Rebecca talks to CAP senior fellow Seth Hanlon about what’s in the historic American Rescue Plan Act — and what workers and families can expect in the way of economic relief, now that it’s law. Subscribe to Off-Kilter on iTunes.
With President Joe Biden’s signature, the American Rescue Plan Act became law on Thursday of this week. This wide-ranging package of relief measures — which despite garnering widespread bipartisan support among voters, passed both chambers of Congress without a single Republican vote — includes long-awaited funding for vaccinations and other critical public health measures; aid to renters and homeowners to prevent evictions and foreclosures; nutrition assistance; aid to struggling small businesses, including restaurants, bars, and other venues hit especially hard by the pandemic; fiscal aid to state and local governments to make it possible for them to hire back workers and stave off further layoffs as well as cuts in vital services; and much more.
Notably, the law also authorizes a set of landmark expansions of existing income security policies and programs — including a urgently needed extension of expanded federal jobless benefits, and an historic expansion of the Child Tax Credit, that for the next year at least, turns the CTC into a fully available child allowance that’s estimated to cut child poverty in half by establishing a guaranteed minimum income for families with children. The law, which is estimated to cut overall U.S. poverty by one-third, and to boost incomes for the poorest fifth of workers by 20 percent, offers a stark reminder that in a wealthy nation like the U.S., poverty has always been a political choice. While historic, most of the law’s income-boosting provisions are temporary, so while there’s much to celebrate, many advocates are already thinking about the next fight — to make those expansions permanent.
To break down the major income-boosting elements in the American Rescue Plan Act, now that help is on the way — and for a look at what families can expect to receive in the way of economic relief, Rebecca sat down (virtually) with Seth Hanlon, a senior fellow at the Center for American Progress and a former advisor to President Obama for tax policy.
This week’s guest:
- Seth Hanlon, senior fellow, Center for American Progress (@sethhanlon)
For more on what’s in the American Rescue Plan Act:
- Check out Seth’s explainer on the cash assistance and tax cuts in the law
- Here’s a handy snapshot of the key elements of the package (h/t CAP Action)
- And here’s Jeff Stein and Michele Singletary of the Washington Post answering a whole slew of reader FAQ’s
♪ I work and get paid like minimum wage
Sights to hit the clock by the end of the day
Hot from downtown into the hood where I slave
The only place I can afford ’cause my block ain’t safe
I spend most of my time working, tryna bring in the dough…. ♪
REBECCA VALLAS (HOST): Welcome to Off-Kilter, the show about poverty, inequality, and everything they intersect with, powered by the Center for American Progress Action Fund. I’m Rebecca Vallas.
With President Joe Biden’s signature, the American Rescue Plan Act became law on Thursday of this week. This wide ranging package of relief measures — which despite garnering widespread bipartisan support among voters, passed both chambers of Congress without a single Republican vote — includes long-awaited funding for vaccinations and other critical public health measures; aid to renters and homeowners to prevent evictions and foreclosures; a substantial increase in nutrition assistance; aid to struggling small businesses, including restaurants, bars and other venues hit especially hard by the pandemic; fiscal aid to state and local governments to make it possible for them to hire back workers and stave off further layoffs; as well as cuts in vital services; and much, much more.
Notably, the law also authorizes a set of landmark expansions of existing income security programs, including an urgently needed extension of expanded federal jobless benefits and an historic expansion of the Child Tax Credit, that for the next year at least, turns the CTC, as it’s often called, into a fully available child allowance that’s estimated to cut child poverty in half by establishing a guaranteed minimum income for families with children. The law, which is estimated to cut overall U.S. poverty by one third and to boost incomes for the poorest fifth of workers by 20 percent, offers a stark reminder that in a wealthy nation like the United States, poverty has always been a political choice. While historic, most of the law’s income-boosting provisions are temporary, so while there’s much to celebrate, many advocates are already thinking about the next fight to make those expansions permanent.
To break down the major income-boosting elements in the American Rescue Plan Act, now that help is on the way, and for a look at what families can expect to receive in the way of economic relief, I sat down (virtually, of course) with Seth Hanlon, a fellow senior fellow at the Center for American Progress and a former adviser to President Obama on tax policy. Let’s take a listen.
Seth, thanks so much for coming back on the show. And just this is a really fun conversation to actually get to have for once, right? I mean, we’re talking about pretty amazing, historic legislation here.
SETH HANLON: Yeah, absolutely. I mean, it’s a great day. I mean, I think it’s like a day we’ll look back as like an historic day. And finally, some good news after a tough year.
