President Joe Biden’s American Rescue Plan is one of the boldest legislative packages since Franklin Delano Roosevelt’s New Deal of the 1930s. Within the first 100 days of Biden’s new administration, he has overseen passage of a law that will make a huge and immediate impact on families living in poverty across the country. Beyond the highly publicized $1,400 payments to eligible households, the package will send $350 billion in aid to state and local governments, and $130 billion in aid to schools to help schools reopen safely. In addition, the plan provides $21 billion in emergency aid to people struggling to pay rent and $7.25 billion in capital for small businesses that have floundered due to the pandemic.
One of the act’s most important provisions – although not directly tied to Covid relief – is an increase in the Child Tax Credit for families with low or no income from $2,000 year per child to $3,000 per year for children ages 6 to 17 and $3,600 for children under age 6. Families eligible for the full credit can receive payments of up to $300 per month from July to the end of the year. And the law greatly expands who is eligible to benefit from the Earned Income Tax Credit, including — for the first time — U.S. citizens in Puerto Rico. These two policy achievements alone are projected to lift 4 million children out of poverty and 1 million out of “deep poverty,” according to research by the Center on Budget and Policy Priorities.
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In addition to these two expanded tax credits, the Rescue Plan also includes an extension in food assistance through the SNAP program and other initiatives to help strengthen the social support net. In analyzing the bill’s anti-poverty measures, the Urban Institute projects the American Rescue Plan will lift 16 million people out of poverty and that the relief package will cut child poverty in half. The Institute estimates that poverty would fall 42 percent for Black Americans and 34 percent for white Americans.
Nevertheless, this law is not without flaws. Its most glaring failure is that it does not include a desperately needed increase in the minimum wage. The inclusion of a minimum wage increase of $15 an hour would have reduced child poverty even more.
The current federal minimum wage is $7.25 an hour; the federal poverty line for an individual is set at $12,880. A person working 40 hours per week at minimum wage must work 52 weeks a year to get to 117 percent of the poverty line. A couple of weeks of illness, vacation, or a cut in hours can drop these workers into poverty.
The language and conceptual framework of “lifting X number of people out of poverty” can be deeply misleading.
And this simple analysis of economic precariousness is just for a worker who is single and has no dependents. Now, imagine the situation for a worker with dependents.
There’s also a deeper problem. The language and conceptual framework of “lifting X number of people out of poverty” can be deeply misleading. The federal poverty line for a family of four is $26,500. And so, to “lift someone out of poverty” in this framework is to take a family making $26,499.99 and raise their wage by one penny. We all recognize that the extra penny is not enough to change anything for that family, but the focus on poverty lines has distorted our understanding of poverty by rewarding policymakers for improving metrics with the least amount of money.
A better framework would look at the poverty gap, a measure that takes into account all people below the poverty line and calculates what it would take to fill the gap, an approach advocated by Matt Bruenig at the People’s Policy Project. The America Rescue Plan does a better job of addressing this poverty gap by expanding eligibility of the Child Tax Credit to the lowest income households, but without meaningful changes to wages, it’s not enough to close that gap for good.
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Another shortcoming of the Rescue Plan is that many of the provisions — including the expanded Child Tax Credit and Earned Income Tax Credit — are temporary measures. While the temporary expansion will provide leverage for the administration to lock in these benefits in a later bill, it will take political willpower and strength, given the expected Republican opposition. In the fight for a minimum wage increase and student debt cancellation, the Biden administration has, so far, seemed reluctant to lean on the presidential bully pulpit. But without a willingness to bring the heat, the gains we will see through the Rescue Plan may be erased over time.
Here’s what should happen next. First, Congress needs pass a bill to raise the minimum wage to at least $15 dollars an hour and index that minimum wage to the Consumer Price Index. Increasing the minimum wage to $15 dollars per hour would lift 900,000 workers out of poverty, helping hundreds of thousands of children as a consequence.
Second, researchers need to reevaluate the framework used for analyzing poverty, to recognize that success means more than simply adding that additional penny to move a family above the poverty line. Instead, the framework needs to address economic precariousness and examine how best to expand the safety net to ensure that low-income families feel supported.
And third, we need to pass a bill that makes the expansions of the Child Tax Credit and Earned Income Tax Credit permanent.
Almost 60 years ago, we lost the first War on Poverty, an economic battle announced by President Lyndon Johnson in 1964. People in poverty have been in an emergency ever since. This time, if politicians in Washington can hold firm, families might end up better off than they were before Covid.
This story about the Rescue Plan was produced by The Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education. Sign up for Hechinger’s newsletter.