Here’s How The New Stimulus Bill Will Immediately Cut The Poverty Rate By One-Third

The House of Representatives has just passed the Biden administration's $1.9 trillion COVID relief bill, meaning that all that’s needed for the American Rescue Plan to go into effect is landing on the president's desk for signing. The bill will include a $1,400 direct payment to qualifying households, and parents could receive thousands of more dollars in 2021 as part of an expansion of the child tax credit. It will also provide $300/week of extra federal unemployment lasting until September 6, and, importantly, the first $10,200 of received unemployment benefits are tax exempt, which is estimated to save the average American up to $1,020 in taxes. The amount of the earned-income tax credit, one of the most important and helpful tax credits for low- to moderate-income households, has been temporarily increased as well.

How big could the impact of these measures be? Huge, according to a new Urban Institute analysis out today, which found that it could reduce the U.S. poverty rate by a third in 2021, from 13.7% to 8.7%. It arrived at this new estimate based on four provisions of the stimulus bill: extended unemployment benefits, SNAP benefits (also commonly referred to as food stamps), the $1,400 direct payments, and the child tax credit. It's possible that other parts of the bill could have additional impact on the poverty rate, but the report doesn't include them in its projection. It says that "the four policies are projected to provide US families with an additional $502 billion in net resources, or an average of about $3,700 per family."

In February, the Urban Institute released a projection of what the poverty rate would be as things stood then, without another COVID relief bill coming. It projected that the overall U.S. poverty rate would be 13.7%, and the disaggregated rates were 18.1% for Black Americans, 21.9% for Latinx Americans, and 9.6% for white Americans. 

Now, with the American Rescue Plan, the poverty rate is expected to fall to 10.5% for Black people, 13.3% for Latinx people, and 6.4% for white people. That's a reduction of 42%, 39%, and 34% respectively.

Some of the four policies will have a bigger impact than others. The three-month extension of beefed-up SNAP benefits will likely have the smallest effect, while the direct stimulus payment is expected to have the largest reduction in poverty. On its own, the direct payments are projected to reduce the poverty rate to 10.2%. Just imagine what might happen if the checks were bigger.

The bill will also have an outsize impact on the lowest-income Americans. Not only does the poverty rate look different between Black, Latinx, and white people overall, but the distribution of the degree of poverty varies within these groups too. About 5.1% of Black Americans were projected to experience what's known as "deep poverty" in 2021, or in other words, having resources less than half of the poverty level. About 5.6% of Latinx Americans were expected to be in deep poverty, as well as about 3.6% of white Americans.

With the American Rescue Plan in effect, the analysis found deep poverty to go down to 3.2% for Black and Latinx people, and 2.5% for white people. Combined, it would mean that the number of people experiencing deep poverty would decrease by a little over one-third — that's significant. In contrast, the bill would reduce the number of low-income households (for this analysis, that's people who are below 200% of the poverty threshold) by about 15%.

These are the facts of what the American Rescue Plan could do: 16 million people who, at least by the standards of the SPM poverty threshold, are no longer experiencing poverty. It is by no means a perfect bill, but it's an indicator of how far a single $1,400 cash infusion could go — and yet not a single Republican senator voted for the American Rescue Plan last week, and earlier today we saw House Majority Leader Steny Hoyer correctly predicting "zero Republicans to vote for this bill" in the House.

It's also important to remember that these numbers are only a projection for 2021. Many provisions of the American Rescue Plan are designed to expire. While Democrats have said that they would like the increased child tax credit to become permanent, the stimulus payment is intended to be a one-time deal, and the extra federal unemployment benefits will also expire by September 2021. Originally, a $15 minimum wage hike was included in this bill, but it has since been removed. This rescue plan is temporary relief, not a cure. The question is, what happens after? Does Congress say, "That's enough poverty reduction for today I think," and move on?

It seems clear that poverty in America could be eradicated if we really put our hearts — and tax dollars — into it; that so many people in our country suffer in poverty is a deliberate political choice, and a thoroughly heartless one.