VALLAS: Well, there’s way more in what is now a law — I was going to call it a bill again, but we now get to call it a law because Biden has signed it into law — so, there’s way more in the law than what we’ve got time to drill down into, and plenty of other shows and podcasts and whatnot that are going to be getting into lots of different parts of it. But I sort of provided an overview up top of some of the big categories that the relief falls into. For this conversation, what I’ve asked you to join me for today is a conversation that’s going to focus mainly on the cash assistance and tax cuts provisions that are kind of the income-boosting pieces of the law. So, I’d love to start off by actually doing kind of a quick lightning round of some of those key income-boosting provisions. I’ll name one, and then I’m going to pass it over to you to, to walk us through what that piece does and a little bit more on it. So, let’s start with the $1,400 direct payments.
HANLON: Right. So, this is probably the best known, although I’m not sure everybody knows all the details. But yeah, so the law provides direct payments of basically $1,400 per person, and they’re going to go out pretty much immediately. The White House even said that some people are going to receive direct deposits as soon as this weekend. But even if you don’t get it this weekend, it should be very soon. So, like I said, it’s about $1,400 per person. So, a family of four, for example, would get $5,600. Unlike previous rounds, so, first of all, it’s bigger than the previous rounds of direct payments in The CARES Act last March and then the other $600 payment in the law in December. So, this is $1,400 per person, including kids. And it also includes a lot of people that were excluded in those past rounds of checks who are adult dependents. So, that’s like an elderly person whose family is taking care of them or college students, and also 17-year-olds were weirdly excluded. So, this is a, it’s more comprehensive. $1,400 per person, except for people with high incomes who are phased out.
VALLAS: There’s also a really, really important piece of the law that extends unemployment insurance. And it does that until September, which was particularly important because a lot of advocates were kind of pointing out, as earlier versions of the bill were getting negotiated, hang on a second. If we let this expire in August, which is what was originally envisioned, Congress isn’t around in August. We’re just going to be setting up another cliff. Talk a little bit about that UI extension.
HANLON: Right. So, well, first of all, there was a cliff this month where lots of people would have been cut off from all or part of their unemployment benefits. And of course, we still have 18 million people in the country who are out of work and receiving unemployment benefits. So, I think, you know, The CARES Act last year did a really important thing in expanding the universe of people who are eligible for unemployment insurance. So, it’s not just people who are regular employees and work at regular jobs and get laid off. It extended it, for the first time, to people who are self-employed or gig economy workers and also people who had to voluntarily quit their jobs because of the pandemic, because they had to take care of their children, for example. So, there was a lot of people that were made eligible for UI for the first time. And then in addition, the legislation in December gave people on unemployment insurance another $300 per week.
Now, all of that would’ve expired this month, basically over the next few weeks. So, that 11 million people would’ve been cut off from unemployment benefits entirely. I mean, so that might’ve been their entire income. And then the larger group of about 18 million people would’ve been cut off from the $300 per week supplement. And like you said, those things are now going to continue through September 6th. So, it’ll take a while for people to, for the economy to recover, for people to get back to work. And so, this is a crucial, crucial help for them.
VALLAS: There’s also another piece of what this law does on unemployment insurance that is definitely a lot wonkier than the extension, which is getting a lot of attention, and lots of folks are talking about because of that cliff that we were coming up on, on March 14th and which is no longer forcing a bunch of workers, about 11.4 million unemployed workers, to stare over the precipice of that cliff. And that has to do with taxes and how unemployment benefits get taxed. Talk a little bit about how this law actually is helping unemployed workers with taxes.
HANLON: Yep. So, I think, you know, a lot of people don’t know, but unemployment benefits, the general rule is, unemployment benefits are taxable income. So, people have to pay taxes on them. And not only that, but they don’t count for, they don’t count as earnings for things like the Earned Income Tax Credit. So, they’re kind of like bad for, you know, you can be in a bad situation if you have to pay taxes on your unemployment benefits. Especially because a lot of people didn’t know that they had to pay taxes on them, so they received the benefits last year and didn’t withhold taxes. And a lot of states didn’t proactively tell them to or issue guidance or withhold taxes. And so, people are filing their taxes this spring. Many of them who got unemployment benefits last year are only now realizing that they’d have to pay taxes on those benefits. So, you know, it could’ve been an unexpected financial hit for a lot of families this spring. So, what the bill does is it says up to $10,200 of unemployment benefits from last year, from 2020, are now tax free. So, basically, what it’s doing is relieving a tax bill that basically would come due this spring as people file their tax returns.
