Biden’s $1.9 trillion stimulus could drastically cut poverty, studies say

Joe Biden
President Joe Biden.

  • Biden’s $1.9 trillion stimulus passed the House again today, and is set to be signed into law this week.
  • The legislation could play an enormous role in reducing poverty rates, especially for children.
  • Two separate studies found it could reduce poverty rates by a third, but only over the next year.
  • See more stories on Insider’s business page.

President Joe Biden’s historic $1.9 trillion stimulus relief package just passed the House, and is set to be signed into law this week.

The bill will allocate billions towards Americans, providing relief for unemployed workers, parents, and millions more. Many taxpayers are set to receive $1,400 stimulus checks, and parents could receive up to $3,600 per child under the child tax credit.

One area where the stimulus will be acutely felt: poverty rates. Two different studies anticipate that the legislation will have a dramatic effect, projecting that millions of Americans will no longer be living in poverty in 2021. The bill, passed via reconciliation along party lines in both the House and Senate, includes measures that will expire in 2022, meaning that it’s an open question what happens to poverty rates at that point.

A study out of the Center on Poverty & Social Policy at Columbia University found that the package could nearly halve child poverty, and would more than halve the rate for Black and Hispanic children. Broadly, that study projects that the annual poverty rate would fall from 12.3% to 8.2% – meaning it would drop by a third.

Meanwhile, a study from the Urban Institute finds the plan would cut poverty by over a third. That study projects that the annual poverty rate would shrink from 13.7% to 8.7%, with 16 million fewer Americans living in poverty in 2021.

This will also impact some of those who have been hardest hit by the pandemic. Poverty rates will drop by half for those in households who experienced job losses during the pandemic, compared to a nearly one-third drop for households who did not lose jobs during the pandemic. As Insider’s Ben Winck previously reported, low-wage, minority workers were the hardest hit by pandemic unemployment.

The share of Americans in deep poverty – defined as those with resources that are less than half of the poverty threshold – would also drop by a third.

The legislation will help address some racial disparities. Historically, poverty rates have been higher for Black and Hispanic Americans. With the American Rescue Plan, it would fall 42% for Black Americans, 39% for Hispanic Americans and 34% for white Americans.

Those drops aren’t unexpected. Throughout America’s pandemic year, poverty has fallen with each new stimulus package and increased unemployment benefits, according to research from economists at University of Chicago, University of Notre Dame, and Zhejiang University.

In a statement on the bill’s passage, Biden highlighted how it will reduce child poverty, and added: “This legislation is about giving the backbone of this nation – the essential workers, the working people who built this country, the people who keep this country going – a fighting chance.”

There is that one catch, though: What happens to poverty rates after the stimulus money runs out?

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Congress has a once-in-a-generation chance to fight child poverty. They shouldn’t make it complicated.

homeless students in california do school in carport
Volunteers help students at a learning pod for homeless children in California.

  • The US spends less than 10% of its budget on children and has one of the highest child poverty rates in the developed world.
  • Congress now has a historic and bipartisan opportunity to halve the child poverty rate in one year.
  • Congress must replace our patchwork of support systems for kids with a universal child allowance for every family.
  • Suraj Patel is an attorney, lecturer, and former Candidate for US Congress
    from New York.
  • This is an opinion column. The thoughts expressed are those of the author. 
  • Visit the Business section of Insider for more stories.

The United States has one of the highest child poverty rates of developed countries, which reflects one simple fact: our investment in children systemically fails to match our society’s collective rhetoric about them, something the pandemic has made painfully clear. Our inordinately high rates of child poverty are the result of our political priorities – currently less than 10% of the federal budget is spent on children.

Children have been among the most harshly impacted by COVID-19 with more than 4 in 10 children living in a household struggling to meet its basic needs. Even before the pandemic, more than 10 million children in the US lived in poverty – a condition which has disastrous downstream consequences. 

Adverse effects of child poverty

Child poverty leaves devastating and lasting harm. Growing up in poverty hinders kids’ ability to learn in school, fundamentally reshapes their physical brain composition, and leads to long-term earnings losses years later as adults. What’s more is that our current safety net doesn’t protect children who were born poor through no fault of their own. 

In fact, a recent study found that low-income students score lower on the SAT – and are less likely to go to college – when they take the test in the back-half of the monthly food stamp cycle compared to the first-half of the month.  

The pandemic has exacerbated the effects of child poverty. Free school lunch is a vital source of nutrition for 2.1 million students in New York who rely on that benefit for food security. During my campaign for Congress, we spoke to countless families who were food stressed by the removal of a single meal at school, which forced New York to issue supplemental emergency SNAP benefits last May to 750,000 families. More than 100,000 New York public school students lack permanent housing – when school is conducted via Zoom at home, these students fall even further behind for lack of a safe place to attend class. This is a disgrace.  

When I ran for Congress, I proposed a wildly popular universal child dividend

Our underinvestment in children is immoral, and it’s bad economics because programs targeted at children generally pay for themselves or even have a positive return on investment. For every dollar spent on addressing programs tailored towards children, $7 is saved down the line.

When I ran for Congress last year, I wrote and championed a policy centered on replacing our Rube Goldberg system of complicated child support policy with a single Universal Child Dividend. This policy would provide families with $500 every month for each child under five years old, and $350 for children ages 6-17. We felt it was possible to build a left/right coalition around centering the family and child poverty with government efficiency. This intervention would halve child poverty in the first year alone. 

And, it proved immensely popular across all income brackets in my district, New York’s 12th – which is both the richest and most unequal in the country. 

