long-term consequences for children’s health and academic outcomes. More than 4 in 10 children live in households that are having trouble covering usual expenses, and 4 in 10 children in rental housing live in a household that either isn’t getting enough to eat or isn’t caught up on rent.

States (along with tribes and territories) could use the new fund to provide households with non-recurrent, short-term benefits — that is, benefits that: (1) address a specific crisis or episode of need; (2) don’t meet recurring or ongoing needs; and (3) don’t extend beyond four months. States could direct funds to the families that most need them, and states need not limit payments to families receiving TANF cash assistance. Indeed, in states in which few families get TANF, states could reach more needy families by targeting a broader set of them (such as SNAP families with children). States also could use the funds, for instance, to help families that don’t get emergency housing assistance pay their back rent and avoid eviction, or help families fleeing domestic violence cover their moving costs and initial rental payments.

Appendix