VALLAS: So, staying with taxes for a second, it’s actually through the tax code that some of the most historic pieces of this legislation have been enacted. And of course, folks who listen to this show know that one of the things I’m most excited about is the provision in this law that takes the Child Tax Credit and basically turns it into a U.S. version of a child allowance, something that most other wealthy nations have to protect families with children, and in particular children, from poverty. This law does that. It does that for one year. Talk a little bit about that Child Tax Credit piece that is finally starting to get not just a lot of attention, but even some level of bipartisan support in the form of Mitt Romney.
HANLON: Yeah, I think that’s right. So, I think that, I mean, I think the crucial thing to understand is, we had a tax credit in the tax code. We’ve had it for more than 20 years. And it had been increased over the years, and it’s currently $2,000. But there’s an earnings phase in. And so, the people who really need, the parents who are raising children and struggling the most who need the tax credit the most, are either not eligible for it at all or are eligible for only a partial bit of it. And so, what this bill does that’s really historic is first of all, it raises the amount of the Child Tax Credit from $2,000 per child to $3,000 per child, and then adds another $600 for every young child, so under age six. But it also, and crucially, makes the Child Tax Credit fully refundable. And what that means is that even those families with the lowest incomes are going to get the full $3,000 or $3,600 amount per child.
And the other thing that’s new that the bill does is, the way the Child Tax Credit has worked to date is that you only get it on your taxes when you file your taxes, and you can get a refund. But it’s one lump sum at tax time, so you have to wait until the end of the year when you file your taxes. So, what this bill does is start advancing the credit. So, basically, it starts paying out the credit every month — or at least they’re going to aim to do it every month; the law says “periodically” — so that families are going to receive the Child Tax Credit spread out over the course over the second half of this year. Which without the law, they would’ve only gotten a smaller tax credit next year at tax time.
So, I mean, essentially what this is doing, like you said, is it’s creating a child allowance, a universal child allowance, where every family raising children, except for those with higher incomes, gets either $250 a month for older kids and $300 a month for younger kids. And I think, you know, this is the part of the bill analysts who’ve looked at it says it cuts child poverty in half. And it’s really going to have a, I think, a tremendous transformative difference in children’s lives.
VALLAS: And we’re going to come back to that because there’s so much more to say about that child allowance. But I want to get a few more of the other critical income-boosting provisions kind of on the table as we lay out some of the elements of this law. The Child Tax Credit, its sibling is, of course, the Earned Income Tax Credit. You kind of have to talk about both when you talk about income-boosting provisions within the tax code that reach lower- and moderate-income families and workers. In the case of the EITC, one of the biggest gaps over the years that advocates have been ringing the alarm bells about and pointing to in terms of the agenda to eliminate poverty in this country, is that it has really left behind workers who don’t have dependent kids. So, here we’ve been talking about the Child Tax Credit, which is for families with kids, but for folks who are struggling with low wages but don’t have dependent children, the federal government taxes them deeper into poverty. And in fact, that’s the only group that is taxed deeper into poverty or into poverty by the federal government of all workers. This law also actually starts to fix that as well.
HANLON: Yeah, that’s right. So, the Earned Income Tax Credit for workers without children is basically tripled. So, the maximum credit had been $543, which is very small. I mean, compared to the families with children would get, you know, $2,000, $3,000, sometimes $4,000 dollars. So, it was only about $500. And this bill basically triples that to $1,500. And like you said, the so-called childless workers are the only group that are taxed further into poverty by the federal income tax. And I’ll also say, you know, a lot of the people who are considered not to have children for the Earned Income Tax Credit are actually helping support children. It’s just that, you know, if they don’t have children that they don’t have in their home most of the time or don’t have custody over. So, a lot of them are actually parents.
VALLAS: There’s another tax credit as well that I sort of feel like is the sibling of the Child Tax Credit and the EITC that gets even less attention and visibility sometimes than those two do. And that’s the Child and Dependent Care Credit, which has a lot to do with helping families afford child care and dependent care. That gets some love in this law as well.
HANLON: Yeah, it does. And I think it’s really one of the overlooked major expansions of tax credits in the law. So, basically, the Child and Dependent Care Tax Credit — so, this is separate from the Child Tax Credit — but it’s a tax credit for child care expenses for people who need child care to go to work. And it was sort of just the most weirdly designed tax credit, where it was totally nonrefundable so that people with low incomes got absolutely nothing. But then once you got sort of into the middle class, it phased down so quickly that people got only like at most a very small benefit from it. So, it was this kind of weird thing in the tax code that didn’t really benefit anybody that much. And so, this is a major expansion. And basically, what it does is, for low- and middle-income families, it creates a fully refundable tax credit that’s essentially going to cover half of a family’s child care expenses up to, if you have two kids, up to $16,000 a year. So, potentially, people can get a tax credit of $8,000 if they have $16,000 of child care expenses. So, it’s just sort of a huge step forward in helping people afford child care.
