Yale School of Management

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President-Elect Joe Biden Releases $1.9 Trillion American Rescue Plan

On January 14, President-elect Joseph Biden released a $1.9 trillion rescue plan that would provide significant assistance to individuals and families, states and localities, schools and universities, and small businesses. The proposal specifically calls for additional direct payments to households, a permanent increase of the federal minimum wage to $15 an hour, extended unemployment insurance benefits, tax relief for households, $350 billion in state and local government aid, $170 billion to schools and universities, $70 billion for COVID testing and vaccine program, and $50 billion for small businesses. 

This package expands on the recent $908 billion relief package, passed in December, and the $2.3 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed in March. The Biden plan is different in that it includes not just short-term “rescue” measures but also longer-term “recovery” initiatives. However, those longer-term initiatives, such as the proposed $15 federal minimum wage, are likely to be open to more debate. 

And even though Democrats will control the Senate, House, and Presidency after the inauguration, certain provisions in the Biden proposal are unlikely to pass with a simple majority and will require at least 60 votes in the Senate. See Conclusions below.

While President-elect Biden hopes to achieve bipartisan support for the bill, some of its longer-term provisions could be removed to allow Congress to pass a still sizable rescue plan through budget reconciliation, a process that allows bills focused on spending and revenue to pass the Senate with only a simple majority. The latter path seems more likely, considering the immediate pushback from Senate Republicans.

The proposal does not state a cost estimate for every category of assistance, but the nonpartisan Committee for a Responsible Federal Budget has compiled the following list.

Provision

Deficit Impact

Provide $1,400 per person “Recovery Rebates” on top of the $600 already issued

$465 billion

Provide aid to state and local governments

$350 billion

Increase Unemployment Insurance supplement to $400/week and extend emergency UI provisions through September

~$350 billion

Provide funding for a national vaccination program, testing, and other COVID containment efforts

$160 billion

Fund school reopening and increase funding to schools and colleges

$170 billion

Expand the Child Tax Credit to a refundable $3,000 per child, $3,600 for children under 6 (assuming one year)

~$120 billion

Provide rental and small landlord support

$30 billion

Provide support to childcare providers

$25 billion

Other policy changes

~$200 billion

Total Reported Cost

$1.9 trillion

Source: Committee for a Responsible Federal Budget

Benefits for Individuals and Families

The proposal provides several direct and indirect benefits to families and households, many who have been struggling through the pandemic due to unemployment or other unexpected costs. Notably, the proposal would provide perhaps the most significant benefits to low-income families who many believe are suffering the most. 

Direct Payments

The proposed package would provide households authorized to receive a $600 payment per eligible adult and child dependent under the December relief bill an additional payment of $1,400. The payments would likely cost $465 billion. The $600 direct payments authorized in the December relief bill were the subject of much debate and the President delayed signing the bill, arguing that the payments should be $2,000 per individual. The payments began to reach the bank accounts of eligible individuals prior to year-end. The additional payments in the Biden proposal are intended to reach that $2,000 amount for many households. 

Under the Biden plan, as under the December relief bill, eligible households may receive up to the maximum payment if they meet certain income criteria. Households with “individual” filing status and “married filing jointly” status are eligible for the maximum payment of $1,400 per individual if their adjusted gross income (AGI) is $75,000 or less for individuals, and $150,000 or less for married couples. AGI calculations are based on 2019 income.

Also similar to the December payments, payments under the Biden plan decreases proportionally as incomes rise. However, Biden’s plan phases out at higher income levels than the December relief bill. Payment eligibility phases out at an AGI of $115,000 for individuals (compared with $87,000 under the December bill); $206,000 for married couples filing jointly ($174,000); and $262,000 for families of four ($198,000).

