American Rescue Plan Act of 2021

The American Rescue Plan Act of 2021 was a $1.9 trillion economic stimulus bill passed by the US Congress and signed into law by President Joe Biden on March 11, 2021. It was aimed at bolstering ongoing economic recovery efforts in the midst of the global COVID-19 pandemic. The Act followed on the heels of several earlier economic relief packages, including the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 and the Consolidated Appropriations Act of 2021. It included a wide variety of measures intended to provide Americans with additional much-needed relief from the economic burden created by the pandemic, such as direct $1,400 stimulus payments, an extension of unemployment compensation, a continuation of eviction and foreclosure moratoriums, an increase to the Child Tax Credit, and more. After first being introduced in the House of Representatives in late February 2021, the bill was successfully passed both there and in the Senate with no Republican support and ultimately became law exactly one year after the World Health Organization (WHO) first declared COVID-19 a global pandemic.

Background

The American Rescue Plan Act of 2021 and the similar stimulus bills that preceded it were necessitated by the severe economic effects of the COVID-19 pandemic. COVID-19 is a form of coronavirus that was first detected in human patients in late 2019. The initial outbreak occurred in Wuhan, China, where scientists quickly identified what was at first an unknown, rapidly spreading illness as a new type of coronavirus officially called SARS-CoV-2. Highly contagious, COVID-19 spread throughout China and around the world within a matter of weeks. The first documented case of COVID-19 in the United States was reported in late January 2020. Two months later, WHO officials formally declared COVID-19 a global pandemic. By that time, a growing number of American cases of COVID-19 forced government leaders to take drastic measures in hope of slowing the spread and preventing a potentially disastrous collapse of the US health care system. These measures included a large-scale shutdown of the American economy and the implementation of mask mandates and social distancing protocols in many states.

The massive economic impact of the COVID-19 pandemic was felt almost immediately. As soon as social distancing protocols were put in place, restaurants, bars, theaters, and other locations where people typically gathered in large number were forced to shut down or shift to only pick-up and delivery service where possible. People were encouraged—and required by law in some cases—to stay at home and avoid going out in public for anything other than essential needs.

These shutdowns, which lasted for extended periods and could only be gradually reduced due to continuing safety concerns, had profound economic consequences. By April 2020, the unemployment rate exceeded 14 percent. Worse yet, it did not drop below 10 percent again until August. Further, the US gross domestic product declined more than 4 percent in the first quarter and declined again by more than 30 percent in the second quarter. The transportation industry also took a major hit as people stopped travelling and spent most of their time at home. The number of daily airline passengers dropped dramatically in the early stages of the pandemic, falling from more than a million in early March to fewer than one hundred thousand just a month later. Car sales also plummeted for a time. All of this ultimately led to an unprecedented gasoline glut. The US economy suffered greatly as a result of the COVID-19 pandemic and Americans across the nation quickly found themselves in dire need of financial support.

Overview

Repairing the pandemic-ravaged US economy required the passage of several stimulus packages as the fight against COVID-19 continued through 2020 and into 2021. The first of these was the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act. Passed in March 2020 as a way of addressing the immediate economic concerns that arose in the early stages of the pandemic, the CARES Act was designed to provide financial support for individuals, families, large and small businesses, gig workers, independent contractors, and hospitals. Among other things, it authorized direct payments of $1,200 per adult and $500 per child, established a $367 billion loan and grant program for small businesses, and provided emergency financial support for hospitals, airlines, and state and local governments.

The CARES Act was followed in December 2020 by the Consolidated Appropriations Act (CAA) of 2021. The CAA was a $900 billion stimulus plan that was attached to a $1.4 trillion omnibus spending bill. It included direct payments of $600 to individuals, $300 per week in additional jobless benefits, $80 billion worth of funding for schools, $330 billion in small business loans, and $69 billion allocated for the development and deployment of COVID-19 vaccines. Even after the CARES Act and the CAA, however, it was clear that Americans still needed additional relief.