VALLAS: And obviously, part and parcel of this law is also an historic investment in child care. I believe $40 billion is the number that they ended up making it in. Not nearly every dollar that we need in terms of child care investment right now to catch up with where we need to be, but huge, huge, huge steps in the right direction.
There’s also — and this is the final thing we’ll put on the table before we switch gears a little bit — there’s also a piece in this law that has gotten almost no attention, relatively speaking, and certainly compared to, say, the Child Tax Credit expansion or the direct payments or the unemployment insurance. And that has to do with health care premiums, particularly for folks who have lost their jobs during the pandemic.
HANLON: Mmhmm. So, yeah. So, you know, COBRA health care coverage, right? If you lose your job, you can stay on a plan, but you really have to pay for it on your own. And there had been some help from previous bills, but what this bill is, it covers 100 percent of COBRA premiums. So, if somebody lose their job, they can essentially stay on, and the government’s going to pick up the cost of the premium. Which I think is obviously crucial for people who lose their jobs and lose their health insurance with it. And then also just for, you know, there’s 12 million people who get health insurance through the marketplaces that were established by Obamacare. And the rescue plan lowers the premiums substantially for people who get healthcare on those marketplaces.
VALLAS: So, there’s tons more in this law. We’re just sort of hitting some of the kind of key highlights in terms of immediately boosting people’s incomes, and in a couple of cases, helping folks with addressing certain costs like healthcare. Two incredibly stark top-line numbers jump out in terms of the aggregate impact that this law is going to have in boosting incomes and cutting poverty. You mentioned one of them, which is that this law is estimated through that child allowance that it establishes through that expansion of the Child Tax Credit, the law is estimated to cut child poverty in half. In half! That is one of the estimates that really I feel like needs to be said as we sketch out the big impacts that this law is expected to have.
Another is that the law is expected to boost the incomes of the poorest fifth of workers, the bottom 20 percent of workers by 20 percent. So, huge, huge numbers in terms of the impact that this law is going to have. You also, Seth, crunched the numbers to look at what the law is going to mean for individual families and for unemployed workers. And you actually looked at some hypothetical families who fall into different income brackets to put some numbers and concrete kind of explanations to what families and workers can expect to receive in terms of relief. I know that’s a lot of what people are wondering right now as they hear these kinds of overviews. They go, OK. Well, I hear that it has this and this and this and this, but what is it going to mean for my family? Walk us through some of the scenarios that you and others at the Center for American Progress looked at to put numbers to what some typical families or workers can expect to receive from this law.
HANLON: Sure. So, yeah, we just took some examples of some hypothetical, but probably very real examples of families and crunched the numbers. And they’re pretty striking, I mean, the amount of relief that people get, especially those with children. So, just I mean, to give our, to the first example, if there’s a single parent who’s working full-time and making the federal minimum wage of $7.25 an hour, or about $15,000 a year, and they have two young children, they’re going to benefit by almost $10,000 from this bill. So, $9,525. And that aid is going to be arriving soon, which I think is important. Because at first, they’ll get the $4,200 in direct payments for the three members of their household, $1,400 each. And then, like I was explaining, the lowest-income families only got a partial Child Tax Credit before. Now a minimum-wage worker is going to be eligible for the entire, and a larger Child Tax Credit. So, this minimum-wage parent of two is going to see an increase in the Child Tax Credit from $1,875 to $7,200. And that’s going to start arriving over the second half of this year.
VALLAS: Great. So, that’s kind of your first family that you look at. What then happens for middle-class families?
HANLON: So, middle-class families are going to receive a lot of aid. I mean, so, the $1,400 per person. So, a middle-income family of four is going to get $5,600. And they’re also going to see a boost, even though they get the full Child Tax Credit now under current law, it’s going to be bigger. So, right now, if there’s a family of four that’s getting tax credits of $2,000 dollars each for $4,000 are now going to get one for $3,000 and $3,600. So, it’s an increase of $2,600. So, you put it all together: A family of four with one younger child and one older child is going to get $8,200. And that’s before we take into account the Child Care Tax Credit.
VALLAS: You also looked at what unemployed workers can expect to receive in terms of relief. What should unemployed workers be expecting at this point?
HANLON: So, I think what’s important is what they’re, you know, they would’ve been suddenly cut off from the unemployment relief that they’ve been getting. So, just to give one example, so I mentioned before self-employed workers were only made eligible for unemployment insurance last year in The CARES Act, and that would’ve expired this month. So, people who were on UI who had been self-employed would’ve lost all of their unemployment benefits. So, just to give an example, I mean, this will vary state by state, but to give an example: The average worker in North Carolina would’ve lost $522 of weekly income, and now that income is going to keep coming.
