Congress has just agreed to send many $ 600 checks to people who don’t need them, and in a rush to get another round of checks out the door, it misses a far better opportunity to address that relief in a more meaningful way by he’s just waiting a few more weeks.
The final round of stimulus checks, like the first round, is tied to 2019 taxable income (individuals earning less than USD 75,000 or USD 150,000 for married couples were given the full amount, which expired as taxable income increased). This was a quick and easy way to get payments instantly, and it made sense back in April 2019 when most Americans were filing or completing their 2019 tax returns and no one knew what the rest of 2020 had in store.
Six months later, when we are only a few days to the end of 2020, it seems absurd to still look back on 2019 taxable income as an indicator of the need for future relief. The result is an approach that is both overly comprehensive (sending checks to those not financially affected by the pandemic) and under-comprehensive (no increase in payments for those most financially affected).
Although many Americans won’t file their 2020 tax returns until February or March 2021, using their 2020 taxable income when calculating a third round of payments could allow for a much fairer allocation of funds for those who need it most.
In particular, the next round of stimulus payments should concern the 2020 tax return. For example, consider the following three married couples where each spouse earned $ 60,000 in 2019, resulting in total taxable income of $ 120,000 in 2019 on their joint tax return.
- Pair 1: Both spouses kept their jobs and their taxable income in 2020 was equal to or higher than 2019.
- Pair 2: Spouse A kept their job while Spouse B lost their job but was eligible for unemployment benefit (which is included in taxable income), and the couple’s income for 2020 only decreased by $ 10,000 from 2019 to 2020.
- Pair 3: Spouse A kept their job, but Spouse B lost their job or had to stay home to look after children from March 2020 and was not eligible for unemployment benefits. Your taxable income has decreased from $ 120,000 in 2019 to about $ 70,000 in 2020 ($ 60,000 for the full-time spouse and $ 10,000 for the spouse who became unemployed in March).
Both the first and second round of stimulus checks direct full payment to each of these three couples (assuming they all have the same number of dependent children), although couple 1 is actually doing better now than in 2019, couple 2 is fine, thanks to the success of increased and expanded unemployment benefits (which Congress should continue), and couple 3 are likely to be in trouble after seeing a nearly 60 percent drop in annual income in 2020.
If we want to easily target financial aid to those hardest hit by the pandemic, we should compare taxable income in 2019 to taxable income in 2020 and direct stimulus payments directly to those who are in 2020 have actually seen a significant drop in their annual earnings. Easy way to quickly identify those who have suffered the greatest financial setbacks in 2020 and are likely to need additional financial incentives most urgently.
In the examples above, by not sending a check to Couple 1, we can redirect that money to provide higher payments to Couple 3 and others who have faced the most dramatic financial setbacks in 2020. It also takes into account the extent to which individuals have already done so and has been supported by other programs such as B. increased unemployment benefits (e.g. couple 2).
Future stimulus checks could be paid as a percentage of the difference between 2019 and 2020 income. For example, Congress could approve a third round of payments equal to 20 percent of the “lost” income from 2019-2020. In this situation, pair 3 went from $ 120,000 to $ 70,000, or a “loss” of $ 50,000 and could receive a check. That equates to 20 percent of that amount or $ 10,000 – which will go much further to get pair 3 back “whole” close. While this method would not completely solve the under- and over-inclusivity problem, it would certainly be a more accurate method than basing future stimulus payments on 2019 or 2020 taxable income only.
In addition, Congress should consider doubling or significantly increasing both the child tax credit (which offers up to $ 2,000 per qualified dependent child under 16 years of age at the end of the calendar year) and the earned income tax credit (the one substantial support for low and middle income workers and families). Parents of young children are particularly hard hit by the pandemic. School closings have forced some parents to either quit their jobs or take extended periods of absence to stay at home with children who would otherwise be in school. Others have already spent significant costs on hiring private tutors and supervisors, buying laptops for distance learning, and may have future costs to help students who “lagged” during distance learning or need advice to keep up with Overcome the mental and emotional trauma associated with the pandemic. In addition, those in the lowest income brackets are particularly hard hit by the pandemic and often have the fewest resources to deal with unforeseen costs. Doubling these two tax credits for 2020 would bring a significant financial boost to those likely to face the most challenging ones this year and is also relatively easy to manage.
While these solutions would certainly still exclude many people suffering from financial setbacks (e.g. 2020 college graduates trying to find work during a pandemic), this would be a much more precise way of making future stimulus payments to those address those hardest hit by the COVID-19 crisis than what Congress used for the first two economic rounds.
Christina Rice is the director of the Graduate Tax Program at Boston University School of Law and an expert in tax law and tax policy.