March 2, 2021
WRITTEN BY:
Melinda Head

American Rescue Plan Act of 2021

The success of this initiative requires Americans to spend money to drive the economy past the current pandemic crisis, so America returns to prosperity. We lay it out for you in an easy-to-understand way

“I see enormous pain in this Country. A lot of folks out of work. A lot of folks going hungry.” (President Biden).

On Friday, a third stimulus package was approved by the House so that it can advance to the Senate, where our ultimate lawmakers will be charged with turning the American Rescue Plan Act of 2021 into law.

Previous stimulus packages were also large, but much of the money was directed at businesses, not all necessarily small ones.

Steve Mnuchin
Article - Public Companies Received $1 Billion in Stimulus Funds Meant for Small Businesses

Once President Biden has signed the bill, within a few weeks $1,400-$5,600 will be in the hands of single Americans earning less than $75,000 per year and married couples earning less than $150,000 per year - those who need help the most.

Democrats are rooting for ink to be put to paper in the White House before March 14th, when unemployment insurance benefits expire, and many Americans will be in serious trouble. The idea, this time around, is to put money into the pockets of families, so they can put food on the table, have secure housing and cover basic necessities that have fallen to the wayside during COVID.

Faced with historically high unemployment rates (excluding those who have exited the job market or workers who have had their hours reduced), the new Administration believes that the People need help, and that financial support will contribute to strengthening the economy through spending. During the Great Depression unemployment reached as high as 25%; in April 2020, it peaked at just under 15% and now sits just above 6% (compared to 3.5% pre-pandemic).

The Covid-19 pandemic could cost over 25 million jobs
Article - The Covid-19 Pandemic Could Cost Over 25 Million Jobs

I did a reality check with Jason R. from Greensboro, NC last week. A father of 3 teenage boys, he was previously self-employed, and his business dried up last spring. He now delivers food, 15 hours per day, every day. Jason relies on tips from his deliveries, as wages barely cover the expense of running his vehicle. As you can imagine, food insecurity has been a real struggle - feeding 3 teenage boys is not inexpensive. Topping up at food banks has caused Jason to suffer great humility. But he’s a good father and is determined to do whatever is necessary for his family.

Article - Families Strained by the Pandemic Are Turning to Food Banks Struggling to Keep Up
Article - Families Strained by the Pandemic Are Turning to Food Banks Struggling to Keep Up

There are numerous other components to the $1.9 trillion Biden Plan, including:

- An unemployment boost of $400 per week

- A 15% increase in food stamp benefits

- Funds for families who live below 185% of the federal poverty level

- An expansion of the Child Tax Credit to $3,600 for children under 6 and $3,000 for children under 18

- Housing assistance to help cover late rent payments, rental assistance programs, utilities, and other housing assistance to unemployed, at-risk, low-income households and the homeless

- Mortgage payment assistance

- Financial aid for vaccines, testing, contact tracing and mitigation (risk reduction)

- Paid sick leave related to COVID situations

- School reopening funds

- Grants for small businesses and more targeted business initiatives

- Funds for local governments faced with higher expenses and lower revenues

For someone like Jason, this means more cash will be put directly in his pocket, so he can take care of his family. He says he will use this assistance to partially catch up on the rent and utility bills he has fallen behind on, which are a constant source of anxiety.

No Job, No Rent Banner

“It is big and it’s bold and it’s a real answer to the crisis we’re in. The biggest risk is not going too big, it’s if we go too small.” (President Joe Biden)

President Biden
President Biden

Where will this $1.9 trillion stimulus package come from? After all, that’s a lot of money. Will the U.S. Government just print more money? Will it go into massive debt and crush future opportunities? Should we be worried?

“We are in a war. The whole point of not relying on debt excessively in normal times is precisely to be able to use debt massively and without hesitation in situations like this.” (Kenneth Rogoff, Economist, Harvard University)

Money provided by the U.S. Government can come from a variety of means, but the bottom line is that it will need to be repaid.  Thankfully, interest rates are at an all time low, at least making the debt load and repayment easier to handle.

National Debt Clock
National Debt Clock

Now comes the question of how long it will take to pay back all this money the Government will be using to kick-start the economy. There is no doubt that it will take a long time and can be achieved by raising taxes and/or cutting government spending. A large cut back in spending would, however, likely lead to a recession and, as a result, there would be a need for more money to be injected into the economy; it’s a double-edged sword and never a popular path to take.

Some say that the key to managing the current pandemic situation is for inflation to remain low, so interest rates remain low. The Brookings Institution has estimated that GDP (Gross Domestic Product – a measure of economic progress) could reach healthy pre-pandemic levels by the end of 2021 with the soon-to-be-approved stimulus package, while the Congressional Budget Office says it would take until 2025 to return to full employment without Government relief.

“As long as the GDP grows faster than interest payments, we should be just fine.” (David Wilcox, Economist, Peterson Institute)

These are extreme measures in unprecedented times. Hoping for the best is not good enough. Someone has to navigate the ship.

“To me, this is what this moment comes down to. Are we going to pass a big enough package to vaccinate people, to get people back to work, to alleviate suffering this year? Or are we going to say to millions of Americans who are out of work, “Don’t worry, hang on. Things are going to get better, but we’re going to go smaller, so it will take us a long longer … I can’t, in good conscience, do that.” (President Joe Biden)

Take your $1,400-$5,600 and spend it. That’s what it is for. If you can, spend it locally. Put the money back into your community, into your neighborhood. Give people like Jason and his family a fighting chance to make it through this crisis. If you do so, the economy will grow and all Americans will benefit from this critically important, collective effort.

Bakery Case

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About the Author

Melinda, a serial entrepreneur, is a sociologist and statistician. She believes there is no currency with greater value than knowledge.

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