VALLAS: Now, we’ve mentioned that one of the most historic pieces, and one of the most kind of game-changing pieces, of this legislation is the enormous expansion of the Child Tax Credit, turning it into a fully available child allowance similar to what they have in Canada and a number of other wealthy nations that make benefits fully available to families with kids up to, in our case, a certain income level. A lot of folks have been paying attention to this provision, recognizing that it’s one of the components that is likely to do the most on its own to boost families’ incomes. But there’s a lot of confusion out there, and I think a lot of questions, about how exactly this is going to be administered.
And there are, of course, some outstanding questions. You already mentioned one of them, like how often are these payments going to happen? Right now, the legislation says “periodic,” but the assumption and the hope is that it’s going to be monthly. For folks who are wondering, how can I access this new child allowance that sounds great and that sounds like it could really help me invest in my kids and meet my kids’ needs, what are you telling folks right now about what to expect in terms of how they are actually going to be able to access this child allowance?
HANLON: Yeah, that’s a really good question. I mean, I think so, first of all, I think, if you have been filing a tax return, so the IRS is going to be sending out these payments. And they’re going to be sending them out based on the information that they’ve gotten on people’s most recent tax returns. So, if you’ve filed a tax return for last year or you’re going to file your tax return for this year, the IRS will just know the information — how many dependents you have, your direct deposit or your address — and will start sending out the payments later this year. Unclear whether it’s going to happen like every month or in fewer number of installments. But it’s going to start happening over the second half of the year. For people that sort of haven’t been filing tax returns, we expect the IRS is going to create something, like they have this portal for people to receive their direct payments. Because the direct payments in the last two rounds are also based on tax information. But the IRS created an online portal for people to go in and say how many household members they had and their address and put their direct deposit information if they want. So, we’d expect the IRS is going to create something similar or expand the one they already have to start the, to hopefully make it as easy as possible and as straightforward as possible for parents to make sure they start getting the monthly or periodic child benefits.
And obviously, a lot more to watch there and a lot more that will develop. And I probably will make you come back on this show to explain it when we know more. But that, at least, I think, is helpful for folks to have as sort of a starting point.
At the same time and as much as we’re celebrating so much of what’s in this historic legislation — I keep calling it historic, but it’s not just me, right? I’m also thinking about actually New York Times reporter Jason DeParle, who has written for years on poverty and income inequality for The Times but who has really profiled child poverty in particular, and so has followed the push to get to this point, which obviously predates this package by many, many years. I feel like we have to give a shout out to Rosa DeLauro, congresswoman from Connecticut, who has been reintroducing legislation to at least make the Child Tax Credit fully refundable for I think 18 years at this point, every single year reintroducing it and in every new Congress. So, she and Sherrod Brown, senator from Ohio, and Michael Bennett, just so many who have really been pushing for a long time to get to this point, and credit needs to be given where it’s due. This didn’t fall out of the sky.
But New York Times reporter Jason DeParle called this particular provision a “policy revolution.” And I think that that’s the right way to think about it, because it’s the U.S. opening the door to a guaranteed income for families with children. And in a lot of ways, we’re celebrating this tremendous first step, even though — and this is where I was going with my question — it is just for one year. And like so much else in this package, it is a temporary revolution that gets authorized. And that means, and I’ve been saying this and a lot of folks are already starting to say this, even though the law has just been signed, that means it’s time to come back and make it permanent as soon as we can, right.? That’s how I see the road ahead here. How do you think about where the fight goes from here, now that we have this foot in the door with this one year of cutting child poverty in half with this policy that most other wealthy countries have already had on the books? What do you see as the fight and the road ahead for trying to make this provision permanent?
HANLON: Yeah, I think the foot in the door is the right analogy. I mean, so, I think it’s really important that this thing is in law now and that the mechanics of it get going and the IRS figures out how to do monthly payments and those monthly payments start flowing. You know, but I think the next fight starts now, basically, to make this permanent because just in this law, people will get monthly payments through the rest of this year, and they’ll get the rest of their Child Tax Credit early next year. But then it would revert to the highly flawed system that we had before where the poorest families were shut out of all or most of the credit. So, I mean, I think we’re looking ahead to the Recovery Act. You know, President Biden’s probably going to propose the outlines of a Recovery Act to follow on this Rescue Act. And it’ll be part of his build back better agenda to make many investments in America’s future, including on climate, including on infrastructure. And I think those of us who really care about children and child poverty need to make the case that this investment in America’s children is one of the smartest and best that we can make.