December Relief Package

Biden Proposal

Category

Maximum

payment/

individual

Top AIG for maximum payment

AIG at which payment eligibility phases out

Maximum

payment/

individual

Top AIG for maximum payment

AIG at which payment eligibility phases out

Individual

$600

$75,000

$87,000

$1,400

$75,000

$115,000

Married filing Jointly

$600

$150,000

$174,000

$1,400

$75,000

$206,000

Family of 4

$600

$150,000

$198,000

$1,400

$150,000

$262,000

Source: Yahoo Finance

The Biden proposal also widens the eligibility for payments to include certain dependents if their household’s AGI qualifies for the direct payments. The proposal would extend eligibility to 17- and 18-year olds, college students, and adult children with serious disabilities. This group was similarly not eligible for the $1,200 direct payments included in the CARES Act. It does not appear that this inclusion of adult dependents would be retroactive to the earlier rounds of direct payments.

The higher phaseout threshold, as well as including adult dependents, significantly increases the number of recipients that would receive direct payments. Ernie Tedeschi, an economist and former Treasury Department official, estimates that an additional 8.8 million individuals would receive a direct payment as a result of this proposal. 

Unemployment Insurance

The most recent Labor Department jobs report showed 965,000 new unemployment claims in the first week of January, the largest increase since the beginning of the pandemic. The overall number of people unemployed according to the report is approximately 18.4 million. However, state officials note that this number is likely to be inflated due to administrative and logistical issues. 

The December relief package extended $300 per week in enhanced unemployment insurance (UI) benefits through March 14, 2021; the CARES Act had provided an additional $600 per week to those eligible for their state’s UI. The Biden plan increases the weekly enhancement to $400 and extends the benefit through September 2021. This would apply both to individuals who have exhausted their regular state UI benefits and moved onto Pandemic Emergency Unemployment Compensation, as well as to self-employed and gig workers who are eligible for Pandemic Unemployment Assistance. 

Senator Ron Wyden (D-OR) had publicly pressured Biden to restore the $600 per week enhanced benefit included in the CARES Act. Senator Wyden additionally pushed for the inclusion of automatic stabilizers, which would have tied the enhanced UI benefits to underlying economic conditions such as the unemployment rate. The Biden proposal does not include automatic stabilizers; it does say that the administration will work with Congress to consider including automatic stabilizers after September.

Emergency Paid Sick Leave

The Families First Coronavirus Response Act, passed in mid-March, required businesses with 50-500 employees to provide emergency paid leave for workers affected by the COVID-19 pandemic. While the December relief package extended the tax credits for employers who provided such leave through March 2021, it did not extend the requirement for eligible employers to provide the sick leave. The Biden plan would reinstate this requirement. It would also eliminate the workforce limitations, opening up the emergency sick leave program to an additional 106 million Americans. 

The CARES Act required eligible companies to provide two weeks of paid sick leave and 12 weeks of paid family leave. The paid sick leave provided full wage replacement, while workers with paid family leave received two-thirds of their wages (up to a daily limit of $200). The Biden plan would instead require companies to provide 14 weeks of fully paid sick, family, and medical leave to help parents and those recovering from COVID-19 or self-isolating. The Biden proposal would also expand the program to federal workers. 

The maximum sick leave benefit would be $1,400 a week for eligible employees, the equivalent of full wage replacement for a worker earning up to about $73,000 annually. The proposal would reimburse employers with less than 500 employees for the cost of leave through a refundable tax credit. State and local governments would be reimbursed for the costs of this program. Finally, the program would have an end date of September 30, 2021. 

Tax Adjustments

The Biden plan would increase the Child Tax Credit (CTC) in 2021 for families from $2,000 per child to $3,000 per child ($3,600 for children under the age of 6) for a year. It would also make 17-year-olds qualify for the CTC for 2021. 

The plan would also attempt to solve an irony under the CTC which results in families with the lowest incomes not being able to benefit from it. Currently, households are eligible to receive up to $2,000 for every child under the age of 17. The CTC is reduced proportionally by five percent of AGI over $200,000 for single parents and $400,000 for married couples. If the size of the CTC is greater than the taxes owed, the difference can be refunded to the household. The refund is limited to 15% of earnings above $2,500. However, the poorest households, those with under $2,500 in earnings, are not eligible for this refund, since they do not make enough to qualify for the CTC. This phase-out at the low end of the income distribution and phase-out at the top of the distribution has been called the “trapezoid problem.” About 27 million children live in households with incomes too low to qualify for the full CTC benefit, with 25% of households in the lowest income quintile receiving no benefit at all. 