The federal government’s third major economic stimulus bill, the American Rescue Plan Act of 2021, extended some aspects of the CARES Act and the CAA while also introducing a number of new recovery strategies. The component the Act most shared in common with its predecessors—and likely the one of greatest interest to most Americans—was its direct stimulus payments. The Act provided funds for direct stimulus payments of $1,400 to all individuals making $75,000 or less per year and couples making $150,000 or less annually. Smaller payments were made available for individuals making between $75,000 and $80,000 per year.

The Act also extended previously established Pandemic Unemployment Assistance (PUA) benefits of $300 per week and Federal Pandemic Unemployment Compensation (FPUC) benefits of $300 through September 6, 2021, and increased the total number of weeks one could claim these benefits to seventy-nine. The Act also established that the first $10,200 of 2020 unemployment benefits would be considered tax-exempt. Finally, the Act included a full subsidy of COBRA health insurance premiums to keep unemployed workers on their employer health care plans.

Although the Act did not extend the previously established eviction and foreclosure moratoriums beyond their March 31, 2021, expiration date, it did provide funding meant to help people who were behind on their housing payments and utility bills. Some of this funding included $21.55 billion for emergency rental assistance, $5 billion in emergency housing vouchers, $100 million for tribal housing improvements, $100 million for rural housing, and $5 billion to assist people experiencing homelessness.

Another key part of the Act was focused on increasing food aid. Specifically, it extended the 15 percent increase in Supplemental Nutrition Assistance Program (SNAP) benefits through September 30, 2021, and provided states with $1.15 billion in SNAP funding through September 30, 2023. The Act also provided $1 billion to fund various nutrition assistance programs, $490 million to increase the amount of cash-value Women, Infants, and Children (WIC) program vouchers, and $390 million to boost WIC participation.

One of the Act’s most important features was its expansion of the Child Tax Credit. The Act increased the Child Tax Credit maximum to $3,000 per year for each child aged six to seventeen and $3,000 for each child younger than six for couples making less than $150,000 and single parents making less than $112,500 annually. The Act also established that Child Tax Credit funds would be paid on a monthly basis for up to one year.

Education was also among the Act’s major focuses. It allocated $122 billion in K-12 education funds meant to be used to help schools reopen with all necessary safety measures in place. An additional $40 billion was earmarked for colleges and universities so that these institutions could provide students with emergency financial aid grants. Child care providers and the Head Start program also received additional funding through the Act.

The Act also introduced the Restaurant Revitalization Fund, a $28.6 billion program aimed at helping bars and restaurants get back on their feet after enduring a series of pandemic-driven shutdowns. Further, the Act offered help to other businesses by putting another $7.25 billion into the Paycheck Protection Program (PPP) and extended the program’s application deadline.

Government organizations also received funding through the Act. A total of $350 billion in aid was provided to state and local governments, tribal governments, and US territories. This funding was intended to help governments make up for the tax revenue they lost during the pandemic.

In addition to supporting the nation’s economic recovery from the pandemic, the Act was also designed to help fight COVID-19 itself. It provided approximately $50 billion for additional COVID-19 testing and contact tracing and roughly $16 billion for the funding of vaccine distribution and supply chains. An additional $7.66 billion was included to expand the public health workforce. On top of all that, the Act provided $47.8 billion for the expansion of both laboratory capacity and federal, state, and local COVID-19 testing. Another $14 billion was included to increase the speed of COVID-19 vaccine distribution and administration nationwide.

While the U.S. economy and citizens benefitted tremendously from the American Rescue Act of 2021, negative side-effects also became apparent in subsequent years. In addition to significant increases to the federal deficit, the passage of the American Rescue Act of 2021 contributed to high levels of persistent inflation. By 2022, inflation had reached levels of over 8%, the highest in the United States in four decades.  There were other contributory factors to this historic inflation, primarily COVID-19. Many people chose to exit the workforce during the pandemic and not return.  This resulted in labor shortages, which allowed workers to secure increased wages.  This situation, in turn, drove up consumer demand for goods and services while COVID-19 simultaneously stressed global supply chains. Thus in the United States, the infusion of stimulus funds such as the American Rescue Act, while helping to forestall an economic depression, had the negative impact of producing about half of its rise in inflation.

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