And so, hopefully, later this year in a Recovery Act legislation, that’s probably going to be not as easy to pass. I mean, this one, this Rescue Act wasn’t totally easy, but it sailed through pretty quickly in about two months. The next one’s going to be harder, and it’s going to be a fight to make the child allowance permanent. But I think the good news is, this is, like you said, we’ve gotten a foot in the door. The payments are going to start flowing. I think it’s going to make a real difference in people’s lives. And I think members of Congress are going to see it making a real difference in people’s lives and hear about it. And hopefully, by the end of the year, we can make this permanent.
VALLAS: And of course, like so much else that’s in this law, it’s a policy that made sense well before COVID-19 was a household name, and it’s not a pandemic policy. It’s something that families were desperately needing even before the pandemic offered an opportunity through relief legislation to actually get it done. So, something that’s worth remembering as we think about the longer-term gain here. I have to say just one more thing on the child allowance, which is for anyone who’s wondering, you know, well, does everyone like this? Well, no. I mean, we still definitely have, even with some love from Mitt Romney, who introduced his own version of a child allowance that was part of what lent some bipartisan support to the idea as this package was moving forward, even if he didn’t ultimately vote for it, there definitely has been some hand-wringing from particularly folks who are looking to roll the clock back to the 1990s when we were having a debate around work requirements, and that was really kind of the center of the Overton Window.
One prime example of someone who is not particularly happy to have seen this development in the law is a Trump adviser named Larry Kudlow, who folks may remember who now is apparently earning his living screaming on Fox Business. He was doing a good bit of that screaming on Fox Business yesterday about how he couldn’t find any work requirements anywhere in the bill and how scared he was that this might mark a shift, and a long-term shift at that, away from that kind of 1990s thinking about what to do around income support. He said, “Doesn’t this blow up the Clinton-Gingrich welfare reform and work requirements?! There’s nothing I can find in this law that increases work requirements!” So, for anyone wondering how good this law is, I think that probably tells you what you need to know. But it also really does start to, I think, suggest that what we’re seeing here is not just a one-year income boost. It actually is a real step in the direction of a completely different conversation when it comes to what we’re doing to reduce, if not eliminate, poverty in this country and what the role of guaranteed income that is not conditioned on employment status, one of those lessons we had to learn through this pandemic, might really be able to achieve.
So, Seth, moving on to another piece of the legislation that also didn’t get a lot of attention and was actually kind of tucked into the bill late as it was moving for procedural reasons. There’s about $60 billion of tax increases on the wealthy and on large corporations that were put into the bill. Was this Democrats getting an early start on their promise to ensure that the rich pay their fair share? And what are those tax hikes on the wealthy and large corporations that got put in?
HANLON: Yeah, I think so. I mean, I think as this bill went along the process, members of Congress wanted to add things. And I think they did add really important things like relieving the taxes on unemployment benefits. But then they chose to, because they were working within the budget reconciliation framework, they had to pay for those things. And so, they did so by taxing high-income business owners and large corporations. So, just to give an example of one provision, there’s one that denies tax deductions for corporate executives for the amount of compensation above a million dollars. So, essentially, large public companies can’t take a deduction when they pay their executives more than a million dollars. That’s already sort of in law, but this expands the number of executives per firm that it applies to. And it raises billions of dollars.
And then there’s also a provision that applies to multinational corporations and how they take foreign tax credits that curbs back about $20 billion from multinational corporations. But I think, hopefully, like you said, that’s about $60 billion, but hopefully, I think in the next recovery package where more members of Congress, in particular, Senator Manchin from West Virginia, are saying they really want to see any investments be paid for, that we’ll see some revenue increases from high-income people and corporations. President Biden, during the campaign, proposed about $3 trillion of very progressive tax increases. So, that’s probably the ballpark of where we can expect the Biden administration to go.
VALLAS: Well, and speaking about progressive tax increases, right? I mean, a little bit of a different approach to reforming the tax code than what we saw President Trump champion, of course, during his time in office, his signature legislation, his signature legislative achievement was, of course, the Tax Cuts and Jobs Act, the $2 trillion, give or take, handout of massive, massive tax cuts to the wealthy and to large corporations predominantly. Which I should note, despite Joe Manchin’s good intentions saying let’s pay for things, of course, the Tax Cuts and Jobs Act was not paid for. It was something that added about $2 trillion to the deficit in a way that Republicans in Congress seem to, as they’re often so good at doing, have selective amnesia around as they now wring their hands about paying for things now.
