$1.9 Trillion American Rescue Plan of 2021. What's in the Plan, and Where is the Money Coming From?

On March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021. This $1.9 trillion economic stimulus bill is intended to speed up the U.S.’s recovery from the economic and health impacts of the COVID-19 pandemic. The amount of money in this plan is huge, and that was intentional.  Joe Biden was the point man for President Obama’s $787 billion stimulus plan in 2009 to help lift the country out of the “Great Recession”. But in retrospect, many economists feel that the stimulus was too small, resulting in a slow and sluggish economic recovery. President Biden does not want to repeat that mistake. The amount of money in this act is massive, but is it all needed, and where will the money come from to pay for it?

​What’s in the American Rescue Plan Act: The act contains over 600 pages of legislation that very few law makers have read, much less fully comprehended. The entire act can be found at the following link for your reading pleasure: https://www.congress.gov/bill/117th-congress/house-bill/1319/text#toc-HF220ECA2BFFA40A1BE08D043923EEE1F.
​
The American Rescue Plan builds upon the two previous COVID relief bills: the $2.2 trillion “Cares Act” signed into law in March of 2020, and the $900 billion coronavirus response and relief appropriations, part of the “Consolidated Appropriations Act”, signed into law in January of this year. Here is a summary of the major spending provisions in the new $1.9 trillion rescue plan:

• Direct Payments to Individuals: Every member of a household, including children and adult dependents, will receive a $1,400 “recovery rebate”. The payment is available, tax free, to individuals making up to $75,000 (payment is reduced if income is between $75,001-$80,000), and married couples making up to $150,000 (payment is reduced if income is between $150,001-$160,000). At least 85% of Americans will receive a recovery rebate, making it the third such stimulus payment in the past twelve months. Payments have already started to be deposited into bank accounts. These direct payments are the biggest piece of the American Rescue Plan, estimated to cost $465 billion.
• Aid to State and Local Governments: This will provide $350 billion to state, local, and tribal governments to offset revenue shortfalls due to COVID-19 shutdowns.
• Expanded Unemployment Benefits: A $300/week federal unemployment supplement will be extended through September 6, 2021. The previous federal supplement was due to expire on March 31, 2021. The supplement is in addition to what the unemployed may receive through their state’s unemployment compensation program. This provision of the act is estimated to cost $300 billion.​

​

• COVID-19 Funding: This will provide $165 billion for vaccines, testing, contact tracing, and other healthcare related needs. Funding is also directed to the V.A., Indian Health Services, rural and community health centers, and global efforts to fight the current and future pandemics.  
• Education Funding: Most of the $170 billion in this portion of the act is to provide for the safe opening of K-12 schools. $40 billion is for colleges and universities.
• Expanded Child Tax Credit: For 2021 this tax credit will increase from $2,000 to $3,000 per child up to the age of 18 (previously 17). The credit is increased to $3,600 for children under the age of 6. This credit is totally refundable, which means you will receive it even if you don’t owe any taxes.  Other changes to the tax code include expanding the child and dependent care tax credit, and the earned income tax credit. These tax code changes will cost an estimated $120 billion.  
• Aid to Small Businesses: Approximately half of the $65 billion in this provision is for restaurants and bars to meet payroll and other expenses. Aid in the form of grants and loans is available.
• Pension Fund Bailout: This is a $86 billion rescue package for approximately 185 multiemployer pension funds, mostly unions, that are close to insolvency.
• Transportation Funding: This $55.5 billion provision mostly funds grants to aid struggling public transit and commuter rail agencies across the country. Amtrack, airports, and airlines receive funds under this provision.
• Housing Funding: This $48 billion provision is for rental assistance and other housing programs.
• Agriculture and Nutrition Programs: This provision of approximately $22 billion, increases food stamp benefits, increases the purchase and distribution of food, and provides debt forgiveness and support to socially disadvantaged farmers.
• Other Programs: Approximately $54 billion is spread among various other government programs. You would be hard pressed to find any linkage between this spending and the pandemic.