Source: Tax Policy Center 

The Biden plan would attempt to solve the trapezoid problem by allowing the lowest income households, who are currently shut out of CTC benefits, to receive the entire CTC as a refund. The Center on Budget and Policy Priorities estimates that this expansion of the CTC would bring three million Americans above the poverty line, while increasing the economic well-being of another 13.6 million people below the poverty line. However, the Biden plan only makes the CTC completely refundable for 2021, so it is unlikely to have a significant impact on poverty reduction in the long-term, but is intended to serve as emergency assistance during the current economic downturn. The Committee for a Responsible Federal Budget estimated that this adjustment to the CTC would cost $120 billion in 2021.

The Biden plan also calls for tax relief for low-income childless households. The proposal would raise the maximum Earned Income Tax Credit (EITC) for childless adults from $530 to approximately $1,500, raise the income limit from $16,000 to about $21,000, and eliminate the age cap so that older workers can receive the EITC. Currently, approximately 5.8 million Americans are either taxed into or pushed deeper into poverty since their EITC is not large enough to offset their owed taxes. A Center on Budget and Policy Priorities study earlier estimated that a plan similar to the Biden proposal would reduce the number of individuals so impacted by 96%, to 200,000 individuals. Like the CTC changes, this adjustment to the EITC would only apply for 2021.

Federal Minimum Wage 

The Biden plan would permanently increase the federal minimum wage to $15 an hour, up from its current level of $7.25, as well as abolish the tipped minimum wage and sub-minimum wage available to people with disabilities. The increase would apply to all jobs and supersede any state laws that set lower minimum wages.

This provision is expected to be hotly contested. Some argue that Congress should not include it in the budget reconciliation process, since it does not directly affect spending or revenue. Supporters argue that it can be considered a revenue-raising measure: higher wages should cause higher tax receipts, as well as less strain on safety-net spending due to higher earnings. The incoming Majority Staff Director for the Senate Budget Committee, which will be chaired by Senator Bernie Sanders (I-VT), has stated that the committee can pass this provision through budget reconciliation.

Housing and Nutrition

The Biden plan would extend the current federal moratoriums on evictions and foreclosures, scheduled to expire at the end of January, until September 30, 2021. Additionally, the package would extend the application period for payment forbearance on federally guaranteed mortgages until September 30, 2021. The plan also calls for Congress to provide an unspecified amount of funds for legal assistance for tenants facing eviction or foreclosure proceedings. 

The December relief package included $25 billion for rental assistance. The Biden plan would add $25 billion for rental assistance, as well as $5 billion to cover utilities costs. An estimated 14 million adults (20% of renters) were behind on their rent in December 2020. Households with children are also more likely to be behind on their rent than households without children. The package would also provide $5 billion in aid to provide housing for unhoused individuals. This would provide stable housing for an estimated 200,000 families.

The December relief package increased Supplemental Nutrition Assistance Program (SNAP) benefits by 15% until June 30, 2021. The Biden plan would extend this through September. For context, approximately 43 million people received SNAP benefits in August 2020, a 17% increase from pre-COVID participation. 

State and Local Aid

The Biden plan calls for $350 billion in emergency funding for state, local and territorial governments. Congress debated this provision last year but it proved too politically divisive to be included in the December relief package. A Brookings Institution paper estimated that state and local governments faced a budget shortfall of $500 billion, spread over the next three fiscal years, due to the effects of COVID. The CARES Act and other relief bills have previously provided approximately $250 billion in funding to these governments. 

The American Public Transit Association, an industry group, estimated that transit authorities would require $32 billion in aid to return to pre-COVID financial health. The Biden plan calls for $20 billion in funding for transit authorities, in addition to the $14 billion authorized by the December relief package. 