There’s a chart that’s circulating from the Tax Policy Center. I actually saw Senator Sherrod Brown use this chart on the Senate floor as kind of one of those big blow-up visual aids last night that does a sort of a side-by-side of well, what about the Tax Cuts and Jobs Act compared with this American Rescue Plan? And it does that. So, I feel like listeners of the show are very familiar with me acting out charts, right, verbally! But here I go. The chart shows the change in after-tax income by income quintile. So, by how much income people have: Are they in the bottom quintile, the next quintile, kind of moving up the income ladder. How much are people going to end up benefiting or being hurt by the legislation? And we talked before about how workers in the bottom quintile are expected to see their incomes boosted by 20 percent by this American Rescue Plan. Talk a little bit about this side-by-side. I know you’ve seen that chart as well. You’ve tweeted that chart out as well. What is the comparison between who’s being helped by this, what now is going to be Biden’s first signature legislative achievement, this historic American Rescue Plan, and Trump’s Tax Cuts and Jobs Act?
HANLON: Yeah, totally. So, yeah. And you mentioned the bottom 20 percent under this American Rescue Plan sees their income, after-tax income, increase by about 20 percent. And then actually, if you look at the poorest 20 percent of families that have children, their incomes increase by 35 percent. So, it’s a really, really dramatic increase in incomes. And it’s, like you said, the contrast couldn’t be starker. The 2017 tax law, about two thirds of its benefits went to the top 20 percent of Americans. And more than a quarter of it, in the short-term, more than a quarter of it goes to the top one percent. And then over the long-term, after some of the individual provisions expire, 83 percent goes to the top one percent. So, it’s just basically a mirror image of priorities.
VALLAS: And it just, it does such a good job. We’ll put this chart on our nerdy syllabus page for folks who want to follow along and look at it. But you can just sort of see, as you go up the income ladder, people getting more and more and more help from Trump’s tax law, and as you go down the income ladder, people getting less and less. Obviously, it’s the inverse of what would need to happen to make our tax code more progressive and to help the folks who actually need help, rather than to fund a whole bunch of millionaires and billionaires getting their second and their third yacht. But instead, here we got The American Rescue Plan with the biggest help really going to the bottom and the middle class, of course, and much less to people at the top, as it should be, in the opinion of anyone who’s thinking about who actually needs help.
There’s another kind of piece of selective amnesia — since I used that phrase before — that is also occurring within the Republican Party these days. And this one is a little bit shorter-term in the whiplash that you get when you start to see the simultaneous or nearly simultaneous opposing positions that we’ve seen Republicans take. And that is some of the same folks who were desperately, desperately worried (or so they said) about anyone who earns over $75,000 a year getting a $1,400 check, right? That was a big Republican push that we needed to make sure these checks were targeted. And lots of handwringing about people over that income level, which is a very modest income level, relatively speaking, getting $1,400 in the middle of a pandemic. And yet these same individuals, right, of course, are also very worried about people who have estates that are larger than $23 million paying a single additional dollar in taxes. I’m, of course, referring to the ongoing Republican quest to repeal the estate tax, which they call the death tax. Talk a little bit about that piece of hypocrisy as well.
HANLON: [chuckles] Yeah, the timing was quite striking. At the same time that Democrats were passing this historic rescue legislation that essentially is a financial rescue for the most vulnerable Americans, Republican senators introduced a bill to fully repeal the estate tax. And, of course, we’ve been chipping away, Congress and especially Republicans, have been chipping away at the estate tax over many decades. And the last sort of blow to the estate tax was in the 2017 Republican tax law, where they dramatically cut the estate tax and gave the wealthiest estates, each of the wealthiest estates, a tax cut of more than $4 million, and like you said, raised the exemption so that no estate, so that if people die with less than $23 million of assets, which happens to be 99.91 percent of Americans, they pay zero estate tax. So, we’re talking about the richest .09 percent of Americans who pay any estate tax whatsoever. And so, on this day of all days, the Congress was passing The American Rescue Act, Republican senators were introducing legislation to fully repeal the estate tax on that .09 percent richest people in the country.
VALLAS: And of course, we didn’t see a single Republican vote in either the House or the Senate for this legislation, which had Mitch McConnell and others in the Republican caucus trying to label this legislation something that was partisan and saying that we should’ve done something bipartisan. Of course, there was immense bipartisan support for this legislation, if you actually ask the American people. The lack of support within the Republican caucuses in the House and Senate could not be more out of step with the overwhelming bipartisan majority support for this legislation among actual voters, including about two thirds of lower-income Republican voters, I should note. So, just really kind of fascinating and somewhat remarkable, if not surprising, that Republicans weren’t even really part of this conversation in Congress. They were off yelling about how checks were going to go to terrorists, right, as opposed to even really engaging in how they, how we might get relief to the American people who are clamoring for it across party lines.
