Welfare Impacts of the Coronavirus Relief Bill of 2021
The American Rescue Plan Act of 2021, often called the Coronavirus Relief Bill, represents a large expansion of the welfare programs of the Federal Government. There were extensions to 8 of the 13 safety net programs [i]. The chart below shows the CBO’s (Congressional Budget Office) forecast of the federal expenditures related to these extensions [ii]. In all, the six-year spending totals $216.5 billion, which compares to the fiscal year 2019 spending on the 13 Programs of $379.5 billion.
The Relief Bill extended the Child Tax Credit and Child Care Programs beyond the targets of low-income individuals and families and well into the middle class. The Relief Bill used these Programs to help mitigate the negative financial impacts of the Coronavirus on millions of families. In effect, these programs were moved beyond welfare programs.
The expansion of the Child Tax Credit created a universal basic income program for a broad swath of the American public. The credit is large – $3,600 for children under six years of age and $3,000 for children aged six to seventeen. The credit will be paid out periodically (most likely monthly) to the parents or guardians. The credit represents a policy and social experiment by the federal government – never has periodic cash been paid out to such a large swath of the public with virtually no qualification except for income level. There are no rules on what the cash can be used for, although it is hoped the parents or guardians use the money wisely to help the family and especially their children. The experiment will last for just one year – 2021.
If the credit is to become permanent, it will require additional legislation passed by Congress and signed by the President. The Relief Bill was passed in a partisan manner – virtually all Democrats voted for it, and no Republicans supported it. The Child Tax Credit expansion has had some verbal republican support, but Republicans felt the entire Relief Bill was just too large and went beyond Coronavirus relief. Many Republicans believe a simple system of paying cash to welfare recipients, with no strings attached, is a better welfare design but should replace other programs, not be in addition to them. The democrats were enthusiastic about the Relief Bill, in part due to its broad scope and increase in the welfare programs of the federal government. The partisan nature of the Relief Bill sets up a battle in the future as provisions expire and Congress decides whether to extend them further or make them permanent.
The following are the impacts of the Relief Bill on existing welfare programs and the creation of new programs.
Refundable Tax Credits
See the Refundable Tax Credit Page for the background, performance, and history of the Child Tax Credit and Earned Income Tax Credit (EITC) Program. The Relief Bill uses the Child Tax Credit as a means of getting aid to families with children. The CBO estimates the expansion of the credit will result in federal expenditures of $84.3 billion through the end of 2022 and will result in lost tax revenues of another $20.7 billion. This is a dramatic expansion of the current program, which spent $29.6 billion in 2019.
The CBO projects the EITC expansion to cost $14.7 billion through the end of 2022. This compares with $60.3 billion spent in 2019 for the Program.
Child Tax Credit Expansion
The Relief Bill Includes an increase for a one-year period to the Child Tax Credit from $2,000 per child per year to $3,000 per child over 6 years old and $3,600 for children under 6 years old. The age limit for children was also raised to now include seventeen-year-old children.
Income qualification and phase-out of the credit on the first $2,000 per child remain unchanged. The increase to $3,000 or $3,600 per child is phased out by $50 per $1,000 of household Adjusted Gross Income over $75,000, or for married couples filing jointly, $150,000.
The entire credit is now refundable, whereas in prior years, the refundable portion was limited to $1,400 per child. Refundable means the credit is paid in cash regardless of whether the household pays income tax or not. The Relief Bill also stipulates that the payment of the credit is to be throughout the year as opposed to obtaining the cash upon the filing of a tax return, which is the case for 2020 and prior years. The credit, therefore, acts like a welfare program or universal basic income program. Most tax credits reduce income taxes payable; the refundable portion acts as a negative income tax-paying benefit regardless of taxes owed.
Earned Income Tax Credit Expansion
The Relief Bill includes an expansion of EITC for the tax year 2021. The expansion of the credit includes the liberalization of rules regarding adults without children, certain separated spouses, an increase in the phase-out level, and other changes.
Child Care
See the Head Start and Child Care Page for the background, performance, and history of the federal Child Care Program. The Child Care Program grants cash to states to be used to help low-income individuals with child care expenses. The Relief Bill includes a dramatic expansion of funding and moves beyond low-income households to those in need of help based on economic hardship caused by the Coronavirus economic shutdown. In 2019 the federal government spent $8.3 billion on childcare services. The Relief Bill includes $38.3 billion of additional funding.
Child Care Development Grants
The Relief Bill includes an expansion of Child Care grants to the states of $14.8 billion. The funds are designated to be used over a three-year period – 2021 through 2023. As described by the bill: [iii] “States, territories, Indian Tribes, and Tribal organizations are authorized to use such funds to provide child care assistance to health care sector employees, emergency responders, sanitation workers, and other workers deemed essential during the response to coronavirus by public officials, without regard to the income eligibility requirements.”
Child Care Stabilization grants
The Relief Bill includes an expansion of Child Care grants to the states of $23.975 billion aimed at Child Care providers. As described by the bill: [iv] “IN GENERAL.—The lead agency shall use the remainder of the grant funds …. to make subgrants to qualified child care providers …, regardless of such a provider’s previous receipt of other Federal assistance, to support the stability of the child care sector during and after the COVID–19 public health emergency”.
Housing Assistance
See the Housing Assistance Page for the background, performance, and history of all of HUD’s (Housing and Urban Development) Programs. The Relief Bill includes the dramatic expansion of funds for current HUD activities such as housing vouchers and homeless shelters. The Relief Bill also includes the creation of a Homeowners Fund, which represents the expansion of HUD’s services. For all Programs in 2019, HUD spent $60.0 billion on Housing Assistance. CBO estimates the Relief Bill expenditures will total $41.3 billion in addition to HUD’s regular budget.