Throughout my campaign, we spoke with countless parents about what an extra $500 per month could mean for them. For one father, it was the difference between getting an after-school tutor for his child or paying for groceries. For another, it meant transportation freedom – the extra money needed to get to a better paying job.

With 40% of American families unable to shoulder a $500 emergency, an extra $500 per month meant the difference between taking one child to speech therapy or caring for an elderly parent. Families in New York and across America make hard choices every day – a direct cash transfer is a non-paternalistic way of letting families decide what they need for their kids. The idea that waste and drug abuse could accompany direct payments has been thoroughly debunked.  

Congress now has the chance to pass a program to reduce child poverty

Parents, whether Republican or Democrat, know that a little help for the uncompensated work of raising children can go a long way towards providing much needed financial stability.  

And now the time has come to address child poverty. Programs proposed by President Joe Biden and Senator Mitt Romney would each send monthly checks worth several hundred dollars to families with children. Such a program needs to be enacted now.

Both the Biden and Romney plans would provide similar (albeit less generous) benefits than the policy I proposed: Biden’s plan would overhaul the Child Tax Credit by providing up to $300 per child to most families, and Romney’s would create a new program – essentially Social Security for kids  – to provide up to $350 per child to most families.

Whatever plan is passed by Congress, it should reflect a few basic principles. The benefit should be simple to access, and should arrive monthly so that it is in sync with families’ bills. It should be made permanent to last beyond the COVID-19 pandemic, and it should be age-conscious to provide extra help to families raising the youngest children. 

And finally, the program must be ambitious. The extenuating circumstances of the pandemic have torn up old political constraints and dogmas, and revealed the simple practical appeal of the government sending cash to families. President Donald Trump and Republicans in Congress over-performed expectations in the 2020 election in part because Americans received – and appreciated – the CARES Act’s stimulus checks

Democratic Senators Raphael Warnock and Jon Ossoff won contentious run-off elections in Georgia by centering $2,000 relief checks as their closing pitch. As Jamelle Bouie wrote in the New York Times, the political lesson from the 2020 election is: “It’s the money, stupid.”

The plans under consideration would provide transformational help for millions of families. But they could have a bigger anti-poverty impact by raising the benefits to the level proposed in my Universal Child Dividend – $500 for young children, $350 for older children. 

As Sen. Sherrod Brown has proposed, this money could be deposited instantaneously into new individual bank accounts run by the Federal Reserve, so no one has to wait on checks to be mailed or direct deposits to clear.

The pandemic has torn through an America that was already weakened by a host of preexisting conditions, including massive economic inequality and child poverty. But it has also created the political space for our leaders to be bold. There is no worthier cause to boldly pursue than the basic principle that no child deserves to grow up poor. 

Adopting a structure – like the Universal Child Dividend – that would meet the magnitude of our current crisis and provide assistance to all without the need to navigate administrative burdens is the best way to help our future generations thrive.

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The benefits of Biden’s child allowance could be worth 8 times its cost, new report finds

Joe Biden
President Joe Biden.

  • A new report found that the benefits of Joe Biden’s proposed child allowance is worth eight times its cost.
  • The benefits include money back to taxpayers that would result from increases in childrens’ health and earnings.
  • Expanding child credits to reduce child poverty has received bipartisan support.
  • Visit the Business section of Insider for more stories.

As part of his $1.9 trillion American Rescue Plan, President Joe Biden proposed a conversion of the current child tax credit to a fully refundable child allowance. A new study suggests that would generate about $800 billion in benefits to society.

The report – released on Feb. 18 by the Center on Poverty and Social Policy at Columbia University – found that Biden’s proposal to create a fully refundable child allowance of $3,600 per child aged 0-5, and $3,000 per child aged 6-17, would cost about $100 billion annually, but with $800 billion in benefits.

“With the exceptions of child protective services, criminal justice services, and parent longevity, there are at least two studies for each impact,” the report said. “Together, the impact estimates present a strong and coherent set of results; child allowances are a winning investment in our children’s future mobility.”

Of the $100 billion spent on the child allowances each year, about 60% would go to families with incomes under $50,000, 22% would go to families making between $50,000 and $100,000, and the remaining funds would be distributed to higher income families, according to the report.

Under the current US provided child tax credits, roughly two-thirds of families receive $2,000 per child, but one-third of children are in families whose incomes are too low to receive any credit. The report said that the phasing out of the allowances based on incomes is important because “both common sense and research suggest that children and parents in middle- and upper-income families see their outcomes improve less from an equal increase in family income than do children and parents in lower-income families.”

Here are the benefits to society that would stem from Biden’s child allowance, according to the report:

  • Children’s future earnings increase by $80.6 billion, causing a $16.9 billion reduction in taxpayer costs;
  • Increases in children’s health gives taxpayers $32 billion in savings in healthcare costs;
  • And taxpayers experience gains of $15.1 billion from reductions in child protective service use and criminal justice costs.

And even when generating results for the most restrictive assumptions to show any possible negative impact from the child allowance, the report still found that societal benefits would yield $431.3 billion per year.

“As policymakers consider which social programs to expand, research like this demonstrates the power of programs that directly boost family incomes,” a Niskansen Center blog on the report said. “At this point, the case for a child allowance from both a social and economic perspective couldn’t be clearer.”

According to the Organization for Economic Cooperation and Development, America has one of the highest child poverty rates in the world, and addressing child poverty has received bipartisan support. For example, Sen. Mitt Romney of Utah proposed a plan to provide up to $350 in monthly child benefits, which has a larger price tag than Biden’s plan.

Romney said in a statement: “Now is the time to renew our commitment to families to help them meet the challenges they face as they take on most important work any of us will ever do – raising our society’s children.”

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