I know we’re going to run out of time, Seth. There’s a lot more that we could talk about in this package, about the significance of this package. But as we think about kind of what comes next, because today is definitely a day to celebrate, and the message coming from the White House and from Congress right now is, help is on the way, right? And as you mentioned, in some cases, as soon as this weekend, for some people with direct deposit. But what comes next? Has the curtain been pulled back now? Do the American people actually start to realize that, wait a second. We could’ve been legislating like this the whole time? Wait. We can cut child poverty with a single piece of legislation? Maybe we should be doing more of this. Do you think that that is where the conversation goes? There’s already talk of the next package, which sounds like it’s going to be focused on infrastructure. But you mentioned it’s going to be a more difficult fight than this was. What comes next, and what should folks be watching from the White House and from Congress on the heels of this historic victory that is not the end, but sounds like it’s the beginning of what Democrats are trying to do in the spirit of recovery?
HANLON: Mmhmm. So, I think over the next week or two, I think the Biden administration is going to take a bit of a well-deserved victory lap. And I think it’s sort of important that people do understand what is in this bill and how it’s going to benefit them and how they can make sure it benefits them. And like you mentioned, there was zero Republican votes for it, but that didn’t stop some Republican senators from actually trying to take credit for some of the provisions in the bill, like the aid that goes to small businesses. So, Senator Wicker from Mississippi actually put out a press release bragging about all the small business aid in the bill that he and all of his colleagues voted against, which was kind of ironic. But I think pretty soon, over the next couple weeks, the Biden administration is going to outline a plan like they did during the campaign, as they say, to build back better. And this is going to be a long-term investment plan for the future of the country.
So, I think the message is going to be, you know, we’ve provided immediate relief, we’ve helped struggling families so that they don’t fall off a cliff, we are accelerating vaccinations and getting kids back to school and getting back to some degree of normal, but we’re well overdue in making the investments we need to make as a country, in particular on climate, on infrastructure, and children as well. So, I’d expect them to put out an outline of a build back better plan, and hoping it’s as bold as possible. And I think Congress is going to take it up over the late spring and summer. I think it’s going to be much harder and much more complicated to pass than this bill just because there’s so many different topics, so many moving parts. And then there’s going to be some pressure to pay for all or some of it, which just makes things harder politically. So, you know, it could be a challenge to pass over the course of the summer, but it’s going to be really another important, historic legislation.
VALLAS: And in the meantime, we celebrate and we also really cheer on Democrats for, I would say, learning some of the lessons from the Great Recession and the incredibly slow recovery following that. This is going big. This is what they promised to do. This is what Biden promised to do. And this is, frankly, what they were elected to do, even if it isn’t perfect, it isn’t everything. It obviously doesn’t include the minimum wage, which was a disappointing turn of events. And there are other elements as well that may not be absolutely everything that everyone might have wanted in this moment, but it is an incredibly historic and bold piece of legislation that really is delivering concrete and immediate and tangible benefits to people when they need them and as they are clamoring for them and demanding that Congress actually deliver for the people. So, I’m excited to take this moment for everyone to celebrate. And it is important that we mark this victory.
But the work doesn’t stop here. In a lot of ways, it’s just beginning. So, I’m looking forward to having you back on the show at some point soon to share some of those updates, including all of the work to make this child allowance permanent. Seth, I hope you’re getting a glass of wine or something in this evening. And just on a personal note, thank you for everything that you have done over the years to shape the policies, many of which have ended up in this bill, and for all of your work to help it get over the finish line.
HANLON: Well, you did more than me, but thank you. But thank you. It’s a good day.
VALLAS: Seth Hanlon is a senior fellow focusing on economic policy at the Center for American Progress. And you can follow him @SethHandlon. I hope I got that right, Seth. You’ll correct me if I didn’t, because folks should be following you on Twitter if they are not already. And Seth, be well, and I look forward to talking with you soon.
HANLON: Excellent. Thanks, Rebecca.
VALLAS: And that does it for this episode of Off-Kilter, the show about poverty, inequality, and everything they intersect with, powered by the Center for American Progress Action Fund. I’m Rebecca Vallas. The show is produced by Will Urquhart. Find us on the airwaves on the We Act Radio Network and the Progressive Voices Network, and say hi and send us your show pitches on Twitter @OffKilterShow. And of course, find us anytime on iTunes or wherever you get your podcasts. See you next time.
♪ I want freedom (freedom)
Now, I don’t know where it’s at
But it’s calling me back
I feel my spirit is revealing,
And now we just tryna get freedom (freedom)
What we talkin’ bout…. ♪