Aid to Schools and Universities

The proposal calls for $170 billion in funding for K-12 schools and institutions of higher education, which is intended to allow them to reopen safely without cutting services to students. During the pandemic, educational institutions at all levels have had to spend unplanned amounts to protect faculty and students as they operate in a variety of open, closed, and hybrid conditions. 

The Biden plan does not include any mention of potential student loan debt forgiveness or cancellation. President-elect Biden voiced support for the cancellation of $10,000 in student debt in November, stating that it should be done “immediately.” Advocates for cancellation representing 325 nonprofit and community organizations renewed calls for student loan forgiveness in response to the Biden plan.

Aid to Businesses

The Biden plan would provide $15 billion in grants to small businesses, building on the second round of the Payment Protection Program (PPP) implemented in the December relief package. The plan would also invest $35 billion into state, local, tribal, and non-profit small business financing programs, allowing for about $175 billion in additional lending to small businesses. Notably, aid to businesses only comprises about three percent of the overall cost of the Biden plan, as opposed to earlier relief packages and proposals which ranged from 20% to 30%. 

COVID Testing and Vaccination Provisions

The Biden plan would allocate significant resources to limit the spread of COVID-19 and safely reopening the economy. The proposal would allocate $20 billion toward a national vaccination program, focusing on bringing healthcare access to hard-to-reach areas. Additionally, $50 billion would go towards a widespread expansion of COVID-19 testing availability. The Biden plan would create a public health job program, aiming to employ up to 100,000 individuals to perform vaccine outreach and contact tracing. 

Conclusions

With the CARES Act and the December relief, government spending to combat the effects of the pandemic totaled approximately $3 billion, significantly more than the $800 billion American Recovery and Reinvestment Act of 2009, the major stimulus legislation passed in response to the Global Financial Crisis. However, with the pandemic still raging and vaccinations just beginning, economists believe that more is needed to steer the nation to an economic rebound. The Biden proposal would add another $1.9 billion to the effort, but the next steps for the Biden proposal and its chances of passage are currently unclear. The impeachment of President Trump threatens to spill into the early weeks of the Biden presidency, which could impede the ability for Congress to quickly pass his proposal. Also, some parts of the proposal, such as the $15 federal minimum wage, can be viewed as longer-term policy and are likely to be subject to more contentious debate. 

It is possible that Congress could reach bipartisan agreement for a smaller relief package, avoiding budget reconciliation, with a larger spending bill containing longer-term Democratic priorities saved for later in 2021. Goldman Sachs predicted that near-term fiscal stimulus would be $1.1 trillion after Biden released the $1.9 trillion proposal, demonstrating a belief that the plan will be watered down. President-elect Biden said that he will unveil a second package in February, with a focus on longer-term recovery, rather than the emergency assistance-focused plan just released. 

Budget Reconciliation

Even though Democrats will control the Senate, House, and Presidency after the inauguration, certain provisions in the Biden proposal are unlikely to pass with a simple majority and will require at least 60 votes in the Senate. Under Senate rules, invoking cloture to avoid a filibuster requires 60 votes. Another solution to a potential filibuster is a process called “budget reconciliation,” which allows bills focused on spending and revenue to pass the Senate with only a simple majority. Typically, Congress can only pass one bill per year through this measure. Due to a legislative quirk, there is the possibility that Democrats can pass two bills through budget reconciliation in 2021. The most recent usage of budget reconciliation was the Tax Cuts and Jobs Act of 2017. 

The Byrd Rule limits the scope of provisions allowed in budget reconciliation bills. Any provision that is deemed “extraneous” can be stripped from the bill. This rule applies to provisions that are not related to spending, increase the deficit for a fiscal year after ten years, or affect Social Security. Due to this rule, Congress can not utilize budget reconciliation to pass measures like statehood for Washington, D.C., or further voting rights legislation. Some possible solutions to the Byrd Rule include allowing certain provisions to expire at the end of the 10-year window or pairing tax increases with spending provisions to maintain deficit-neutrality. The Senate Parliamentarian decides if a provision is “extraneous” and can order it stripped from the bill. 

US Stimulus