Housing Assistance – Emergency Rental Assistance
The Relief Bill authorizes $21.55 billion for Emergency rental vouchers available through September 30, 2027, to make payments to eligible grantees. This represents an expansion of the current HUD Rental Voucher Program. The allocation of funds includes a reserve of $2.5 billion for payments to high-need grantees. High-need grantees are defined as follows: [v] “very low-income renter households paying more than 50 percent of income on rent or living in substandard or overcrowded conditions, rental market costs, and change in employment since February 2020 used as the factors for allocating funds”. The CBO estimates the entire $21.55 billion will be spent by the end of 2022.
Housing Assistance – Emergency Housing Vouchers
The Relief Bill authorizes an additional $5.0 billion for rental vouchers available through September 30, 2030. The vouchers are aimed at the homeless or near homeless individuals and families. The CBO estimates the aid will be distributed at over a billion a year for the years 2022 through 2025. The allocation of the funds is described as follows in the Relief Bill:[vi] “ALLOCATION.—The Secretary shall notify public housing agencies of the number of emergency vouchers provided under this section to be allocated to the agency not later than 60 days after the date of the enactment of this Act, in accordance with a formula that includes public housing agency capacity and ensures geographic diversity, including with respect to rural areas, among public housing agencies administering the Housing Choice Voucher program.”
Housing Assistance – Homeless Assistance and Supportive Services Program
The Relief Bill authorizes an additional $5.0 billion to target homeless or near-homeless individuals and families. The funds are available through September 30, 2029. However, the CBO predicts that $4.75 billion will be spent by the end of 2026. The Relief Bill includes the following description of spending:[vii] “for the following activities to primarily benefit qualifying individuals or families: (1) Tenant-based rental assistance. (2) The development and support of affordable housing ….. (3) Supportive services to qualifying individuals or families not already receiving such supportive services, including— (A) activities listed in …. the McKinney Vento Homeless Assistance Act …; (B) housing counseling; and (C) homeless prevention services. (4) The acquisition and development of non-congregate shelter units, all or a portion of which may— (A) be converted to permanent affordable housing; (B) be used as emergency shelter ….(C) be converted to permanent housing … or (D) remain as non-congregate shelter units.
Homeowner Assistance Fund
The Relief Bill creates a $9.961 billion Homeowner Assistance Fund to be allocated to U.S. states and territories through September 30, 2029. The CBO predicts $9.925 billion of the bill will be allocated in 2021. The Relief Bill describes the fund as follows: [viii] “ESTABLISHMENT; QUALIFIED EXPENSES.—There is established in the Department of the Treasury a Homeowner Assistance Fund to mitigate financial hardships associated with the coronavirus pandemic by providing such funds … to eligible entities [States and Territories] for the purpose of preventing homeowner mortgage delinquencies, defaults, foreclosures, loss of utilities or home energy services, and displacements of homeowners experiencing financial hardship after January 21, 2020, through qualified expenses related to mortgages and housing …”
LIHEAP (Low Income Heating Assistance Program)
See the LIHEAP Page for the background, performance, and history of the LIHEAP Program. The Relief Bill includes $4.5 billion for the LIHEAP Program; CBO estimates $3.3 billion will be spent through 2022, with the remainder spent over the next four years. For the fiscal year 2019, the federal government spent $3.8 billion on the LIHEAP Program.
Water Assistance Program
The Relief Bill allocates $.5 billion for the creation of a new federal program for water and sewage costs. The program will be administered by HHS (Health and Human Services Administration) and will target low-income individuals. The Relief Bill describes the funding as follows:[ix] “ for grants to States and Indian Tribes to assist low-income households, particularly those with the lowest incomes, that pay a high proportion of household income for drinking water and wastewater services, by providing funds to owners or operators of public water systems or treatment works to reduce arrearages of and rates charged to such households for such services.”
WIC (Women, Infants, and Children) Program
See the WIC Page for the background, performance, and history of the WIC Program. WIC is a food distribution program for pregnant women and young children to promote healthy families. The Relief Bill includes $.490 billion to the program for the expansion of benefits and $.39 billion for modernization and outreach. CBO predicts the funds will be largely spent through 2023. For comparison, the Federal Government in the fiscal year 2019 spent $5.0 billion on the WIC Program.
Head Start
See the Head Start and Child Care Page for the background, performance, and history of the Head Start Program. The Relief Bill includes $1.0 billion of additional funding for the program, which CBO predicts will be generally spent by the end of 2022. For comparison, the Federal Government, in the fiscal year 2019, spent $12.1 billion on the Head Start Program.
SNAP (Supplemental Nutrition Assistance Program)
See the SNAP Page for the background, performance, and history of the SNAP Program. The Relief Bill includes a 15% increase in SNAP benefits through September 30, 2021. This is expected to cost $3.54 billion. The Bill also includes $1.15 billion for state administrative expenses and $1.0 billion to expand SNAP to various U.S. Territories. CBO predicts the funds will be spent over a three-year period. For comparison, in the fiscal year 2019, the federal government spent $65.6 billion on the SNAP Program.
[i] Cost and other data on programs come from the Safety Net Program Page and U.S. Welfare Programs Page.
[ii] Congressional Budget Office. Estimated Budgetary Effects of H.R. 1319, American Rescue Plan Act of 2021. Detailed Tables. [Internet]. Retrieved March 22, 2021. Available here.
[iii] The American Rescue Plan Act of 2021. H.R.1319. Section 2202. Available Here.
[iv] Ibid. Section 2202.
[v] Ibid. Section 3201.
[vi] Ibid. Section 3202.
[vii] Ibid. Section 3205.
[viii] Ibid. Section 3206.
[ix] Ibid. Section 2912.