​Where Will the $1.9 Trillion Come From: The U.S. has already accumulated a budget deficit in the current fiscal year, which ends on September 30, 2021, of just over one trillion dollars, https://bipartisanpolicy.org/report/deficit-tracker/ . This means that the U.S. Treasury cannot fund the $1.9 trillion from current or near-term revenues. So how about the money the government has stockpiled for a rainy day? There isn’t any. In fact, the U.S. is sitting on a national debt of over $23 trillion. So, the government’s options are to increase revenues (taxes), sell off assets, borrow the money, or a combination of these. Which option do you think the government will take? You’re right! The government will just borrow more money.   
​
The $1.9 trillion will come from the sale of U.S. government bonds by the Treasury. This is a huge amount of bond sales and it has the potential of siphoning money away from other bond markets essential for funding corporations, local governments and municipalities. Typically, this would result in a bond issuer increasing the yield on the bond to entice buyers. This could trigger higher interest rates and slow the economy. But the Federal Reserve is committed to preventing that from happening.  The Fed has recently stated that it will continue to purchase as many bonds as necessary to keep interest rates low,  https://www.pbs.org/newshour/economy/powell-signals-federal-reserve-will-keep-aiding-economy-with-bond-buying.

​How the U.S. will pay off its mounting debt, and whether or not all the new spending will lead to inflation, are real concerns. These are big issues, and there is no clear consensus among economists. The Federal Reserve will be monitoring the situation closely. Hopefully there will be a nice boost to the GDP without overheating the economy. We don't want the Fed to put the breaks on by increasing interest rates before the unemployment rate is back to pre-pandemic levels.

​What I Like About the Rescue Plan:

• COVID-19 Funding: The COVID-19 pandemic is the reason the rescue plan is needed. Until the virus is defeated (or at least tamed), the economy and the health and well-being of our people will suffer. It is interesting that COVID spending represents only 8.7% of the total spending in this plan.
• Expanded Unemployment Compensation: Unlike much of the rescue plan, this is targeted to those most in need of support. The supplemental unemployment compensation will extend through Labor Day. By that time most American adults will be vaccinated, schools should be reopened, and the economy is projected to be in full recovery mode.   
• Support for Low-Income Families: Notice that I indicated “low-income” families and not “middle- income” families. Direct payments, the increased Child Tax Credit, and other tax provisions will provide thousands of dollars to low-income people. Unlike middle and high-income families, low-income families will actually spend the money, boosting the economy. Isn’t that what a stimulus bill is supposed to do?
• Support for Small Businesses: I like the emphasis on hard hit sectors of the economy, like restaurants and bars, which were forced to close due to no fault of their own. The majority of Americans work for small businesses, and the economy is dependent on these jobs coming back.
• Education Funding: I am in favor of doing whatever is necessary to get students back in school, particularly those in grades K-12. Online learning is no substitute for classroom learning for most children. Not only has learning suffered, but behavioral and mental health have suffered as well. Getting kids back in school will also be a huge help for families juggling the schooling of their kids and holding down jobs.   
• Increased Healthcare Coverage: There are several provisions in the rescue plan which provide funding and expanded coverage for healthcare. Most of these provisions are directed to the unemployed and lower income families. According to the Congressional Budget Office, the increased healthcare subsidizes will lead to 1.3 million previously uninsured Americans gaining coverage. 

​What I Don’t Like About the Rescue Plan: The rescue plan is being sold to the American people as essential in order to boost the economy damaged by the pandemic, and to provide financial support to individuals and families who have lost jobs or who have suffered financially as a result of the pandemic. I cannot support any provision in this plan that does not promote these objectives. If I had to guess I would say that only about one half of the spending in the plan supports these objectives. Here are some of my specific objections to the rescue plan:

