Biden’s Stimulus Plan Relieves Lower-Income Americans Of Heavy Taxes

While Biden and his administration are preparing to increase income taxes for the wealthy, lower and moderate-income Americans will see their taxes lowered greatly this year.

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On average, taxpayers earning less than $75,000 annually will pay no taxes in 2021 thanks to a multitude of provisions set in place from the American Rescue Plan; which was officially signed into law by Biden last month. Lower-income Americans can instead expect to receive larger refunds then what they may be used to. 

According to the Joint Committee on Taxation, Americans with annual incomes of $75,000 to $100,000 will likely pay an average tax rate of just 1.8% as well. Experts are pointing out how this is a much larger tax cut for Americans than the ones they experienced in 2017 with the Republicans’ Tax Cuts and Jobs Act, which had individuals earning between $50,000 and $75,000 a year paying a tax rate of 2.4%, on average. 

Those earning less than $50,000 a year are expected to receive some of the largest tax refunds within the country. Most of these measures are one-time relief efforts only meant to last for the next couple of years, however, after the past year, most Americans will take what they can get. “The key thing to remember is that it’s only temporary. This is a temporary phenomenon. In a sense, it’s a little bit misleading because it’s only for a year,”  said Howard Gleckman, senior fellow in the non-partisan Urban-Brookings Tax Policy Center.

“Much of the reduction for the lower and moderate income groups comes from the stimulus payments contained in the Democrats’ rescue package passed in March, which were technically advance tax credits.”

More than 160 million American households are eligible for the stimulus packages which are worth up to $1,400 per person. That amount goes to individuals earning less than $75,000 and married couples earning less than $150,000. Payments will be gradually phased out as income goes up, for example, individuals earning $80,000 a year or couples earning $160,000 collectively aren’t eligible. 

The relief law also expands the child tax credit one year to help benefit lower-income families as well. CNN reports that “families with children under the age of 6 will receive $3,600 per child, while those with kids between the ages of 6 and 17 will receive $3,000 for each child annually. That’s up from a maximum of $2,000 per child under age 17. The full enhanced portion of the credit is available for single filers with annual incomes up to $75,000, heads of households earning up to $112,500 and married couples making up to $150,000 a year.”

Parents can expect to receive half of the child credit on a monthly basis from July to December of this year, and the rest will be given when they file their 2021 tax returns. The credit is also projected to be fully refundable in 2021, this way more lower-income households are able to receive payments. 

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“The package also enhances the earned income tax credit for workers without children by nearly tripling the maximum credit and extending eligibility to more people. This is the largest expansion to the earned income tax credit since 2009.”

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The relief law also extends the federal boost for unemployment benefits as well as food stamps and other aid programs for struggling renters and homeowners throughout the country. The overall goal of this relief package was to specifically help lower-income households who have been hit the hardest by the pandemic. 

According to the Tax Policy Center “the bottom 20% of taxpayers will receive a 20.4% boost in after-tax income and a $2,850 reduction in federal taxes, on average, from the relief law. The next group will see a 9.3% increase in after-tax income and $3,260 decline in federal taxes. However, the top 20% will experience only a 0.7% bump in after-tax income and a $1,900 decrease in tax levy, with the top 1% seeing essentially no change.”

“In contrast, the Republicans’ tax cuts heavily benefited higher-income Americans. The top 20% and the top 1% both received a 2.2% boost in after-tax income and saw their federal tax bills decline by nearly $5,800 and by $32,650. Meanwhile, the lowest 20% received only a 0.3% bump in after-tax income and a $40 break in federal taxes. The second quin-tile got a 1% income boost and a $320 reduction in their tax bill,” the Tax Policy Center found.

Biden has called for tax increases on the wealthier to help finance his family plan meant to benefit lower-earning households. It’s currently uncertain whether or not that proposal will pass, but it’s expected to be unveiled this week regardless.