The US Is About to Get a New Top Tax Break

The US Is About to Get a New Top Tax Break

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Plus, the next phase in the stimulus fight
Thursday, February 25, 2021
 

The Next Phase in the Stimulus Fight: Public Opinion

The House is set to vote on Democrats’ $1.9 trillion Covid rescue plan on Friday, sending the package to the Senate, where it is expected to pass — likely with some revisions, and with zero Republican support — before long. Democrats are planning to have the legislation through Congress and ready for President Joe Biden’s signature ahead of a March 14 deadline, when enhanced unemployment benefits for millions of Americans are currently scheduled to expire.

So the fight over this round of pandemic relief will be over within weeks — only it is certain to live on for years to come.

As The Washington Post’s Aaron Blake notes, Republicans appear to be taking a large political risk by opposing a package that polling finds is broadly popular with the American public, including among GOP voters. “That said,” Blake says, “the passage of the bill, in many ways, is just the beginning of the political (and electoral) fight.”

As the 2009 stimulus package and the 2017 tax cuts demonstrated in recent years, public opinion on massive legislation can change over time — “both demonstrate that a big bill’s polling numbers upon passage can be oversold,” Blake writes. “In the case of stimulus, people generally like throwing money at a major problem they recognize, but then the task is making sure that it’s well-spent and that people understand that. … The real test will be how the [Biden relief] bill is perceived to have worked if it passes.”

In pushing for the Covid package, the Biden administration has been relying on lessons learned from the 2009 stimulus fight and the battle over Obamacare. That extends to selling the plan to the public, with the White House reportedly focused on building support among state and local officials and having members of the administration make the case for the package in appearances on more than 70 local news stations.

“Biden and his lieutenants are pitching the giant bill to mayors, governors, state treasurers and tribal leaders, along with workers and the business community,” Bloomberg’s Nancy Cook and Justin Sink report. “The administration is focusing on roughly 13 key states -- including Ohio, Pennsylvania, West Virginia, Arizona and Georgia.”

That outreach is meant to ensure that the relief plan can get votes it needs in a closely divided Congress and lay the groundwork for Biden’s next big multi-trillion-dollar economic package, focused on infrastructure and climate change. But election politics also play a role: “The approaching battle over Biden’s second economic program is just one reason the public-relations effort isn’t over,” Cook and Sink write. “With mid-term congressional elections next year, the White House will need to keep making the case it did the right thing with its giant $1.9 trillion emergency-spending bill, and build credit for the recovery.”

John Podesta, a former chief of staff to President Clinton and former adviser to President Obama, reinforced that public relations purpose. “I don’t think the fact that you have got polling indicating American people are supportive of the relief is, in essence, the end of the story,” he told Bloomberg News. “They will really have to sell the fact they are good stewards of the economy, and they are coming behind this with another big package of investment.”

And they’ll likely have to keep selling it at least until November 2022.

About That $1 Trillion in Unspent Covid Relief Money

Some critics of President Biden’s $1.9 trillion relief bill charge that it is too generous, citing among other things the hundreds of billions of dollars that remain unspent from earlier relief efforts.

“There's over a trillion dollars of money unspent from previous relief bills that were bipartisan," Republican Rep. Steve Scalise of Louisiana said last week. “The money's still sitting in a bank account and we're going to pass $1.9 trillion of additional spending to bail out failed states, to raise the minimum wage?”

Donald Schneider, an analyst at market research firm Cornerstone Macro who served as chief economist for the GOP House Committee on Ways and Means, recently tallied the unspent funds and came up with a total of more than $1 trillion (see the chart below). Congress authorized a bit more than $4 trillion in Covid relief spending in the Cares Act and the December relief bill, but has disbursed only about $3 trillion so far.

However, the unspent funds are not quite what critics seem to think. According to the Committee for a Responsible Federal Budget, the nonpartisan group that provided the data Schneider used in his analysis, “the question of how much relief money remains is a complicated one.” Most of the money is allocated and will be spent in the future, CRFB says, and a small amount will likely never be spent.

CRFB’s Marc Goldwein said Wednesday that small business assistance and Medicaid account for much of the undisbursed funds, with the payout for medical expenses occurring over a timeframe of several years. Referring to the Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL) for small businesses, Goldwein tweeted: “Lots of PPP still to issue, slow/low demand for the EIDLs, and future Medicaid payments to states make up a lot of what’s left available.”

The Child Tax Credit Is Set to Become the Biggest Tax Break in the US

The Child Tax Credit started out in 1997 as a “relatively modest” tax break for people with children, but with Democrats pushing to expand it as part of the Covid relief package, it’s now set to become the largest break in the tax code, Politico’s Brian Faler writes:

“Few tax breaks have grown like the Child Tax Credit, with lawmakers beefing up the provision nine times since it was created.

“Democrats’ plans would bring its total annual cost to well over $200 billion annually, dwarfing better-known breaks like the mortgage interest deduction and eclipsing the annual budgets of many federal agencies.

“A big reason for the rapid growth: The credit sits in a particularly sweet spot in politics.

“Aimed at the average American, it is perhaps the quintessential middle-class tax break. Lawmakers in both parties have long supported it, though they come at it from different angles. Republicans tend to emphasize the credit as a way to reduce the tax burden on families, while Democrats see it as a way to help low earners, regardless of whether they make enough to pay income taxes.

“The result, though, is the same: The Child Tax Credit is the second-most widely claimed individual tax break, trailing only the deduction for charitable contributions.”

Read the full story at Politico.

Jobless Claims Drop to 3-Month Low: Has the Labor Market Turned the Corner?

New jobless claims dropped last week to the lowest level since November, the Labor Department announced Thursday, with about 730,000 people filing for benefits in state unemployment systems.

Another 451,000 applied for aid through the Pandemic Unemployment Assistance program, which provides benefits for self-employed and gig workers, bringing the total of new claims to nearly 1.2 million.

The numbers were lower than expected, leading some analysts to speculate the unemployment may be easing as vaccines are being rolled out. “The drop may be signaling a turning point for labor market conditions,” Nancy Vanden Houten of Oxford Economics said, adding that she expects “a more sustainable labour market recovery to take hold closer to mid-year with broader vaccine distribution and the arrival of more fiscal support.”

Still, some economists cautioned that bad weather in large swaths of the country may have affected last week’s numbers, and that it is too early to declare that the crisis has reached an inflection point.

“We would urge policymakers to approach the decline with a grain of salt, which is generally more than was available for the roads in Texas during its deep freeze,” wrote Joseph Brusuelas, chief economist at the consulting firm RSM. “Even with the weather-induced distortions, claims at this level are extraordinarily elevated and merit further fiscal relief, which is working its way through Congress.”

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