How the American Rescue Plan Saved Lives and the Economy

House Budget: How the American Rescue Plan Saved Lives and the U.S. Economy, June 14, 2022

The American Rescue Plan Act saved the lives of all who availed themselves of its benefits. Not everyone got the memo that being vaccinated was a good idea, not a political ploy. Of those, most survived their illnesses, but certainly not all. Omicron is still debilitating for those who have never been exposed to or vaccinated against SARS-CoV-2. Some of us got sick before a vaccination was even possible. 

Many in that era died because the Centers for Disease Control and the World Health Organization did not wish to acknowledge that the disease began with nasal or “seasonal allergy” symptoms, laid dormant for a week then came back with a vengeance. President Trump’s efforts to not stir a panic did not cause this oversight, although humoring his ego detracted from the ability of senior leadership to catch the diagnostic errors of that time.

Before the pandemic raged, the nation was headed for asset value losses which would have triggered a depression. We dodged that bullet, but the gun is still loaded. The Pandemic provided a temporary reprieve as the Federal Reserve propped up bondholders who have invested (again) in bad housing and commercial property debt. Subsidies to families and loan purchases by the Fed delayed the pain, however the pain is inevitable.  

One aspect of the American Rescue Plan Act was the stimulus payments. Those who had lower incomes spent them on unmet needs or caught up on rent or debt. Combined with enhanced Food Stamp benefits and refundable prepaid child tax credits, some even had money to invest. Sadly, some of this investment made it into cryptocurrency and has or soon will be lost.

Individuals on Social Security Old Age, Survivors and Disability Insurance may have ignored their entitlement to higher Food Stamp benefits. I am one such person. When I first received SSDI, my SNAP entitlement was only $14, so I let it lapse. I did not reapply when the $250 monthly benefit was introduced. Sadly, I am not alone. Social Security could have done a better job of informing beneficiaries that this option was available. Many of us have gone hungry. 

The annual cost of living adjustment has been less than adequate. In this environment, it should be semi-annual - especially if the additional $250 per month in SNAP benefits are allowed to expire. These are federal funds in either case. One or the other option must be undertaken. What was a lifesaving benefit for seniors, the disabled and the economy under the American Rescue Plan Act should not be allowed to expire. 

Enhanced Food Stamps have cushioned the blow for poorer families whose advance refundable Child Tax Credit payments have lapsed. Between enhanced SNAP and enhanced CTC, many children have emerged from poverty for the first time in their lives. The loss of both income sources will put them back into peril.  It is penny-wise and pound foolish to keep OASI, SSDI and CTC benefits so low that applying for SNAP is necessary. The best option will be to not only restore the ARPA CTC benefit, but to make it more generous while withdrawing SNAP entirely.

To repeat our remarks regarding the Treasury Department Budget:

Some of the bipartisan opposition in the Senate came from those who consider direct subsidies from the IRS to have the “stink of welfare.” I advise such Senators in both parties to raise the minimum wage so that no one is having to work just to receive this credit and that the best way to distribute the credit is with wages.

For middle income taxpayers whose increased credits are less than their annual tax obligation, a simple change in withholding tables is adequate. Procedures are already in place to deliver refundable credits to larger families. 

Employers can work with their bankers to increase funds for payroll throughout the year while requiring less money for their quarterly tax payments (or estimated taxes) to the IRS. The main issue is working out those situations where employers owe less than they pay out. This is especially true for labor intensive industries and even more so for low wage employers. A higher minimum wage would make negative quarterly tax bills less likely. Again, no one should have to subsist mainly on their child tax payments.

While we can hope that, in the short term, obstruction on increasing the CTC can be dealt with. Going forward, now that the American Rescue Plan Act has expired, any permanent increase to and refundability of the child tax credit (and ideally an even more generous credit) will require permanent tax reform.  We include our prescription for such reforms at our third attachment. 

One of the central proposals in this plan is the creation of a Subtraction Value Added Tax (Net Business Receipts Tax), which would replace the corporate income tax and filing of business taxes as part of the personal income tax.  The difference between changing quarterly withholding and enacting a subtraction VAT  is six of one and a half dozen of the other. 

The reason for this is that the proposed subtraction VAT is based on the notion that employers would be responsible for paying and reconciling the taxes now filed by employees. This would add little additional burden to employers (especially the self-employed) but end the burden of filing taxes for all but the highest salaried employees.

I have attached our tax reform proposals to provide context for our comments. Note that these proposals have been changed. Taxation of dividends and interest have been shifted to the high income surtax and higher tiers of the subtraction VAT. This is more appropriate because the S-VAT is designed to capture both capital and wage income. This change is consistent with that principle.

Attachment: Depression 2022 Video

Attachment: Tax Reform (videos included)

Video: https://youtu.be/bJELbIWmLbA