• Direct Payments are Not Targeted to Those in Need: The direct payments are directed to most Americans, even in they didn’t lose a job or suffer financial hardship. This “shotgun” approach will help those in need, but it helps more people who don’t actually need the financial support. For example, if a family has an AGI (Adjusted Gross Income) of $150,000 or less they get a full direct payment of $1,400 per individual. But if one or more of the family members is contributing to a 401K or similar retirement program at work, they can earn substantially more. Contributions to these plans are backed out of your income before AGI is calculated. A 50-year-old employee can contribute a maximum of $26,000 to their 401 K plan at work, making their actual income $176,000 (or $202,000 if husband and wife both contribute the maximum to a 401K). My point is, these families don’t need these recovery rebate payments complements of the government (taxpayers).  
• This is Not an Anti-Poverty Bill: There has been much written in the press about how this plan will lift 40-50% of children out of poverty. If that were the case, I would be ecstatic. Many of the analyses to back the anti-poverty claims were done with the assumption that the minimum wage would be increased to $15/hour. The federal minimum wage was not increased. The other major provisions in the tax code that provide increased payments to families with children are only temporary. They expire at the end of 2021.
• Direct Payments to All States: Some states experienced severe financial hits to their budgets during the pandemic, but most didn’t. According to the National Association of State Budget Officers, state revenue was only down by 1.6% during the pandemic. Most direct costs incurred by states to fight the pandemic have been reimbursed by the previous COVID relief bills, and more money is on the way. So, how much of the $350 billion state bailout is really necessary?
• Pension Fund Bailout: This is an $86 billion gift to the unions, pure and simple. This is politics at its worse.  
• Airlines and Aviation Funding: Airlines are seeing strong demand as domestic and international routes open up. Demand by leisure travelers is strong, even before any of the funding from the rescue plan is made available to industry or individuals. This is just another example of payments to favored industries which are largely unionized. I am not anti-union, but I am against political favoritism. No amount of funding will bring business travel back to pre-pandemic levels. The industry will just have to adapt to this new reality.  
• Effect on Other Essential Programs: The $1.9 trillion appropriated for the rescue plan is going to starve funding for other essential projects. Programs most at risk include infrastructure spending, border security and immigration, green technology initiatives, healthcare reform, and shoring up the Medicare and Social Security Trust Funds. Good luck getting any Republican support in the Senate for meaningful legislation in the near future. 
• Burden on the IRS: The IRS has been underfunded for years. It has not completed processing all tax returns for 2019 and it is in the middle of the 2020 tax season. The American Recovery Plan Act changes the tax code in significant ways, retroactive to the beginning of the tax year that is already underway. On top of all that, it is tasked with sending checks to 85% of American households. To the best of my knowledge, there is no increased funding in the plan to help the IRS accomplish this herculean task. 

​

• There is so Much Pork in this Plan it Makes my Head Spin: To the groups receiving this money, it is important. But not in a COVID relief bill. Here are just a few gems:
  • $50 million for the Title X family planning program.
  • $1.4 billion to fund the Older Americans Act (whatever that is).
  • $5 billion to socially disadvantaged farmers and ranchers.
  • $1.8 billion for cybersecurity funding (this should be in the Pentagon Budget).
  • $15 billion for airlines and airline contractors.
  • $8 billion for airports.
  • $150 million for the Federal Citizens Service Fund (whatever that is).
  • $570 million to create the Emergency Federal Employee Leave Fund.
  • $175 million for a new community navigators program (whatever that is).
  • $105 million for the U.S. Fish and Wildlife Service.
  • $100 for the EPA.
  • $9 million for FAA employee leave fund.
  • $3 million for the Transportation Security Administration employee leave fund.
  • $7.2 billion for the Emergency Connectivity Fund.
  • $850 million for the Bureau of Indian Education.
  • $20 million for the preservation of native American languages.
  • $2.8 billion for private schools.
  • $91 million for student aid administration.
  • $35 million to Howard University.
  • $3 billion for grants and programs under the Individuals with Disabilities Education Act.
  • $135 million for the National Endowment for the Arts.
  • $135 million for the National Endowment for the Humanities.
  • $200 million for the Institute of Museum and Library Services.

​The American Rescue Plan of 2021 is very popular with the American people. This is not surprising since the vast majority of them will receive direct cash payments. For those individuals who have lost their jobs or have experienced financial hardships as a result of the pandemic, I am all in favor of the cash payments. These people need the money and will spend it, unlike many higher income families who won’t. President Biden wanted the amount of money in the rescue plan to be huge, and he did not disappoint. But much of this money is poorly targeted, and in my opinion, not needed to get the economy rolling again. The economy is already picking up as more people become vaccinated, the shutdowns end, and kids get back to school. Let’s just hope that the economy doesn’t overheat with all the excess stimulus, causing the Federal Reserve to put on the breaks before those sectors damaged by the pandemic have recovered. 

I hope that President Biden and his advisors know what they are doing.

Otherwise we could end up here: 

If you enjoy reading this type of commentary please subscribe to my blog and tell a friend. You will receive an email notification when new blogs are posted. The email will come from the site’s email: [email protected].
​
Thanks,
Armchair American